A construction company contracted with a landowner to build an office building for $5 million. The contract specified that 'all change orders must be in writing and signed by both parties.' During construction, the landowner orally requested several minor modifications, stating, 'Don't worry about the paperwork; we'll settle up at the end.' The construction company completed the modifications, incurring additional costs of $50,000. The landowner now refuses to pay for these modifications, citing the 'in writing' clause. If the original contract was for the sale of land, how would a court likely rule regarding the $50,000?
- AThe construction company is entitled to the $50,000 under the doctrine of substantial performance.
- BThe construction company is entitled to the $50,000 under promissory estoppel, as they relied on the landowner's promise.
- CThe construction company is not entitled to the $50,000 because all modifications must be in writing and signed.
- DThe construction company is entitled to the $50,000 under the oral modification due to the landowner's waiver of the 'in writing' clause.
Show answer & explanationAnswer & explanation
Correct answer: B. The construction company is entitled to the $50,000 under promissory estoppel, as they relied on the landowner's promise.
Since the contract involves services (construction) and is governed by common law, a 'no oral modification' (NOM) clause is generally not effective. However, the issue here is that the modifications themselves would typically require consideration. Promissory estoppel is a common law doctrine that can enforce a promise even without consideration if there was a clear and unambiguous promise, reasonable and foreseeable reliance by the promisee, and injustice can only be avoided by enforcement.
Why the other options are wrong
- A. This is incorrect. Substantial performance relates to whether a party has fulfilled their primary obligations under the contract sufficiently to be entitled to payment, not to the enforceability of specific modifications.
- C. This is incorrect. Under common law, a 'no oral modification' clause can often be orally waived or modified itself, so the initial clause doesn't automatically bar all oral modifications, especially when there's reliance.
- D. This is incorrect. While common law generally allows oral modification despite NOM clauses, the issue here is the lack of consideration for the modification. Waiver is a possibility, but promissory estoppel is a stronger argument for recovery of costs incurred.
Promissory Estoppel (Contract Modification)
Promissory estoppel can enforce an oral modification to a common law contract, even if it lacks consideration or violates a 'no oral modification' clause, where one party reasonably and foreseeably relies on the other's promise to their detriment, and injustice can only be avoided by enforcement.
- Applies in common law jurisdictions.
- Requires a clear and unambiguous promise.
- Promisee must reasonably and foreseeably rely on the promise.
- Reliance must result in detriment to the promisee.
- Injustice can only be avoided by enforcing the promise.
Memory trick: Oral changes can Overcome Written clauses, if Reliance is Right and Real.