In an ideal world, any modification of a contract would be in writing, signed by the parties, notarized and witnessed by an independent third party. In the real world, not only are contracts modified, or terms waived, without all of those formalities; but it is not at all unusual for business people to modify agreements orally with little more than a handshake. Nevertheless, the enforceability of a specific oral modification or waiver can be as unpredictable as the New England weather.
It is fairly common to see a clause like the following in a contract:
No waiver, modification or amendment of any term, condition or provision of this Agreement shall be valid or have any force or effect unless made in writing and signed by the Parties hereto.
While such a provision could not be clearer, the Supreme Judicial Court, surprisingly, held as follows in Cambridgeport Savings Bank v. Boersner:
A provision that an agreement may not be amended orally but only by a written instrument does not necessarily bar oral modification of a contract. … The evidence of a subsequent oral modification must be of sufficient force to overcome the presumption that the integrated and complete agreement, which requires written consent to modification, expresses the intent of the parties.
To make matters even more uncertain, there is a dearth of appellate law explaining what it means for evidence to have “sufficient force” to overcome that presumption.
With respect to oral waivers, the likelihood of enforceability can be even less obvious. While binding precedent holds that a “waiver is the intentional relinquishment of a known right,” of course, there are exceptions to that rule, and a recent Appeals Court case, Downey v. Chutehall Constr. Co., highlights one.
In Downey, Chutehall was hired to replace the roof and a roof deck on Mr. and Mrs. Downey’s Beacon Hill townhouse. While the original proposal called for Chutehall to strip off the existing roof system, Chutehall did not do so. In this regard, Chutehall contended that Mr. Downey represented that there was only one layer of roofing at the time of the work; refused to permit Chutehall to strip the existing layers from the roof; refused to permit Chutehall to do test cuts in the roof to determine the number of existing layers; and specifically instructed Chutehall to install a new rubber membrane over the existing roof.
As it turned out, there were three layers of roofing materials. This made the installation of the rubber membrane by Chutehall a violation of the building code (and a per se violation of M.G.L. Chapter 93A). While the jury found that such violation was the result of the directions given to Chutehall by Mr. Downey and absolved Chutehall for Chapter 93A liability, the Appeals Court noted the following:
A statutory right or remedy may be waived when the waiver would not frustrate the public policies of the statute. … A statutory right may not be disclaimed if the waiver could do violence to the public policy underlying the legislative enactment.
The Appeals Court then, predictably, held that the waiver of the relevant statutory right in this case would offend public policy and remanded the case back to the Superior Court with instructions to enter a judgment against Chutehall.
All of this presents a further reminder to in-house counsel that they need to let their internal business clients know that the enforceability of oral modifications and waivers is very uncertain, and they should apprise you if they even are considering doing so. The last thing you want is to be surprised well after the fact that one of the business people changed the deal in a conversation.