Modifications : Contract Law

150 150 tony
    1. Modifications
      1. Rst. 2d, Sec. 73: “Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration”
        1. Basically, a pre-existing duty cannot serve as consideration
        2. This generalized principle in many instances turns out to be very doubtful, and in any case, it is also not clear that the doctrine of consideration, whatever its utility in judicial supervision of the formation of contracts, is also necessarily relevant to their subsequent modification.
        3. Courts are hesitant to apply this rule when unanticipated difficulties arise and the other party, not influenced by coercion or duress, voluntarily agrees to the amendments.
      2. UCC §2-209(1).
        1. An agreement modifying a contract [for the sale of goods] needs no consideration to be binding.
        2. A signed agreement which excludes modification or rescission except by a signed writing cannot otherwise be modified or rescinded, but except as between merchants, such a requirement on a form supplied by the merchant must be separately signed by the other party.
        3. The requirements of the statute of frauds must be satisfied if the contract as modified is within its provisions
        4. Although an attempt at modification or rescission does not satisfy the requirements of (2) or (3) it can operate as a waiver.
        5. A party who has made a waiver affecting an an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.
      3. Angel v. Murray
        1. Facts: Δ entered a K with the city to collect garbage for a fee. Δ later asked the city to increase the fee paid to him to cover an unexpected increase in garbage to be collected. The city obliged. Π, a citizen of the city, sues Δ, a garbage collector company for repayment of fees paid to the latter by the city claiming a lack of consideration.
        2. Issue: is consideration necessary for modification?
        3. General rule: A modification of a contract is itself a contract, which is unenforceable unless supported by consideration.
          1. Pre-existing duty rule (Prof. points out the pre-existing duty rule): an agreement modifying a contract is not supported by consideration if one of the parties to the agreement does or promises to do something that he is legally obligated to do or refrains or promises to refrain from doing something he is not legally privileged to do.
            1. Primary purpose of rule is to prevent the “hold-up” game (CB 338; Prof. also mentions “hold-up” game): basically, where an agreement has been procured by coercion or duress, a court will not enforce it, and will hold the parties to their original contract whether it is profitable or unprofitable.
            2. The modern trend appears to recognize the necessity that courts should enforce agreements modifying contracts when UNEXPECTED AND UNANTICIPATED DIFFICULTIES ARISE during the course of the performance of a contract, even though there is no consideration for the modification, as long as the parties agree voluntarily.
          2. Reflected in Rst. 2d, Sec 89D(a): “A promise modifying a duty under a contract not fully performed on either side is binding (a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made.”
            1. (Prof points out the three-pronged standard): Sec. 89D(a) does not compel modification of an unprofitable or unfair contract; it only enforces a modification if the parties voluntarily agree and if (1) the promise modifying the original contract was made before the contract was fully performed on either side; (2) the underlying circumstances which prompted the modification were unanticipated by the parties; and (3) the modification is fair and equitable.
          3. U.C.C. 2-209(1): “an agreement modifying a contract for the sale of goods needs no consideration to be binding.”
            1. The comments to this section indicate a modification under this section must meet the test of good faith imposed by the Code, and a modification obtained by extortion w/out a legitimate commercial reason is unenforceable
        4. Result: The volume of garbage had risen unexpectedly and substantially. The modification to the contract was made during a time when the contract had not been fully performed. Therefore, the decision to pay the additional fees was fair and equitable.
      4. Brookside Farms v. Mama Rizzo’s, Inc.
        1. Facts: Π entered K with Δ to sell basil as Δ required. Δ agreed to buy a minimum over a year. Π and Δ agreed to a series of modifications over the months as Δ’s needs and financial situation changed. Δ then bounced a payment check. Π brings suit because Δ did not purchase the minimum amount over the year. Δ counters that Π raised the prices in violation of the K’s express language that no modifications would be made unless in written form.
        2. D’s motion DENIED; P’s motion for partial summary judgment is granted in part (D is liable to P for $20,526.75 as payment for the 3,041 pounds of basil accepted but not paid for; and D is liable to P for a material breach of D’s obligation to purchase a total of 91,000 pounds of basil from P); and denied in part (no attorney’s fees).
          1. Held, the modifications to the written contract were valid.
          2. Statute of Frauds: the contract in dispute falls within the Statute of Frauds
            1. Prof. asks why? TX has a statute that says, once you’re in a contract that falls under the SOF, all modifications are subject to the SOF (even if the modifications fall under the $500 limit, for example). And, furthermore, the contract itself created a “private” SOF by requiring all modifications to be in writing. (General rule: Oral agreements that materially modify a written agreement within the SOF are NOT enforceable)
            2. Not all modifications are prohibited. THREE Exceptions:
              1. If the oral changes do not materially alter the underlying obligations, they are not barred.
              2. TX has adopted the doctrine of promissory estoppel in some cases to forbid reliance on the SOF as a defense to the validity of oral agreements.
                1. Specifically, where one party reasonably relies on the oral promise of another to reduce an oral agreement to writing, the failure to create such a writing will not prevent the relying party from taking the modification out of the SOF.
                2. Rst., Sec. 178, Comment F: “A misrepresentation that there has been such satisfaction [of a writing] if substantial action is taken in reliance on the representation, precludes proof by the party who made the representation that it was false.”
              3. TX has adopted an exception to the SOF contained in the UCC 2-201, which states in part “c. A contract which does not satisfy the requirements in subsection a. [general SOF provision] but which is valid in other respects is enforceable…(3) with respect to goods for which payment has been made and accepted or which have been received and accepted.”
                1. So, an oral modification that would itself form a binding contract in the absence of SOF considerations can be binding on the parties to a sale of goods over $500 insofar as the goods have been received and accepted.
          3. In the instant case, Court finds that a valid oral modification of the contract b/w D and P occurred on both ESTOPPEL and STATUTORY (UCC) grounds.
            1. W/ regard to estoppel: The promised notations would have constituted a valid written modification of the contract’s terms, and P could have reasonably relied on D’s implied promise to initial or sign the price change to indicate its intent to adopt the change
            2. D’s promise induced P to continue shipping basil at the agreed price changes.
            3. Prof. asks, how did the court extend the initial writing for .50 cents extra, which the court finds to be enforceable, to the much-heightened price later on? A course of performance argument would have been much stronger; the court used a good faith and fair dealing argument.
          4. UCC 2-201(3)c: “A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable…with respect to goods for which payment has been made and accepted or which have been received and accepted.” Very important in this case–MRI accepted and made payment of the basil leaves.
          5. When we think about this case, remember the Lige v. Oil case–where the courts were split as to whether promissory estoppel could be used to cancel out the SOF. In the Lige case, the court refused to use estoppel, but in the instant case, they did allow estoppel to circumvent where the SOF would usually control.
        3. Held: While the K’s no waiver clause prevents oral modification, other legal theories (noted in (b) and (c)) allow for the modifications. Δ breached, so Π is awarded damages.