Module 7 : Contract Modification
3. Contract Modification under the UCC
What does contract modification require under the UCC?
Under the UCC, additional consideration is not necessary to modify a written contract, as
long as the modification is entered into in good faith. If the contract is not for the sale of
goods to or by a merchant, then additional consideration is necessary to modify the terms of the
contract.
Roth Steel Products v. Sharon Steel Corp.
Facts
Plaintiffs, Roth Steel Products Company (Roth Steel) and Toledo Steel Tube Company
(Toledo Steel), asserted a breach of contract and sought damages from Defendant Sharon
Steel Corporation (Sharon Steel), which counterclaimed for damages on rejected goods.
Sharon Steel had modified a prior price quote to Roth Steel and Toledo Steel after market
conditions changed. Both parties appealed the judgment from the trial court.
Issue
Did the amended complaint state a claim?
Rule & Application
In determining whether an amended complaint states a claim, the court must accept all
factual allegations contained in the pleading as true, and resolve all factual ambiguities in
favor of the party who sought the amendment. Finally, the court notes that a motion
under Fed. R. Civ. P. 12(b)(6) is directed solely to the complaint itself. Consequently,
extrinsic evidence cannot be considered in determining whether the complaint states a
claim.
What are the requirements for good faith in contract modifications under the UCC?
Conclusion
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The court held that there was an enforceable oral contract for the sale of goods. The court
also held that unforeseen economic exigencies existed, which allowed Sharon Steel's
modification to avoid a loss and found the district court's findings to the contrary were clearly
erroneous.
4. Determinability
What is determinability?
the quality or state of being determinable or determinate.
Ridge Runner Forestry v. Secretary of Agriculture
Facts
Ridge Runner Forestry is a fire protection company located in the Pacific Northwest. In
response to a request for quotations (RFQ) issued by the Forestry Service, Ridge Runner
submitted a proposal and ultimately signed a document entitled Pacific Northwest
Interagency Engine Tender Agreement (Tender Agreement). The Tender Agreement
incorporated the RFQ in its entirety, including the following two provisions in bold faced
lettering: (1) "Award of an Interagency Equipment Rental Agreement based on response to
this Request for Quotations (RFQ) does not preclude the Government from using any
agency or cooperator or local EERA resources"; and (2) "Award of an Interagency
Equipment Rental Agreement does not guarantee there will be a need for the equipment
offered nor does it guarantee orders will be placed against the awarded
agreements." Additionally, because the government could not foresee its actual equipment
needs, the RFQ contained language that allowed the contractor to decline the government's
request for equipment for any reason: "Because the equipment needs of the government
and availability of contractor's equipment during an emergency cannot be determined in
advance, it is mutually agreed that, upon request of the government, the contractor shall
furnish the equipment offered herein to the extent the contractor is willing and able at the
time of order. " The RFQ also included a clause informing bidders that they would not be
reimbursed for any costs incurred in submitting a quotation. Ridge Runner signed Tender
Agreements in 1996, 1997, 1998, and 1999. In 1999, it presented a claim for $180,000 to
the contracting officer alleging that the Forestry Service had violated an "implied duty of
good faith and fair dealing" because Ridge Runner had been "systematically excluded for
the past several years from providing services to the Government." In response, the
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contracting officer told Ridge Runner that she lacked the proper authority to decide the
claim. Ridge Runner timely appealed the decision to the Department of Agriculture Board
of Contract Appeals. The board granted the government's motion to dismiss concluding
that because no contract had been entered into, it lacked jurisdiction under the Contract
Disputes Act (CDA)
Issue
Was the Tender Agreement a binding contract that placed specific obligations upon the
government?
Rule & Application
To be valid and enforceable, a contract must have both consideration to ensure mutuality
of obligation and sufficient definiteness so as to provide a basis for determining the
existence of a breach and for giving an appropriate remedy. To constitute consideration, a
performance or a return promise must be bargained for. And the promise or apparent
promise is not consideration if by its terms the promisor or purported promisor reserves a
choice of alternative performances.
What does it mean for a promise to be indeterminate?
Indeterminate means not known or decided.
Conclusion
The appellate court determined the agreement was nothing but an illusory promise. The appellate
court noted the agreement contained no clause limiting the government's options for firefighting
services; the government merely "promised" to consider using the company for firefighting
services. Also, the agreement placed no obligation upon the company. If the government came
calling, the company "promised" to provide the requested equipment only if it was "willing and
able."
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Wood v. Lucy, Lady Duff-Gordon
FACTS:
Defendant is a "creator of fashions" whose favor helps a sale, and manufacturers of
feminine apparel are willing to pay for a certificate of her approval. She entered into an
agreement with plaintiff employing him to turn this vogue into money. He was to have, for
the term of one year, and thereafter unless terminated by a written notice, the exclusive
right, subject to her approval, to place her indorsements on the designs of others and in
return she was to have one-half of all profits and revenues derived from any contract he
might make. Plaintiff claims that he kept the contract and that the defendant broke it, by
placing her indorsement on articles without his knowledge and withholding the profits,
and sues her for the damages. Defendant demurs to the complaint on the ground that the
agreement lacks the elements of a contract in that plaintiff does not bind himself to
anything.
Issue
Is there mutuality in the contract?
Rule & Application
RULE (the law):
(1) A contract may be enforced when there is no evidence of a promise, exchanged as
consideration, in the explicit terms of the contract.
(2) A promise to use reasonable efforts may be implied from the entire circumstances of a
contract.
A promise may be lacking within a contract, and yet the whole writing may be instinct with
an obligation, imperfectly expressed. If that is so, there is a contract.
HOLDING + REASONING: (1) Yes. A promise, exchanged as consideration, may be implied
and enforceable, even though it is not provided in the explicit terms of the contract. In the current
matter, the facts reveal that Wood made a promise to use reasonable efforts to place
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endorsements and market Lady Duff-Gordon’s designs. Because Lady Duff-Gordon gave an
exclusive privilege, Wood’s acceptance of the privilege assumed its duties, one of which was to
use sufficient reasonable efforts. Also, because Lady Duff-Gordon would receive 50 percent of
all sales, it is clear that both parties intended that Wood would use sufficient reasonable efforts
because, without them, Lady Duff-Gordon could not have expected any payment. Additionally,
Wood’s agreement that he would keep track of accounts and take out protections necessary for
the designs implies he would promise to use sufficient reasonable efforts. Based upon these facts,
it is clear that a promise to use reasonable efforts to place endorsements and market the designs
is a term of the contract and should be implied. Accordingly, the judgment of the appellate
division is reversed.
(2) Yes. The agreement between Wood and Lucy contains an implied promise by Wood to use
reasonable efforts, and thus constitutes sufficient consideration by Wood to form a valid and
enforceable contract. A promise to use reasonable efforts may be implied from the entire
circumstances of a contract. Once successfully implied, that promise may constitute sufficient
consideration to create a valid and enforceable contract. Wood’s promise to use reasonable
efforts in performing his contract with Lucy may be implied from many circumstances. Lucy
gave Wood an exclusive privilege to place her endorsements on products and market her designs.
The acceptance of this exclusive right by Wood equaled an assumption of the basic duties
encompassed in that right. Additionally, Lucy was not to receive any compensation other than
one-half of all agreements formed by Wood’s efforts. Thus, unless Wood used reasonable
efforts, Lucy would not receive any compensation, and there would be no basis for the parties to
have entered into such an agreement. Finally, Wood agreed to provide a monthly accounting of
his profits and activities to Lucy. If he was not under a duty to use reasonable efforts to earn
profits, this accounting would be meaningless. Thus Wood’s promise to pay Lucy one-half of the
profits and revenues resulting from his exclusive privilege to use her endorsement, as well as his
promise to provide a monthly accounting of his profits supports the implication that Wood had a
duty to use reasonable efforts to create profits and revenues. This promise by Wood constitutes
sufficient consideration to form a valid and enforceable contract with Lucy, and the decision of
the appellate court is reversed.
Conclusion
The Court held that upon examination of the contract, although plaintiff does not promise in
express terms, such a promise is fairly implied. Defendant gave an exclusive privilege and
plaintiff's promise to pay one-half of the profits and revenues resulting from the exclusive
agency and to render accounts monthly, was a promise to use reasonable efforts to bring profits
and revenues into existence, and, hence, the demurrer cannot be sustained.
How can good faith keep a promise from being indeterminate?
An illusory promise is one that is unenforceable. This is due to a lack of mutuality or indefiniteness
where only one party is bound to perform. An illusory promise is one that is unenforceable. This
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is due to a lack of mutuality or indefiniteness where only one party is bound to perform. An
illusory promise is based on deception or parameters that are indefinite, making it unclear what
must be done or if performance is optional.
5. Mutuality
What does mutuality mean for consideration?
Closely related to the concept of consideration is the mutuality of obligation doctrine. Under this
doctrine, both parties must be bound to perform their obligations or the law will treat the
agreement as if neither party is bound to perform.
Mezzanotte v. Freeland
FACTS:
The buyers and the sellers executed a contract for the purchase of land. The buyers were
unable to obtain a loan through the bank specified in the contract, but tendered the
required down payment. The sellers refused to complete the sale and the buyers bought
action. The trial court found a valid contract of sale and found that the sellers breached the
contract entitling the buyers to specific performance and damages.
Issue
Did the sellers breach the contract by refusing to complete the sale because of the buyer’s
inability to obtain a loan?
Rule & Application
A promise conditioned upon an event within the promisor's control is not illusory if the
promisor also impliedly promises to make reasonable effort to bring the event about or to
use good faith and honest judgment in determining whether or not it has in fact occurred.
The implied promise is enforceable by the promisee, and it constitutes a legal detriment to
the promisor; therefore it furnishes sufficient consideration to support a return promise.
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Conclusion
The court found that although the attachment describing the property was not physically attached
to the contract, it was delivered with the execution of the contract and complied with the statute
of frauds. The court found consideration because the contract included an implied promise by the
buyers to use reasonable effort to procure a loan and to exercise good faith in deciding whether
the terms of the loan were satisfactory. As to timely performance, the sellers did not furnish to
the buyers an inventory of personalty and a list of outstanding leases in accordance with the
terms of the contract and prevented the buyers from earlier compliance.
What is an illusory promise?
A promise that is unenforceable due to indefiniteness or lack of mutuality, where only one
side is bound to perform.
Miami Coca-Cola Bottling Co. v. Orange Crush Co.
FACTS:
Appellant filed a case seeking specific performance of a contract with appellee and to
enjoin appellee's cancellation of the contract. The contract was in the form of a license,
whereby appellee granted to appellant the exclusive right, within a designated territory, to
manufacture a certain soft drink, and to bottle and distribute it under appellee's trademark.
Appellee agreed, among other things, to supply at stated prices its concentrate to be used in
the manufacture of the soft drink, and to do certain advertising. Appellant agreed to
purchase a specified quantity of the concentrate, to maintain a bottling plant, to solicit
orders, to generally undertake to promote the sale of the soft drink, and to develop an
increase in the volume of sales. The district court dismissed the appellant's bill. The
appellant appealed the case to the Circuit Court of Appeals.
Issue
Was there a valid contract?
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Rule & Application
So far as a contract remains executory, it is not binding, since it can be terminated at the
will of one of the parties to it. Consideration is a promise for a promise. According to the
great weight of authority such a contract is unenforceable.
What is an avoidable obligation?
Conclusion
The court stated that the contract between the parties was unenforceable and was void for want
of mutuality. This was because appellee could not be bound to that portion of the contract that
was executory at the time of appellee's cancellation.
Texas Gas Utilities Co. v. S.A. Barrett
FACTS:
Petitioner's predecessor and respondents entered into a contract wherein the predecessor
was to supply respondents' farm with natural gas. There was no consideration moving
from one party to another. Thereafter, petitioner filed suit against respondents for
payments due under the contract. The trial court held in respondents' favor. The appellate
court affirmed, holding that the contract was unenforceable for lack of mutuality of
obligation. The state supreme court reversed the judgment and remanded the case.
Issue
Was a mutual obligation between parties sufficient to constitute a binding contract
considering that there was no consideration moving from one party to another?
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Rule & Application
Where no other consideration is shown, mutual obligations by the parties to the agreement
will furnish a sufficient consideration to constitute a binding contract. It is presumed that
when parties make an agreement they intend it to be effectual, not nugatory. A contract will
be construed in favor of mutuality. The modern decisional tendency is against lending the
aid of courts to defeat contracts on technical grounds of want of mutuality.
Conclusion
Due to the fact that petitioner's predecessor was bound to deliver natural gas to respondents'
property, and where respondents were in turn bound to pay for the gas, the contract embodied an
exchange of obligations of value to each party. Accordingly, the contract was enforceable against
respondents.
What does it mean that “an exchange of obligations [was]… reciprocally or mutually
induced”?
What is a requirements contract?
(a) Description. A requirements contract provides for filling all actual purchase requirements of
designated Government activities for supplies or services during a specified contract period
(from one contractor), with deliveries or performance to be scheduled by placing orders with the
contractor.
What limits are there on what can be required, and how do they work?
Summits 7, Inc. v. Kelly
CASE SYNOPSIS
Defendant former employee appealed from an order of the Chittenden Superior Court (Vermont) that
enjoined her from violating her covenant not to compete with plaintiff former employer. She argued
that there was no consideration to support the covenant and that the trial court had failed even to
consider whether the geographic scope of the covenant was unreasonably broad.
CASE FACTS
The employee had been working for the employer for a year, and had received promotions and raises,
when she was asked to agree to a covenant not to compete, for a period of one year after termination,
in an area that included three states. She eventually left, and went to work for a nearby competitor.
DISCUSSION
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
The court noted that Vermont had never adopted any rule with regard for
consideration required to support a covenant not to compete entered after an at-will employee
was already employed.

It decided to adopt the majority rule, which was that, in such a situation, continued
employment with an implicit employer good faith obligation was in itself sufficient
consideration.

The court declined to address the employee's reasonableness argument, which the trial
court had addressed in detail.

Regardless of the propriety of a three-state scope, the place where the employee
actually went to work was very nearby indeed.

Moreover, that whole issue had been mooted after passage of a year.
CONCLUSION
The court affirmed the order and judgment.
What is a covenant not to compete?
A covenant not to compete, also called a "noncompete agreement" or "non-compete clause" is an agreement where one party promises not to engage in conduct that would increase
competition for the other party for a specific period of time.
What limits are there on covenants not to compete, and how are they enforced?
The well-known general rule is that a covenant not to compete is only enforceable if its terms
are reasonable and necessary to protect the legitimate business interests of the employer.Dec
26, 2018
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