DISCHARGE OF CONTRACTS

B. Consequences of substituted agreement: The substituted agreement, unlike the executory accord, immediately discharges the original contract. Thus if, in the above example, Debtor fails to pay the $1,100 in 60 days, Creditor has no option as to remedies. He must sue for breach of the new agreement, and cannot recover for breach of the original one. See Rest. 2d, § 279(2).

C. Distinguishing between an executory accord and a substituted agreement: It is important to distinguish between the substituted agreement and the executory accord, since under the former, the creditor immediately loses his right to enforce the original contract, whereas under the latter he does not. But it is frequently extremely difficult to tell whether a particular real-life transaction was one or the other. The answer, of course, depends on what the “intent of the parties” was, but this is often difficult to ascertain. Here are some presumptions that courts use:

1. Disputed or unliquidated claim: If, under the original contract, the debtor disputed either the existence of his debt, or its amount, the presumption is that there is a substituted agreement rather than an executory accord. “This is because it is assumed that the creditor enters into the new agreement to obtain the certainty of a promise rather than the uncertainty of an unliquidated claim.” C&P, p. 804.

a. Liquidated claims: Conversely, if the obligation under the original contract was undisputed and certain as to amount, “it will generally be presumed that the creditor did not intend to surrender his prior rights unless and until the new agreement is actually performed.” C&P, p. 804. Therefore, an executory accord, rather than a substituted agreement, will be presumed.

2. Formalized agreement: The more deliberate and formalized the agreement is, the more likely it is that the parties intended to substitute the new agreement for prior claims. Id.

a. Informal agreement: So a very informal (perhaps oral) modification of a formal agreement is probably an executory accord, not a substituted agreement; if so, the obligee can sue on the original contract.

D. Formal requirements for substituted agreement: A substituted agreement is often called a “modification.” Depending on whether the contract falls under the UCC or not, a modification of it may have to satisfy a requirement of consideration, a requirement of a writing, or both.

1. Consideration requirement: Some states hold that where a modification operates solely to the benefit of one party, it is ineffective because it is not supported by consideration. (The party receiving the benefit of the modification has not given up anything in return.) Other states hold that even where the modification is completely one-sided, it is enforceable if it was made after unforeseen difficulties arose in performing the original agreement. And a few states have simply held that no consideration is necessary for a modification. C&P, pp. 184-85.

a. Some new obligation sufficient: Even those states requiring consideration for a modification hold that a very small change in each party’s duties is sufficient. Thus where a building contractor threatens to cease work unless the price is raised, a modification whereby he agrees to perform slightly different (even if not necessarily more burdensome) duties in return for a higher price will be upheld. See supra, p. 100.

b. UCC: The UCC explicitly does away with the requirement of consideration for modifications of sales contracts. § 2-209(1) provides that “An agreement modifying a contract within this article needs no consideration to be binding.”

2. Requirement of a writing: Virtually all states, and the UCC (§ 2-209(3)), agree that if a contract as modified must satisfy the Statute of Frauds, the modification must be in writing. The topic is discussed further supra, p. 288.