Tuesday, December 20, 2016

MBE Fast Fact: Modification of Contracts

Whenever the rules differ between the common law of contracts and the UCC, an added level of difficulty exists within the question.  One topic that stands out in this regard deals with modification of contracts, and two types of questions that show up quite a lot within this topic deal with the need for consideration to modify a contract and the need for a writing to modify a contract

Consideration:  Under the common law of contracts, a contract cannot be modified unless the modification is supported by new consideration.  The UCC, however, differs.  Under the UCC, good faith promises of new and different terms than were stated in the original contract between the parties are valid even if those new and different terms are not supported by any additional consideration.

Writing:  Generally, and under the common law of contracts, a written contract can be modified orally.  And furthermore, under the common law, even if a written contract expressly provides that a contract may be modified only by a writing, the parties may still orally modify the contract. Under the UCC, though, any modification must be in writing if the contract as modified falls within the Statute of Frauds.  What this means is that if the contract as modified is for $500 or more (thereby falling within the UCC Statute of Frauds), the modification must be evidenced by a writing.  If, however, the contract as modified is for less than $500, then no writing is required.

One other point worth noting is that the parole evidence rule will not prevent the admissibility of evidence dealing with the modification of a contract.  This is because the parole evidence rule only applies to exclude from evidence written or oral statements made prior to the writing as well as oral statements made contemporaneously with the writing if those statements are going to contradict the writing and if the writing was intended as the final expression of the bargain between the parties.  But modifications fall outside the scope of the parole evidence rule because by their nature they occur after the written agreement has already taken place (as opposed to prior to or contemporaneously with the writing).

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