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30. Will the architect be likely to prevail in his action against the client for $2,500?
The architect subsequently sued the client for the remaining $2,500. In a preliminary finding, the trier of fact found that there were no defects in the architect's plans.
In a written contract, an architect agreed to draw up the plans for and to supervise construction of a client's new house. In return, the client agreed to pay the architect a fee of $10,000 to be paid upon the house's completion. After completion, the client claimed erroneously but in good faith that the architect's plans were defective. The client orally offered to pay the architect $7,500 in full settlement of the claim for the fee. The architect orally accepted that offer despite the fact that the reasonable value of his services was in fact $10,000. The client paid the architect $7,500 pursuant to their agreement.
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An accord generally requires consideration, which can be less than what was called for in the original contract. Foakes v. Beer provided that partial payment of a liquidated debt is invalid for a lack of consideration. However, this rule does not apply where there is a compromise on a claim disputed in good faith. In other words, payment of a lesser amount than is due on a valid claim constitutes valid consideration if there is a bona fide dispute as to the amount owed, made in good faith. This exception applies even if it later becomes apparent that the reason for disputing the claim was invalid.
A novation is an agreement made between two contracting parties to allow for the substitution of a new party for an existing one. The original contracting party who is replaced by the new party with the novation is excused by the novation, and therefore the original party who is replaced gives up any rights it has against the other original party to the contract.
When parties are in a dispute over the proper amount of debt, if the debtor sends the creditor a check for an amount with the notation that the check represents payment in full, and the creditor cashes the check, under the common-law view, the debtor is discharged. Under modern law, the creditor who cashes a check marked «in full settlement» will lose under UCC § 3-311, as long as (i) the check contained a conspicuous statement that it was tendered as full satisfaction of the claim; (ii) the claim was subjected to bona fide dispute; and (iii) the debtor acted in good faith.
C is correct. The architect's agreement to accept payment for less than the amount due constituted an effective accord, supported by consideration, which was satisfied with the payment of $7,500. Consideration is present because of the good faith dispute as to the amount owed. By compromising, each party surrenders its respective claim as to how much is owed.
A is incorrect. This is an incorrect application of the law regarding consideration and an executory accord. The pre-existing duty rule typically precludes consideration based on the performance of something that a party is already obligated to do. However, an exception exists when there is a good faith dispute as to a claim and the parties agree to settle the debt for a lesser amount, amounting to an accord. In this case, the client has a good faith belief that the architect's plans were defective, which means that the agreement for the architect to accept $7,500 to settle the claim was an accord supported by consideration, even though the amount was less than what was contracted for.
B is incorrect. This answer implicates the Statute of Frauds (SOF), which normally requires certain agreements to be reduced to writing. Although a contract for the sale of goods of $500 or more typically is not enforceable by way of action or defense if it is not reduced to writing sufficient to indicate that a contract for sale has been made. UCC § 2-201(1). However, the SOF is not a defense when an oral agreement is fully performed. The controlling issue here is whether consideration exists to enforce an agreement to settle the claim involving a good faith dispute.
D is incorrect. This answer reaches the correct answer with the wrong reasoning. The architect will not recover, but not because a novation was executed. There are no facts to indicate a novation because the architect's acceptance of a lesser amount to settle the claim only involved the architect and the client, and no third party was brought in to take over either party's obligations.