Most well-drafted legal documents include language that provides that the agreement cannot be modified except by a written agreement signed by both parties — or some other provision of similar effect. You may think that means that nothing you say can modify the documents. However, this is not necessarily the case. Under New York law, even where an agreement contains an express no oral modifications clause, there are circumstances under which the agreement can be modified by what you say, your conduct, what you write in an email or other forms of communication that don’t amount to a written agreement.
When will the courts find that an agreement has been modified even though no written modification agreement has been signed? Why would the courts choose to ignore a provision that specifies that an agreement cannot by modified except by an executed written agreement?
As a general rule, courts will honor no oral modification clauses. In fact, there is a New York statute that specifically provides for it. However, there are exceptions. The most common are the doctrines of part performance, waiver, promissory estoppel and equitable estoppel.
In this series, we will look at each of these exceptions individually.
The doctrine of part performance protects a party who has relied on an oral modification and held up at least part of its side of the bargain. It prevents the other party from avoiding living up to its side of the bargain simply because the agreement was not in writing.
Under this theory, the party seeking to enforce the oral modification must show that it relied on the modification to its detriment, that it partially performed its obligations under the terms of the modification and that the partial performance is “unequivocally referable” to — or could only have resulted from — reliance on the oral modification. In addition, the party must put forth detailed factual allegations to establish the modification, because unsubstantiated, vague and conclusory allegations are insufficient.
By way of example, in the 1989 case of Scutti Enterprises v. Wackerman Guchone Custom Builders, the defendant unsuccessfully sought to avoid its obligation to honor an option to purchase because it has not signed the deed in which the obligation was contained.
Plaintiff Scutti entered into a contract of sale with Defendant Wackerman whereby Scutti agreed to convey 12 acres of land to Wackerman and in exchange received the option to purchase another parcel once the required subdivision was completed. The contract provided that the option would expire six months from the closing date and that the terms of the option would be set forth in the deed.
Prior to closing, the parties realized that 6 months was not enough time to complete the subdivision and that the option period should be extended. The extended option period was memorialized in the deed recorded at closing; however, the deed was signed only by Scutti and not by the defendant.
Scutti lost in the lower court, because the modification was not contained in a written agreement signed by the defendant. However, on appeal, Scutti prevailed. The appellate court found that a signed written agreement was not required, because the doctrine of part performance applied to this case.
The court noted that the plaintiff showed that it performed its side of the bargain by conveying the 12 acres to the defendant. The partial performance was “unequivocally referable” to the oral modification, both because the obligation to convey was contained in the same document as the option to purchase and because the partial performance was carried out “with a view to defendant’s performance.” And finally, the plaintiff showed that fraud, injustice and hardship would result if the oral modification were not enforced.
Next week, we will look at the doctrine of waiver.