Schwartzreich v. Baum-Basch
Citation and Court
Schwartzreich v. Baum-Basch, Inc., 231 N.Y. 196 (N.Y. 1921)
Facts
Schwartzreich had a contract to work for Baum-Basch for one year at 100 per week. The parties tore up the old contract and signed a new one at the higher salary. Baum-Basch later breached, and when sued, argued the modification was unenforceable for lack of consideration because Schwartzreich was already obligated to work.
Issue
Whether a modification of an employment contract is enforceable where the parties simultaneously rescinded the prior agreement and entered into a new one at a higher salary.
Holding
The New York Court of Appeals held the modification enforceable because the mutual rescission of the original contract provided consideration for the new agreement; each party gave up rights under the old contract, which constituted consideration for the new terms.
Rule / Doctrine
A contract modification is enforceable when the parties simultaneously rescind the existing contract and enter into a new one. Because rescission itself involves an exchange of obligations (each party surrenders rights under the old contract), the mutual rescission and re-formation constitutes valid consideration for the new terms, avoiding the pre-existing duty rule.
Significance
Establishes the “rescission and re-formation” technique as a way to achieve enforceable contract modifications under common law without running afoul of the pre-existing duty rule. Contrasts with cases like Flowers v. Diamond Shamrock Corp. where modification lacked consideration. Relevant to the UCC § 2-209 no-consideration rule for goods contracts.