PROBLEM: You are an attorney and your old friend John contacts you. John has rec

Question

PROBLEM:

You are an attorney and your old friend John contacts you.   John has recently started his own business to sell a new product he has developed.   The product is a new design for small, light-weight personal headphones, as would be used with an smartphone, digital tablet, MP3 player or a radio. His questions to you concern several issues of what he should look for in creating contracts for his business.

Question:

(5.)   Because of the problems with the Rippov Corporation magnets, John contacts the President of the Lohassel Magnet Company to purchase the magnets needed for the headphones.  Lohassel and John enter into a contract in which John agrees to purchase 10,000 magnets per month at a cost of $6.00 each.   The contract is in writing and is for one-year. After one month of the contract, the President of Lohassle contacts John and says unfortunately, the company must raise the price of the contract to $7.00 each. John tells Lohassel’s President that he has a valid enforceable contract.  Lohassel’s President responds by stating that “we are a much larger company than your headphone company, we are also a subsidiary of the Good-Buy retail store chain, where you will be selling a large amount of your headphones. If you do not agree to pay $7.00 each, we will not ship the magnets and Good-Buy will never sell your headphones. The ball is in your court.” Reluctantly, John agrees to the higher price for the headphones for the remaining 11 months and signs a new amendment to the contract stating so.

A. Was there consideration for the second (amended) contract? Explain why or why not, and mention and explain what doctrine(s) may apply.

B. Also, can John get out of the second (amended) contract based on lack of consent? Explain why or why not, and mention and explain what lack of consent doctrine(s) may apply. Remember, this transaction would involve a sale of goods under Article 2 of the UCC.

Explanation / Answer

(A)

There was no consideration for the amended contract because no additional value was delivered to John for this extra $1.00 price hike. Continuing shipping magnets and letting the headphones sold are not considerations because John is already doing this even when he is paying $6.00 price per magnet.

Unlike common law where each modification or amendment to a contract requires separate consideration, Article 2 of the UCC does not require that a modification to a contract to have a separate consideration to become enforceable. So, the price amendment by Lohassel Magnet Company and John's acceptance to that is enforceable though there was no consideration.

(B)

Here Lohassel Magnet Company is using its power to influence the contract outcome and thus the consent of John is not free - it is affected by the undue influence of Lohassel Magnet Company. However, UCC article 2 does not have any provision for unenforceability of contracts for duress, misrepresentation, or undue influence, and, therefore, common law principle should apply in this case which makes the amended contract unenforceable.

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