A core tenet of contract law is that the contracting parties are masters of the agreement. Parties negotiate and agree upon terms they expect to be binding. Most commercial agreements include an integration or merger clause stating that the signed contract is the complete and final agreement between the parties and supersedes all prior agreements on the same subject matter between those same parties.
Most commercial agreements also include a provision that states any future modifications to the agreement must be in writing and signed by the parties. In other words, there will be no oral modifications to the contract. These provisions make sense. After all, the parties deliberated, negotiated and compromised until they reached terms that both sides could live with.
So what happens when the parties have an ongoing working relationship and they modify their conduct from what was written in the agreement? Perhaps the parties are jointly developing a product and, as the work proceeds, the teams from each company realize that one company will have to contribute more than was originally anticipated. Because the parties have worked so closely on the project, the relationship takes on an informality that leads to the teams deciding orally that the terms of the written agreement should change.
This is exactly why that “no oral modification” provision is in the contract. The lawyers anticipated this and similar scenarios and included the provision to make sure that the contract is not modified without careful consideration and buy-in from the highest levels of the companies. But dispute the use of “no oral modification” provisions, an oral modification might actually be enforceable.
In transactions concerning the sale of commercial goods in Ohio, R.C. 1302.12 provides, “A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded. . . .” In other types of contract as well, a provision can be waived based on the conduct of one or both of the parties.
On the whole, is the provision worth inserting in a contract? Sure it is, and it can be helpful in many situations, but it’s not bullet proof.
[Authored by Marla R. Butler and David Castillo Gocher and published in Today’s General Counsel and modified in part by The Behal Law Group]
