California First-Year Law Students' Exam (Baby Bar) — MCContractsMedium
A general contractor enters into a contract with a landowner to build a commercial building for $5 million. The contract contains a clause stating, "No modification of this Agreement shall be effective unless it is in writing and signed by both parties." During construction, unforeseen soil conditions require extra work. The landowner orally agrees to pay an additional $50,000 for this work. After completion, the landowner refuses to pay the extra $50,000, citing the 'no oral modification' clause. Under the common law, what is the most likely outcome?
- AThe landowner is not obligated to pay the additional $50,000 because the 'no oral modification' clause is strictly enforced under common law.
- BThe landowner is obligated to pay the additional $50,000 because the oral agreement effectively modified the contract, despite the 'no oral modification' clause.
- CThe contract is entirely void due to the attempted oral modification of a written agreement.
- DThe contractor can recover the $50,000 under promissory estoppel, as they relied on the landowner's oral promise to their detriment.
Show answer & explanationAnswer & explanation
Correct answer: B. The landowner is obligated to pay the additional $50,000 because the oral agreement effectively modified the contract, despite the 'no oral modification' clause.
Under common law, a 'no oral modification' clause can itself be orally modified or waived. Thus, the subsequent oral agreement to pay the additional $50,000 for extra work is enforceable.
Why the other options are wrong
- A. This is incorrect. While such clauses exist, common law generally allows for their waiver or oral modification.
- C. An attempted oral modification does not void the entire contract; it merely raises a question of the validity of the modification itself.
- D. While promissory estoppel might be an alternative argument, the more direct common law principle is that the clause itself can be orally modified or waived, making the oral agreement enforceable as a modification.
No Oral Modification Clause (Common Law)
A contractual provision stating that any changes to the contract must be in writing and signed by both parties. Under common law, such clauses can generally be orally waived or modified by subsequent agreement.
- Common law treats NOM clauses as non-binding; parties can orally agree to modify them.
- UCC Section 2-209(2) takes a different approach for sale of goods.
- Waiver or estoppel can also circumvent a NOM clause.
Memory trick: Written Rules, Oral Exceptions?