Restat 2d of Contracts, § 279

• Restatement of the Law, Second, Contracts
• Chapter 12- Discharge by Assent or Alteration
• Topic 2- Substituted Performance, Substituted Contract, Accord and Account Stated
• § 279 Substituted Contract

(1)  A substituted contract is a contract that is itself accepted by the obligee in satisfaction of the obligor's existing duty.
(2)  The substituted contract discharges the original duty and breach of the substituted contract by the obligor does not give the obligee a right to enforce the original duty.

Comment:

a.  Nature and effect of a substituted contract.  A substituted contract is one that is itself accepted by the obligee in satisfaction of the original duty and thereby discharges it. A common type of substituted contract is one that contains a term that is inconsistent with a term of an earlier contract between the parties. If the parties intend the new contract to replace all of the provisions of the earlier contract, the contract is a substituted contract. If a substituted contract brings in a new party it is called a "novation" (§ 280).

Illustrations:

1. A is under a duty to deliver a tractor to B on July 1. On June 1, A offers to deliver a bulldozer to B on July 1 if B will accept his promise in satisfaction of A's duty to deliver the tractor, and B accepts. The contract is a substituted contract. A's duty to deliver the tractor is discharged. If A does not deliver the bulldozer, B can enforce the duty to deliver it but not the original duty to deliver the tractor.

2. A and B make a contract under which A promises to build on a designated spot a building, for which B promises to pay $ 100,000. Later, before this contract is performed, A and B make a new contract under which A is to build on the same spot a different building, for which B is to pay $ 200,000. The new contract is a substituted contract and the duties of A and B under the original contract are discharged.

b.  Validity of substituted contract.  Under the rule stated in § 273, although the discharge that results from a substituted contract is an immediate change in the legal relations between the obligor and the obligee and involves no promise by the obligee, it is not effective unless it is supported by consideration or some substitute for consideration. See Comment c to § 278. Furthermore, to the extent that the substituted contract is vulnerable on such grounds as mistake, misrepresentation, duress or unconscionability, recourse may be had on the original duty. Thus, if the substituted contract is voidable, it discharges the original duty until avoidance, but on avoidance of the substituted contract the original duty is again enforceable. If the substituted contract is unenforceable because of the Statute of Frauds, it does not bar enforcement of the original duty. Cf. § 149.

Illustrations:

3. A owes B a liquidated and undisputed matured debt of $ 1,000. A offers to pay B $ 500 in 30 days if B will accept his promise in full satisfaction of the debt, and B accepts. A's debt is not discharged. See Illustration 3 to § 278.

4. The facts being otherwise as stated in Illustration 1, A by fraudulent misrepresentations induces B to make the contract for delivery of the bulldozer. B may avoid the substituted contract and enforce the original contract, or he may enforce the substituted contract.

c.  Accord distinguished.  Because the original duty is discharged regardless of whether the substituted contract is performed, a substituted contract differs from an accord, under which the original duty is discharged only if the accord is performed. See § 281. Whether a contract is a substituted contract or an accord is a question of interpretation, subject to the general rules stated in Chapter 9. In resolving doubts in this regard, a court is less likely to conclude that an obligee was willing to accept a mere promise in satisfaction of an original duty that was clear than in satisfaction of one that was doubtful. It will therefore be less likely to find a substituted contract and more likely to find an accord if the original duty was one to pay money, if it was undisputed, if it was liquidated and if it was matured. Compare Illustration 1 with Illustration 1 to § 281.

This Section is based on former § 418. See 6 Corbin, Contracts §§ 1293, 1296 (1962 & Supp. 1980); 15 Williston, Contracts § 1846 (3d ed. 1972).

Comment a.  This Comment is based in part on former § 408. Illustration 1 is based on Illustration 2 to former § 419; see also Ohlson v. Steinhauser, 218 Or. 532, 346 P.2d 87 (1959). Illustration 2 is based on Illustration 1 to former § 408.

Comment b.  Illustration 3 is new. Illustration 4 is based on Illustration 4 to former § 408; see Morfeld v. Andrews, 579 P.2d 426 (Wyo. 1978); Fratelli Gardino, S.p.A. v. Caribbean Lumber Co., 587 F.2d 204 (dictum), reh. denied, 590 F.2d 333 (5th Cir. 1979).

Comment c.  This Comment is based on former § 419. See Goldbard v. Empire State Mut. Life Ins. Co., 5 A.D.2d 230, 171 N.Y.S.2d 194 (1958). National American Corp. v. Federal Republic of Nigeria, 448 F. Supp. 622, 642-44 (S.D.N.Y.), aff'd, 597 F.2d 314 (2d Cir. 1978); cf. Leschorn v. Xericos, 121 Ariz. 77, 588 P.2d 370 (Ct. App. 1978).

ALR Annotations:

Right to reformation of contract or instrument as affected by intervening rights of third persons. 79 A.L.R.2d 1180.
Vendee's liability for use and occupancy of premises, where vendor disaffirms an unenforceable land contract. 49 A.L.R.2d 1169.

Digest System Key Numbers:

Contracts 245