Contracts II: Modifications

Contracts II Class Notes - Contract Modifications

Agenda

• Overview of contract modifications under common law and UCC.
• Discussion of relevant statutes and case law.

1. Common Law

• Rules:
• Restatement (Second) of Contracts § 73, 89
• Case Illustration: Alaska Packers

2. Modifications Under Article 2 of UCC

• Rule: UCC § 2-209
• Case Illustration: Brookside Farms v. Mama Rizzo’s, Inc.

3. Problem 8-4

• Examination of enforcement issues regarding modifications.

Issue Spotting

• Modifications after a contract (K) is formed.
• One party seeks excuse for nonperformance due to the alleged unenforceability of the modification.
• Analyze enforceability of modifications.

Modifying Common Law Contracts

• General principles of contract formation apply:
• Mutual assent (offer and acceptance)
• Possible requirement of signed writing (Statute of Frauds - SOF)
• Consideration is typically required for enforceable modifications.
• Traditional Rule:
• Requires independent consideration for modifications to be enforceable, referred to as the pre-existing legal duty rule (Rest.2d § 73).
• Rationale: Prevents coerced modifications.
• Note: UCC § 2-209 changes this requirement for the sale of goods.

Modern Approach

• Exceptions to the traditional rule:
• No consideration required in certain situations (Rest. § 89).
• Situations where modifications might be enforceable without consideration:

1. Unforeseen circumstances
2. Statutory provisions (e.g., UCC Article 2, § 2-209)
3. Reliance
4. Mutual release/rescission

Case Law: Alaska Packers

• Context of the Case: Employees sought higher wages under existing contracts.
• Legal Issue: Did the modification require consideration?
• Court's Holding & Rule: The court upheld the requirement of independent consideration under the pre-existing duty rule.
• Hypothetical: If parties agreed to additional services for increased pay, then the result may differ.

UCC Article 2 Modification Rules

• § 2-209(1): Modifications do not need consideration; however, they must be made in good faith (defined as honesty in fact plus observance of reasonable commercial standards).
• § 2-209(3): SOF must be satisfied if the modified K falls within its provisions.

N.O.M. Clauses (No Oral Modification)

• Definition: Clauses that preclude modifications except in writing (private SOF).
• Example:
• No amendment to the agreement will be effective unless in writing and signed by both parties.
• If a K contains a N.O.M. clause, it is enforceable, but exceptions exist for merchants using forms.
• For enforcement:

1. The other party is a merchant, or
2. The other party has signed the N.O.M. clause.

Waiving and Retracting N.O.M. Clause

• § 2-209(4): A failed oral modification may still constitute a waiver of the N.O.M. clause through conduct (e.g., seller and buyer agree orally on new terms).
• § 2-209(5): Retracting a waiver allowed with reasonable notice unless unjust due to reliance.

Case: Brookside Farms v. Mama Rizzo’s

• Requirements Contract Definition: Buyer agrees to buy all required goods from a seller.
• Context: Issues arose regarding oral price modifications not in writing.
• Brookside Farms’ argument: Oral mods are valid and Mama Rizzo's nonpayment constitutes breach.
• Mama Rizzo's argument: Oral modifications are not enforceable due to the N.O.M. clause.

Court Decision

• The court found the oral modifications enforceable based on:
• Promissory Estoppel exception to SOF
• Part-performance exception (only unpaid executory portion not applicable).

Conclusion

• Essential takeaways for exam preparation:
• Understand the implications of independent consideration, UCC § 2-209 modifications, and the impact of N.O.M. clauses.
• Recognize the exceptions that may allow modifications to be valid despite traditional requirements.