Friday, November 11, 2011

MBE Fast Fact: UCC Modifications

Beware of a questions in which the UCC applies and one of the parties to the contract agrees to modify the contract but does not provide consideration for that modification. Under the common law, the modification would have no effect (for lack of consideration), but under the UCC, the modification applies.

For example, let's say that X and Y enter into a contract. X is going to sell 40 widgets to Y at a price of $10 per widget. X, before shipping to Y, explains to Y that the price of widgets has increased, so that X will ship to Y only for a price of $12 per widget, rather than $10 per widget. Y agrees.

X ships to Y, and Y sends payment of $400 ($10 per widget). Under the common law, Y's acceptance of the modification from $10 to $12 was not supported by consideration, so Y would only owe nothing. But under the UCC, consideration is not required, so Y owes X $80. ($2 per 40 widgets).

As an aside, if this modification had taken the price above $500, the modification would have had to have been in writing to satisfy the statute of frauds.

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