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09/19/14 It's the Law: Oral Modification Barred But Still Allowed

It's The Law

Oral Modification Barred But Still Allowed

(09/18/14)

Question:

I signed a contract but later wanted to change it. The contract included a sentence that stated any modification must be in writing. We orally agreed to change some of the provisions, including the price and when it was completed, the other side refused to honor the price change and demanded payment per the written contract. He pointed to the language prohibiting oral modification. Can he get away with that?

Answer:

The benefit of a written contract is it establishes terms of an agreement and does not rely on the memory or claims of the parties for that determination. It avoids problem with proving terms of an oral agreement. That benefit is weakened when one or both parties claim the written contract does not reflect the "real" agreement.

There are two basic methods to try and avoid argument that the written contract not accurately states the agreement of the parties. The first is a merger or integration clause. That is a clause which states the written contract is the final and complete agreement between the parties and that all prior oral negotiation and agreement is merged into the written document. But, in Florida, an integration clause does not finally conclude the issue. Courts still must determine if the party truly intended integration in time they signed the contract. That means evidence of oral discussions and agreements prior to signing the contract become relevant and can be made known to the court.

The other type of clause bars oral modification of a written contract signed by the parties. That clause means that modification of the written contract can only be in writing signed by the parties. But, these clauses are also not iron clad and can be set aside.

Integration clauses and no oral modification provisions can both be unenforceable if a party can establish fraud, that the agreement is incomplete or ambiguous or that the contract is somehow invalid. Perhaps most importantly in the no oral modification cases is course of conduct of the parties. That was recently explained by the court in the case of Okeechobee Resorts, L.L.C. v. EZ Cash Pawn, Inc.

EZ Cash Pawn was a pawn broker that loaned money to Okeechobee Resorts with a Chevrolet truck as collateral. The written agreement had a default date of June 14, 2011 after which EZ Cash was permitted to sell the truck.

The written contract included a provision prohibiting oral alteration of its terms. Florida statutes also prohibit oral extension of a default date in a pawn contract. After the default date, EZ Cash sold the truck and Okeechobee filed suit.

Okeechobee claimed EZ Cash had orally agreed to extend the default date numerous times, with a final extension through July 5, 2011. It also claimed it deposited sufficient funds into its attorney's trust account before the July 5 deadline and that when its lawyer tried to pay off the loan, she was told the truck had already been sold. EZ Cash argued its contract and the statute prohibited oral extension of the default date and the trial judge agreed. Okeechobee appealed.

The appellate court explained that contracts are voluntary and that the parties are free to bargain for and specify terms and conditions of their agreement. That is a constitutionally protected right. That freedom includes the right to agree on a term prohibiting oral modification. It further explained that the court cannot re-write a clear and unambiguous voluntary contract. But, as far back as 1956, Florida's Supreme Court confirmed that even when an agreement expressly prohibited oral modification, it could be altered or modified by oral agreement if the parties accept and act on the oral modification in such manner as would work a fraud on either party to refuse to enforce it.

Applying the Supreme Court's standard, court agreed the trial court correctly granted judgment against Okeechobee. It explained Okeechobee failed to establish the parties had acted upon the oral modification. Okeechobee claimed it sold property to raise cash and pay the loan, but that was not actual performance of the contract as Okeechobee claims it was modified. And, it provided no benefit to EZ Cash. EZ Cash acted under the written contract in selling the truck after the original default date. Okeechobee's claim of oral modification, without more, was insufficient to vary terms of the written contract.

Although there are ways around integration and no oral modification clauses, those ways are not easy. If you want to change terms of a written contract including these clauses, a good attorney is essential.

By: William G. Morris, Esquire.

William G. Morris is an attorney with offices at 247 North Collier Boulevard on Marco Island, Florida. His practice covers a broad range of subjects, including civil litigation, real estate, business and corporate law, estate planning and probate, domestic relations and contracts. He writes this column periodically with respect to legal matters that frequently affect non-lawyers. The information contained in this column is not intended as legal advice and, of necessity, is generalized. For questions about specific circumstances, the reader should consult a qualified attorney.

Questions for this column can be sent to: William G. Morris, e-mail: wgmorrislaw@embarqmail.com or by fax, (239) 642-0722 or

The Marco Island Eagle Other articles of interest can be viewed at our website, www.wgmorrislaw.com

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