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Modification

contract law consideration parties

A change or alteration in existing materials.

Modification generally has the same meaning in the law as it does in common parlance. The term has special significance in the law of contracts and the law of sales.

The parties to a completed and binding contract are free to change the terms of the contract. Changes to a preexisting contract are called contract modifications. If the parties agree to modify the contract, the modification will be enforceable in a court of law.

A contract modification may be either written or oral, with some exceptions. An oral modification is unenforceable if the contract specifies that modifications must be in writing (United States ex rel. Crane Co. v. Progressive Enterprises, Inc., 418 F. Supp. 662 [E.D. Va. 1976]). As a general rule, a modification should be in writing if it increases or decreases the value of the contract by $500 or more.

In contracts between parties who are not merchants, a modification should be supported by some consideration, which is the exchange of value, or something to solidify an agreement. Courts impose this requirement to prevent FRAUD and deception in the modification of contracts. Consideration operates as evidence that the parties have agreed to the modification. Without the requirement of consideration, a party to a contract could declare that the contract should be modified or canceled whenever such a demand was advantageous.

In contracts between merchants, a modification need not be supported by consideration. Derived from article 2, section 209, of the UNIFORM COMMERCIAL CODE, this rule is designed to honor the intent of commercial parties without requiring the time-consuming technicalities of consideration.

Like any non-merchant, a merchant is free to reject a proposed modification, but a merchant may waive the right to reject a modification by failing to object to the modification. For example, if an electrician doing work as a subcontractor notifies the general contractor that the electrical work will be more expensive than anticipated, the general contractor may be obliged to pay for the extra expenses if she fails to object before the electrician begins the work. There must be a legitimate commercial reason for such a contract modification, and the modification must be reasonable in light of the standards within the particular industry. Courts are free to strike down contract modifications that are brought about by duress or bad faith.

CROSS-REFERENCES

Sales Law.

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