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United States of America > New York > Litigation Dispute resolution > Advisory > Article > A 'No Oral Modification' Clause Means What It Says

Article: A 'No Oral Modification' Clause Means What It Says

Common to many commercial contracts especially between sophisticated parties is an integration clause that provides, among other things, that any change to the contract must be in writing. In Nassau Beekman, LLC v. Ann/Nassau Realty, LLC,1 New York’s Appellate Division, First Department, recently had an opportunity to reaffirm that such a provision will be enforced even in the face of a prior course of dealing that apparently led one of the parties to presume otherwise.

By contract dated August 14, 2007, the plaintiff (“Purchaser”), agreed to purchase and the defendant (“Seller”) agreed to sell a parcel of real property. The closing date was rescheduled multiple times by written amendments to the contract, each time providing that time was of the essence. It was arguably the practice of the parties to orally adjourn the closing date and then later to confirm the adjourned date by written amendment.

This worked until the final date agreed in writing by the parties, when on September 25, 2008, Seller appeared for a closing at the appointed hour but Purchaser did not. The parties, however, did meet later that day, in an effort to negotiate a new written amendment to the contract. Purchaser also that day sent e-mails that referred to an unexecuted proposed amendment to the contract, but no written modification resulted.

On November 6, 2008, Seller sent a notice of termination, stating that it had elected to exercise its contractual remedy to retain the down payment as liquidated damages. Purchaser filed suit, seeking the return of its down payment and additional money damages for, among other things, alleged wrongful termination and anticipatory breach of the contract of sale. Seller answered and asserted a counterclaim seeking to retain the deposit as liquidated damages.

Both parties moved for summary judgment. Purchaser argued that, consistent with the parties' history of adjourning the closing without signed writings, the September 25 closing had been adjourned by oral agreement on consent of the parties.

The motion court dismissed Purchaser's contract claim, and although it also denied Seller’s motion seeking summary judgment on its counterclaim, granted leave to renew upon submission of certain documents.

On appeal, the First Department reasoned that Purchaser could not refute Seller’s argument based on the terms of the contract and Seller’s proof that it was ready, willing and able to close at the appointed time and place. “The question then [became] whether [Purchaser’s] evidence suffices to create an issue of fact as to whether the parties’ written agreement was modified by an agreement extending the closing date.”

In order to do so, Purchaser had to fall within the rule that “partial performance of an alleged oral modification may permit avoidance of the requirement of a writing,” but only when “any such partial performance [is] unequivocally referable to the modification.”

In considering Purchaser’s contention, the First Department noted:

The “unequivocally referable” standard requires that the conduct must be "explainable only with reference to the oral agreement." Where the conduct is "reasonably explained" by other possible reasons, it does not satisfy this standard. If “the performance undertaken by plaintiff is also explainable as preparatory steps taken with a view toward consummation of an agreement in the future,” then that performance is not “unequivocally referable” to the new contract.     (citations omitted)

Purchaser could not make the requisite showing. The unexecuted proposed amendment to the contract, the emails exchanged between the parties after the scheduled closing time on September 25, 2008, and the later meeting attended by the parties that day were insufficient. Given that Purchaser had already invested $9 million into the project, “it had many reasons to continue meeting and negotiating in order to attempt to salvage the deal despite the expiration of the closing deadline, so meetings held after the time set for the closing do not establish that an extension was orally agreed to.” In other words, the conduct of the parties could have been an effort to negotiate a new deal rather than the demonstration of an agreement to adjourn the closing date. Accordingly, “[t]he parties’ past ability to arrive at a mutually acceptable written modification does not justify reliance on an assumption that they would be able to agree on the necessary written modification in the future.”

The lesson for contracting parties is straightforward. A “no oral modification” clause means what it says. Past performance and course of dealing will not alter that fact unless the claimed modification is memorialized in writing. And, relying on partial performance of an oral modification is a low percentage strategy as it can only work if the performance is “unequivocally referable to the modification.”

Last Update: 2013-Apr-12 Charles E. “Trip” Dorkey III - Dentons
The contents of this page do not constitute legal advice or create an attorney- client relationship with the contributor. Do not apply anything you read here without contacting a professional.
Author: Charles E. “Trip” Dorkey III
Law Firm: Dentons
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