Changes to Contract Obligations

Question 1

UCC modification requirements

Answer 1

1. Under UCC, an existing contract can not be modified or rescinded unilaterally. ALL parties must agree to the modification.
2. Mod must be sought in good faith, which requires honesty and observance of reasonable commercial standards of fair dealing.
3. But new consideration—ie, a bargained-for exchange of promises or performance that was not part of the original contract—is not required.

Question 2

Offer to satisfy debt with a check

Answer 2

When a debt is disputed in good faith, the debtor can offer to settle the debt by giving the creditor a check with a conspicuous notation stating that it constitutes payment in full. The creditor can then:

• cash the check – in which case the creditor impliedly agrees to an accord and satisfaction, and the debt is discharged OR
• reject the check – in which case the debt is not discharged.

Question 3

Ways to discharge contractual obligations (FIRM SCAN)

Answer 3

F- Full performance of contractual obligations
I - Impossibility, impracticability, or frustration of purpose
R - Release (in writing only)
M - Mutual rescission
S - Substituted contract
C - Contract or covenant not to sue
A - Accord & satisfaction
N - Novation

Question 4

Novation

Answer 4

Obligations under a contract can generally be delegated to another.*

However, the person delegating his/her duties (the delegator) is not released from liability unless there is a novation.

A novation is the substitution of a new contract for an old one when a party to the original contract agrees to release the other party (the delegator) and substitute a new party (the delegatee). A novation can be express or it can be implied after delegation if:

1. the delegator repudiates liability to the other party to the original contract AND
2. that party accepts performance from the delegatee without reserving rights against the delegator.

Question 5

The delegation of contractual obligations does not release the delegator from liability unless the other party agrees to a….?

Answer 5

A novation—i.e., the substitution of a new contract for an old one when a party to the original contract agrees to release the delegator and substitute a new party.

Question 6

Accord & Satisfaction

Answer 6

In an accord & satisfaction, parties to an existing K agree to accept different performance in satisfaction of the original, existing obligation

Question 7

Accord

Answer 7

New agreement to accept alternative performance in lieu of the original performance obligation

*Consideration is generally required

Consideration of lesser value: OK if new consideration is either:

a) different than originally bargained for consideration
b) to be paid to a 3rd party, OR
c) to resolve a good faith dispute concerning the original K.

Question 8

Satisfaction

Answer 8

performance of the accord agreement

*discharges the original K and the accord

Question 9

Accord & Satisfaction: Effect of Breach

Answer 9

a party may sue under either the original obligation or the accord if there has been no satisfaction.

Question 10

Accord agreement vs. Substitute K

Answer 10

Parties to a contract may agree to change one or both parties’ performance through an accord agreement or a substitute contract:

Accord agreement – when a party agrees to accept different performance in satisfaction of (i.e., in place of) the original promise; after breach, the party can sue under either the original contract or the accord agreement.

Substitute contract – when the parties form a second agreement that immediately discharges the original contract; after breach, a party can sue under the substitute contract only.

Question 11

Mistake as grounds for rescission

Answer 11

Adversely affected party can rescind contract if:

(1) Mutual mistake
a) mistake relates to basic assumption of contract
b) mistake materially affects agreed-upon exchange of performances AND
c) adversely affected party did not assume risk of mistake

In addition to above elements for mutual mistake, either:

Unilateral mistake

a) mistake makes enforcement of contract unconscionable, OR
b) nonmistaken party caused, or knew or should have known of, mistake

Question 12

Can waiver of nonoccurence of a condition be retracted?

Answer 12

Nonoccurrence of a condition may be excused if the party who would benefit from the condition waives it by words or conduct.

And that waiver CANNOT be retracted if the other party has detrimentally relied on it.

Question 13

Under an accord and satisfaction, a party can fulfill its contractual obligation by rendering different performance than the one initially promised.

This can be accomplished through a negotiable instrument (e.g., check) if three conditions are met:

Answer 13

1. the obligation is unliquidated (i.e., uncertain in amount) or otherwise in dispute
2. the obligor, in good faith, tenders the negotiable instrument with a conspicuous statement (e.g., “in full and final satisfaction”) that the instrument is tendered as full satisfaction of the obligation, AND
3. the obligee obtains payment of the instrument (e.g., by cashing the check).

Question 14

How can a debtor satisfy a debt that is disputed in good faith?

Answer 14

If a debt is disputed in good faith, then the debtor can offer to satisfy the debt by giving the creditor a check with a conspicuous “payment in full” notation.

But if the debt is certain and undisputed, then it cannot be satisfied by a check for a lesser amount—even if the creditor cashes the check.

Question 15

Does an accord require consideration to be valid?

Answer 15

YES.

An accord requires consideration to be valid.

That consideration can be worth less than what was agreed to in the original contract only if:

(1) there is a good-faith dispute as to the amount owed OR
(2) the new consideration is of a different type than what was owed under the original contract.

Question 16

Enforceability of new promise to pay debt without consideration

Answer 16

Question 17

Under UCC, no consideration is necessary to modify a K, just good faith is required. What does good faith require/standard and how do courts treat increase price requests?

Answer 17

Good faith requires honesty in fact and fair dealing in accordance with reasonable commercial standards.

If a party demands an increase in price because the other party has no choice but to agree, the courts will invalidate such a bad-faith modification.

Question 18

If a natural disaster occurs and causes fuel prices to significantly increase, can the seller request additional $$ to cover the increased delivery and transportation costs?

If the buyer agrees and promises to pay the additional money, can the seller enforce that promise?

Answer 18

YES to both. As long as the request was made in good faith based on the natural disaster and the buyer is not forced into the agreement because other suppliers are not available.

Question 19

Is consideration required for a settlement of debts?

Answer 19

YES.

While the law permits the settlement of debts, consideration is required for a settlement to be enforceable.

EXAMPLE: Tractor repair for $2k. Paid $1k. Mechanic promised not to sue if other $1k was paid by June 1, but sued farmer on May 1.

• Under the preexisting duty rule, the mechanic’s promise to forbear from suing to collect was not supported by consideration from the farmer, because the amount due was liquidated and the farmer did not promise to do anything more than he was already obligated to do.
• The farmer did pay $1,000, but as a partial payment of an undisputed debt, that money is insufficient consideration for the mechanic’s promise not to sue.

Question 20

No Oral Modification (NOM) Clause

Reinstatement of previously waived NOM clause

Answer 20

While a party’s conduct may act as a waiver to a NOM provision, a condition that is material to the party’s primary purpose may be reinstated by the party.

Even a condition that is not material may be reinstated so long as:

(i) the waiving party communicates a retraction of the waiver before the condition is due to occur; and
(ii) the other party has not already suffered detrimental reliance.

Example: Moped delivery from MBE Practice exam #1…“Since the buyer reinstated the original delivery date before July 1, and since there is no evidence that the seller detrimentally relied on the waiver of that condition, the buyer was free to retract his waiver, even if the date of delivery was not a material condition.”