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Avoiding a no oral modification clause

December 10, 2018

No oral modification clauses appear in almost all contracts.

 

The clauses typically say something similar to "No amendment or modification of the Agreement shall be effective unless signed by authorized representatives of both Parties." 

 

New York even has a specific statute that endorses this type of clause:

 

A written agreement or other written instrument which contains a provision to the effect that it cannot be changed orally, cannot be changed by an executory agreement unless such executory agreement is in writing and signed by the party against whom enforcement of the change is sought or by his agent.

 

(see New York General Obligations Law §15-301(1)). 

 

Thus, it appears that you cannot orally modify a contract that has a no oral modification clause.

 

But, that isn't the case.  At least in the Second Circuit, there are exceptions to this rule.

 

First, under the principle of equitable estoppel, if "a party to a written agreement has induced another's significant and substantial reliance upon an oral modification," then the party may be estopped from invoking the bar on oral modification. Rose v. Spa Realty Assocs., 42 N.Y.2d 338, 344 (1977). Second, where there is "partial performance of the oral modification sought to be enforced," the requirement of a writing may be avoided. Id. at 343.

 

Aircraft Services Resales LLC v. Oceanic Capital Co. Ltd., Appeal No. 13-3738-cv (2nd Cir. Oct. 9, 2014). 

 

If you have a no oral modification clause in your agreements, be careful because they are not as definitive as you might expect.

 

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