35. Has the contractor breached the contract?

As a general rule, contracts require consideration to be enforceable. After parties enter into a contract, they may wish to modify its terms. The modern view of contract modification (which is the approach taken on the MBE) is that modification of a final contract will not need new consideration to be enforceable IF: (i) the modification is due to circumstances that were unanticipated by the parties when the contract was made; and (ii) it is fair and equitable. Rest. 2d. § 89. A written contract may be modified by an oral agreement, but the modification must be in writing if the contract, as modified, falls within the Statute of Frauds. Furthermore, when examining oral modifications of a written contract, parol evidence is admissible.

Exam Tip: It is important to read the facts and call of this question carefully. It is asking whether the contractor has breached the contract by refusing to pave the sidewalk. The issue that must be determined, then, is whether the oral modification of the contract was valid and if so, then the contractor may properly refuse to pave the sidewalk, as stated in the modification. However, if the modification was INVALID, the original contract will remain in effect and the contractor will be in breach by refusing to pave the sidewalk. Also, because this question involves a contract for services, you will apply the common law of contracts, not the Uniform Commercial Code (UCC).

D is correct. The oral modification was invalid because it was not supported by new consideration. The original contract was for $200,000 in exchange for construction of a building and paving an adjacent sidewalk. The parties then orally modified the contract to remove the requirement that the contractor pave the sidewalk. The price was unaffected by this reduction of the contractor's duties. A modification to a contract requires new consideration UNLESS the modification is because of unforeseen circumstances that have arisen AND the modification is both fair and equitable. Here, there is no indication of unforeseen circumstances arising and there has been an unequal shift in the agreement; the contractor walked away with fewer responsibilities and the same amount of money anticipated in return. The landowner is merely seeking to enforce the contractor's pre-existing legal duty to pave the sidewalk. Without an enforceable modification, the contractor has breached the contract.

A is incorrect. This answer choice indicates the UCC standard for contract modifications, which requires only good faith, not new consideration. However, this is a contract for services, not for the sale of goods. As a result, the common law approach will apply, and new consideration is necessary absent some unforeseen circumstances. Eliminating the contractor's duty to pave the sidewalk without adjusting the price is not consideration. The parties' good faith is not enough to support the modification.

B is incorrect. This answer reaches the correct answer with the wrong reasoning. It is true that the contractor breached the contract, but there is no rule requiring the discharge of a contractual obligation to be in writing. There are many ways in which a discharge might arise, in addition to discharges by mutual agreement. But even in the case of discharge by mutual agreement, there is no general rule requiring it to be in writing. The issue is whether the parties' oral exchange regarding the sidewalk resulted in an enforceable modification of the contract. As explained above, the contract modification is unenforceable for lack of consideration.

C is incorrect. This answer reaches the correct answer with the wrong reasoning. Although the contractor breached the contract, it is not because of the Parol Evidence Rule (PER), which does not apply. The PER will apply regarding discussions or correspondence prior to or contemporaneous with the making of a contract and will excuse some kinds of evidence in those situations. However, parol evidence is admissible when analyzing an oral modification to a written contract. Here, the crucial exchange occurred after the contract was made, so the issue is whether that exchange resulted in an enforceable modification of the contract.