MODEL ANSWER CONTRACTS II ESSAY 1 – MODULE 2
[NOTE TO STUDENTS: The model answer uses the boldfaced labels “ISSUE,” “RULE,”
“ANALYSIS,” and “CONCLUSION” for illustrative purposes, to help highlight these
aspects of the Model Answer for you. You should not include these boldfaced labels in
your essay answers.]
[ISSUE]
1. Did Able and Baker validly modify their contract when Able agreed to pay the additional
$1,000?
[RULE – PART 1]
A. Applicable law. Since this contract involves services Baker was to perform for Able, the
modern common law would apply to resolve any contractual issues between the parties.
[In every Contracts essay, the rule really has two components: the controlling law (that is, is this
contract governed by the UCC or by common law), and the relevant rule of law. The best
approach is to articulate the controlling law first, since it has the potential to alter the relevant
rule of law depending on whether the UCC or the common law is controlling.]
[RULE – PART 2]
Formation of contract. There cannot be a valid modification of a contract unless a
contract was initially validly formed. The facts state that Able and Baker entered into a
written contract whereby Baker was to dig a well in exchange for $3,000. Therefore a
contract clearly was formed.
[Although formation is clear, it is still an indispensable part every analysis. After all, you
cannot modify a contract that doesn’t exist. That said, don’t worry about going into
detail – a summary statement like this is sufficient to do the job.]
[ANALYSIS]
B. Valid modification. A modification is an agreement to alter or amend an existing contract.
To be valid a modification must be the product of good faith bargaining and must be
supported by new consideration. [This section is organized like a “mini-IRAC,” giving
the rule (the requirements for modification), and then unpacking each of the elements of
that rule.]
1. Good faith bargaining. Baker requested the change it the contract (the payment of
an additional $1,000 for equipment rental) as a result of encountering conditions
unlike any he had ever encountered previously. Since this was therefore an
unforeseeable condition Baker was making this request in good faith. Although Able
“reluctantly” agreed to Baker’s request, there is no indication that he was forced or
coerced into doing so. Therefore, in all probability the modification agreement will be
deemed to be the product of good faith bargaining.
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2. New Consideration. Consideration involves a bargained-for exchange that
constitutes a legal detriment to each promisee. Under the agreement as modified,
Able was to pay Baker $4,000 instead of the $3,000 stated in the initial contract. So,
there was a legal detriment to Able in having to pay the additional $1,000. However,
under the initial contract Baker was obligated to dig a well on Able’s property. Under
the agreement as modified, Baker is still promising only to dig the well. In other
words, as a result of the initial contract Baker was under a pre-existing duty to dig
the well, and there would therefore be no consideration to support the modification.
3. [The general rule is that a pre-existing duty cannot serve as consideration, since the
party who already had that duty was required to perform regardless of whether the
present contract had been formed.]
4. Exception to Consideration. An agreement to modify an executory contract is
binding if the modification is fair and equitable in view of circumstances not
anticipated when the contract was made. Clearly, the presence of solid rock would
be such an unanticipated condition since Baker had been digging wells in the area
for over 10 years and had never encountered solid rock before reaching an adequate
water source. The modification covered only the actual cost of the rental of
equipment needed to dig the well. This would seem to be fair and equitable under
the circumstances. Therefore, under this exception to the pre-existing duty rule the
modification would appear enforceable.
5. Defense. A modification is subject to all formation defenses. However, none would
appear to be applicable. Even though the agreement between Able and Baker
was oral, the contract as modified does not fall within any of the provisions of
the statute of frauds. In addition, it is permissible for a written contract to be
modified by oral agreement.
6. [CONCLUSION] Therefore, the contract appears to have been validly modified and
Able would be obligated to pay the additional $1,000.
[ISSUE]
Can Baker recover any additional money from Able? [Given the general nature of the second
interrogatory, it will help the grader to follow your writing if you have a transitional section
like this to focus in on the specific amount in dispute and the nature of the dispute (not to
mention help clarify your thinking about the issues that are actually in play in the question).]
III. Recovery? As discussed above, since the contract was validly modified Able would be
obligated to pay Baker $4,000 for completing the well. However, Able paid Baker only
$2,500. Whether Able would be liable to pay any additional amount rests with an
interpretation of his sending a check marked “payment in full” and Baker cashing the check.
[RULE]
A. Accord and satisfaction. An accord is a form of a modification whereby substituted
performance is accepted in place of a pre-existing duty. A satisfaction is the
performance of the accord. [ANALYSIS] When Able sent Baker a check for $2,500
marked “payment in full”, he was making an offer to an accord. Baker’s cashing of the
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check may operate as both an acceptance of the offer to an accord and a satisfaction if
certain conditions are met.
1. Offered in full settlement. The offer to an accord must be made in full settlement of
any obligations owed. Since Able wrote on the check “payment in full”, this indicates
that is was meant to be in full settlement of the obligations between the parties.
Therefore, this requirement is met.
2. Attempted reservation of rights. Baker attempted to cash the check and reserve
rights to possibly sue for additional compensation by crossing out the words
“payment in full” before cashing the check. However, the majority of jurisdictions do
not allow a person receiving such a check to preserve right by either so stating or
crossing out language indicating that the check is offered in full settlement of all
obligations. So, Baker’s act of crossing out the language “payment in full” by itself
would not reserve additional rights against Able.
3. Consideration. Since as accord is a form of a modification, it must be supported by
new consideration to be enforceable. The consideration can arise in a situation such
as this if there exists a good faith dispute between the parties and the check is
an attempt to settle the dispute. Here, there was no dispute between the parties.
Able was upset because of the strong odor emanating from the well, but he
discovered that Baker was not responsible for odor. In other words, Able knew that
Baker had properly and fully performed the contract by digging the well and was thus
entitled to full payment. Since there was no dispute between the parties as to how
much was owed to Baker, there would be no consideration to support Baker’s
agreement to accept a lesser amount in settlement of the work he performed for
Able.
4. [CONCLUSION] Baker would be entitled to sue Able for an additional $1,500.
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