By Tin-Fu (Tiffany) Tsai
We know that actions speak louder than words, but is this true regarding contract formation and modification? As contracts are being reviewed and revised more frequently due to the COVID-19 pandemic, this is something that parties should consider.
To honor the freedom to contract, common law imposes very few requirements of contract formalities--the Statute of Frauds is one that renders certain contracts unenforceable if not in writing. The New York General Obligation Law (GOL) codifies this principle and mandates certain contracts to be in writing, including the sale of real estate, the costs of goods over $500, a marriage contract, the guarantee of another's debt or contracts that cannot be completed within one year. When it comes to contract modifications, the "No Oral Modification" (NOM) clause becomes standard in contracts, which spells out the procedure of contract modification to bar the possibility of oral variations. GOL §15-301(1) and The Uniform Commercial Code §2-209(2) recognizes the enforceability of the NOM clause. From the above, in the world of contracts, the written words usually speak louder than actions in the form of oral agreements. Under certain circumstances, actions do prevail even when there are NOM clauses in place. In the New York courts' eyes, the NOM clause can be waived when the party that benefited from the clause acts inconsistently with its term. Therefore, a "No Oral Waiver" clause can serve as additional protection to prevent unintentionally waiving contractual rights and obligations orally. Another exception to the NOM clause is when "Partial Performance" comes into play, where one party partially completed performance under an oral contract. Yet, it must be "unequivocally referable to the oral modification". As an example, the emails sent after the closing date of a real estate contract with an unexecuted proposed amendment are not explainable solely by reference to the oral modification, but rather explainable as preparatory steps toward a future agreement. GOL §5-703 provides partial performance exception for contracts regarding the conveyance of an interest in real property. The "Equitable Estoppel" is also an exception. It applies if one party has induced another's significant and substantial reliance upon an oral modification and if the conduct relied upon is not otherwise compatible with the agreement as written. For example, a continuous payment for service after the contract expiration date may not be sufficient to prove the parties' oral modification of the extension. The best practice is to put contracts and modifications in writing, and maintain a consistent position during the life of the contract.
Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any subject matter.