The Standard for Oral Modification of a Written Contract Containing a ‘No Oral Modification’ Clause

The Standard for Oral Modification of a Written Contract Containing a ‘No Oral Modification’ Clause

There is a certain set of criteria that indicates a material breach of contract.

You read that title right. Courts are generally supposed to honor the agreements of private parties wherever possible. Therefore, one might think that where a written contract between two parties prohibits oral modification of the contract, courts would be inclined to reject argument that the contract was modified orally.

One might think. But there is a surprising amount of legal authority to the contrary, holding oral agreements to modify a contract valid despite the inclusion of a ‘no oral modification’ clause in the contract. Some courts have held that the modification would be enforceable where detrimental reliance on the modification was proven (i.e. on the theory of promissory estoppel). Others have held that the parties’ subsequent course of dealings could constitute a waiver of the ‘no oral modification’ clause. Still others have been willing to enforce the oral modification if it was accompanied by new consideration. Some have even held that the oral modification would be upheld where clear and unmistakable evidence of the oral agreement was present (which is to say always).

The Fourth DCA recently weighed in on the issue in Okeechobee Resorts, L.L.C., v. E Z Cash Pawn, Inc., No. 4D13-2674 (Fla. 4th DCA Sept. 3, 2014). The court conducted a thorough discussion of prior Florida cases analyzing the issue, with the general theme of the discussion being that most cases were too lenient in enforcing oral modifications over contractual provisions seeking to prevent them. The Fourth DCA maintains that the appropriate test is the one articulated by the Florida Supreme Court in Professional Insurance Corp. v. Cahill, 90 So. 2d 916 (Fla. 1956), which held that when an agreement expressly precludes oral modifications, the agreement may be altered or modified by an oral agreement only if the latter has been accepted and acted upon by the parties in such manner as would work a fraud on either party to refuse to enforce it.

Now, what does that mean, you ask? As the Fourth DCA acknowledged, “the Cahill court did not elaborate on precisely what is required in order to prove that an alleged oral agreement had been accepted and acted upon by the parties, or under what circumstances a failure to enforce such a modification would work a fraud.” According to the Fourth DCA, though, there must be much more than just a mutual agreement, or just detrimental reliance, or just subsequent conduct, or just consideration, or just generalized inequitable conduct. Here’s what must be found in order for an alleged oral modification to trump a ‘no oral modification’ clause: 

(a) that the parties agreed upon and accepted the oral modification (i.e., mutual assent); and (b) that both parties (or at least the party seeking to enforce the amendment) performed consistent with the terms of the alleged oral modification (not merely consistent with their obligations under the original contract); and(c) that due to plaintiff’s performance under the contract as amended the defendant received and accepted a benefit that it otherwise was not entitled to under the original contract (i.e., independent consideration).

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