Schwartzreich v. Bauman-Basch, Inc.
231 N.Y. 196 (1921)
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Rule of Law:
A new contract that modifies a pre-existing contract is enforceable if the parties mutually agree to rescind the original contract, even if the rescission and execution of the new contract occur simultaneously.
Facts:
- On August 31, 1917, Louis Schwartzreich entered into a one-year employment contract with Bauman-Basch, Inc. to work as a designer for $90 per week, starting on November 22, 1917.
- In October 1917, before his employment began, Schwartzreich received a higher-paying job offer from another company.
- Schwartzreich informed Mr. Bauman of Bauman-Basch, Inc. that he intended to accept the other offer and leave.
- To induce Schwartzreich to stay, Bauman offered to increase his salary to $100 per week for the same work and period.
- On October 17, 1917, Schwartzreich and Bauman-Basch, Inc. executed a new written contract identical to the first, except for the salary, which was now $100 per week.
- Simultaneously with the signing of the new contract, the parties mutually agreed to cancel the original August 31st contract, and the signatures on the old document were torn off.
- Schwartzreich began working for Bauman-Basch, Inc. under the new contract.
- In December 1917, Bauman-Basch, Inc. discharged Schwartzreich.
Procedural Posture:
- Louis Schwartzreich brought an action for damages against Bauman-Basch, Inc. in a New York trial court following his discharge.
- A jury rendered a verdict in favor of Schwartzreich.
- The trial justice set aside the jury's verdict and dismissed Schwartzreich's complaint.
- Schwartzreich appealed to the Appellate Term (an intermediate appellate court), which reversed the trial justice's ruling and reinstated the jury's verdict.
- Bauman-Basch, Inc. appealed to the Appellate Division of the Supreme Court of New York, which affirmed the decision of the Appellate Term.
- Bauman-Basch, Inc. then appealed to the Court of Appeals of New York, the state's highest court.
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Issue:
Is a subsequent contract modifying an existing employment agreement enforceable when the parties mutually agree to rescind the original contract at the same time the new contract is executed?
Opinions:
Majority - Crane, J.
Yes. A subsequent contract modifying an existing employment agreement is enforceable if the original contract is mutually rescinded by the parties. The pre-existing duty rule holds that a promise to perform a duty one is already contractually bound to perform is not valid consideration. However, that rule does not apply when parties mutually agree to cancel an existing contract and substitute a new one. The mutual promises within the new agreement—the employer's promise to pay the new salary and the employee's promise to perform the work—serve as valid consideration for each other. The determining factor is the mutual consent to rescind the prior agreement, and it is immaterial whether the rescission occurs a moment before or at the same time as the execution of the new contract.
Analysis:
This decision carves out a significant and practical exception to the pre-existing duty rule in contract law. It establishes that parties have the freedom to modify their agreements, even without new consideration beyond the modified promises, so long as they first mutually agree to terminate the old agreement. This holding validates contract modifications based on the clear intent of the parties to rescind and replace, emphasizing mutual assent over a rigid application of the consideration doctrine. It provides a formal pathway for parties to adapt their contracts to changed circumstances without the new agreement being void as a mere promise to pay more for the same service.
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