Contract Law: Existing Duty Rule and Consideration

This case study explores the legal implications of the existing duty rule and consideration in contract law through the example of Visit Victoria and Gareth. It discusses the importance of consideration in contracts and how the existing duty rule applies to new promises. The case also examines exceptions to the rule and how it can be counteracted in certain situations. The conclusion provides a clear answer to the issue at hand and explains the reasoning behind it.

Running Head: Contract law 1
Contract Law

Contract law 2
Issue:
Whether Visit Victoria is under any obligation to make extra payment to the Gareth in lieu of
supply of car, and whether there is any difference in the situation if tourist does not come
because of the volcanic explosion?
Law:
The most important section in the contract entered between the parties is the consideration, and
under this law consideration is defined as an “act or forbearance of one party, or the promise
thereof, is the price for which the promise of the other is bought, and the promise thus given for
value is enforceable". Consideration is considered as very important in the eyes of law because
of the fact that without consideration promise will suffer disadvantage and promisor will get the
undue advantage or vice versa. Consideration also helps the judges of the Courts in deciding the
contract validity entered between two parties such as whether contract is binding or not. One of
the most important part of the consideration is the Existing duty rule (ACL, n.d.).
Existing duty rule is considered as the branch of consideration in the law which clearly states
that if the promise is offered by offeree and such promise is not different from the original
building promise, then it is not considered as new promise and such subsequent promise will not
be binding on the parties to the contract. This rule further stated that such consideration is not
considered as the good consideration if one person is already under a duty to do something, and
person is under obligation to fulfill his duty even though new money is offered (Giancaspro,
n.d.). This can be understood through case law Stilk v Myrick, 1809 2 Camp 317; [1809] EWHC
KB J58, 170 ER 1168 under which additional money was promised to be given for the purpose
of completing the obliged job, which was stated under the original contract. As stated by the
Court because of the original contract which is binding on the parties there was no need to give
additional money for the purpose of originally made promise.
It must be noted that this rule has its own strength and weakness from the beginning. Weakness
related to this is clearly reflected at the time when promise to make additional payment is not
clearly binding on the parties and because of this it is not enforceable. It’s made the promisor
not to be legally bound by his or her promise. Because of this rule promise does not get any
legal rights to sue the promisor for promise made by him/her (ACL, n.d.).

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This rule was mainly formed for helping the Courts to decide whether new promise made by
promisor is binding or not, but there are some exceptions also and these exemptions are depend
on the situations of the cases. Presently, this rule is considered as the blunt instrument which
mainly invalidates the 'non extortive and also extortive re-negotiations'. Some other ways are
also found by the Court which counter this rule such as if any particular situations justify he
demand for additional benefit, then such consideration is considered as the good consideration.
Judges also stated the argument that might be there is no need to modify the original contract
and that new promise is validate by making new contract between the offeror and offeree of the
new promise (Uni Study guides, n.d.).
This rule comes into existence because of the precedent case the Stilk v Myrick, 1809 2 Camp
317; [1809] EWHC KB J58, 170 ER 1168. As stated before, additional money was promise to
provide to seamen for the purpose of deserting the ship. In this case, Court stated that captain
was not bound to make any payment to the seamen and stated that it was the duty of the seamen
to sail the ship back to the port. Therefore, even promise was made by the captain but such
promise cannot be considered as new promise because seamen were just doing for what they
were bound under original contract.
This rule related to the existing duty mainly stated that no clear additional benefit was implied
and because of this promise was of no legal binding power. It must be noted that traditional
approach related to this rule was simple, which state that new promise must be dissimilar from
the old promise, and if new promise is not dissimilar then such promise is not valid in the eyes of
law. After some sometime, exemptions related to this rule was also stated by the court. Judges in
the Court stated that under some particular and right situations it is possible to give new
consideration under new promise (Kuklik, 2017).
However, it must be noted that position is completely different when promisee is contractually
bound to any third party for the purpose of his obligation. In other words, when the promise
owned any contractual towards the third party, then performing or promising to perform that
duty can be considered as good consideration for the new promise made by promisor. This can
be understood through case law, Pao On v Lau Yiu Long, [1979] 3 WLR 435. In this case, Court
stated that there was good consideration here, as any act done before the promise can be

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considered as the good consideration in some particular cases. Particularly, an act is considered
as good consideration if it is done at the request of the promisor.
Application:
In the present case, Gareth enters into contract with Visit Victoria to provide 8 cars per day for
the purpose of taking the visitors to the tourist spots. After some time, because of the increasing
cost Gareth denied to provide cars to the Visit Victoria at same cost from the following day. On
the following dates, Visit Victoria expected huge number of customers and they fail to make
alternative arrangements to pick the customers. Because of this Visit Victoria agreed to pay
extra $50 to the Gareth for the cars and Gareth agreed to provide services.
In this case, existing duty rule is applicable and as per this rule if the promise is offered by
offeree and such promise is not different from the original building promise, then it is not
considered as new promise and such subsequent promise will not be binding on the parties to the
contract. Such consideration is not considered as the good consideration if one person is already
under a duty to do something, and person is under obligation to fulfill his duty even though new
money is offered. Exemption was stated in case William v Roffey Bros & Nicholls. In this case,
Court stated that new promise was valid because this consideration was given to the plaintiff for
finishing his work on time even though when he is in financial difficulties (ACL, n.d.).
One more case law is also there that is Pao On v Lau Yiu Long. In this case, Court held that there
was good consideration, because any act committed before the promise can be held as the good
consideration in some particular cases. Particularly, an act is considered as good consideration if
it is done at the request of the promisor. In other words, position is completely different when
promisee is contractually bound to any third party for the purpose of his obligation.
In the present case, Visit Victoria owned contractual duty towards the third party, and
performing or promising to perform that duty can be considered as good consideration for the
new promise made by promisor. Therefore, Visit Victoria is liable towards the Gareth to make
extra payment.

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In second approach situation is completely different and existing duty rule is applied because
Visit Victoria does not owned contractual towards the third party. Some other cases are also
there such as Watkins & son v Carrig, Wigan v Edwards, and Collins v Godefroy in which
Court stated rule related to existing duty was present in situations when plaintiff must not avail
the benefit solely because of the understanding of the judge and for deciding whether new
promise was valid legally. In this, Visit Victoria does not hold liable to make extra payment to
Gareth.
Conclusion:
Visit Victoria is liable towards the Gareth to make extra payment beacsue Visit Victoria owned
contractual duty towards the third party, and performing or promising to perform that duty can be
considered as good consideration for the new promise made by promisor. Therefore, Visit
Victoria is liable towards the Gareth to make extra payment. In second approach situation is
completely different and existing duty rule is applied because Visit Victoria does not owned
contractual towards the third party. In this, Visit Victoria does not hold liable to make extra
payment to Gareth.

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References:
ACL. Consideration. Available at: https://www.australiancontractlaw.com/law/formation-
consideration.html#existingduty. Accessed on 20th April 2018.
ACL. Pao On v Lau Yiu Long, [1979] 3 WLR 435. Available at:
https://www.australiancontractlaw.com/cases/pao.html. Accessed on 20th April 2018.
ACL. Stilk v Myrick, 1809 2 Camp 317; [1809] EWHC KB J58, 170 ER 1168. Available at:
https://www.australiancontractlaw.com/cases/stilk.html. Accessed on 20th April 2018.
Uni Study Guides. Consideartion. Available at:
http://www.unistudyguides.com/wiki/Consideration. Accessed on 20th April 2018.
Collins v Godefrey (1831) 1 B & Ad 950.
Giancaspro, M. The Rules for Contractual Renegotiation: A Call for Change. Available at:
http://www.austlii.edu.au/au/journals/UWALawRw/2014/1.pdf. Accessed on 20th April 2018.
Kuklik, A. (2017). Law of Contract. Available at:
https://sydney.edu.au/lec/subjects/contracts/Summer%202016-17/LPAB%20-%20Contract%20-
%20Summer%202016%20-%20Lecture%203.pdf. Accessed on 20th April 2018.
Pao On v Lau Yiu Long, [1979] 3 WLR 435.
Stilk v Myrick, 1809 2 Camp 317; [1809] EWHC KB J58, 170 ER 1168.
Watkins v. CARRIG, 91 N.H. 459 (N.H. 1941).
Wigan v Edwards, (1974) 1 ALR 497.
Williams v Roffey Bros and Nicholls (Contractors) Ltd, (1990) 1 All ER 512.