MIAMI BUSINESS LITIGATION: CONTRACTS MAY SOMETIMES BE ORALLY MODIFIED EVEN WHEN PROHIBITED

Contracts often prohibit parties from changing the contract terms unless it is in writing and signed by the parties. The purpose of this clause is to establish proof that the parties agreed to the modification of the contract. Parties will often ignore or forget about these clauses. So, when parties appear to have modified the contract by their conduct, the oral modification may be enforced because to do otherwise may cause an inequitable result. Peter Mavrick is a Miami business litigation attorney, and also represents clients in business litigation in Fort Lauderdale and Palm Beach. The Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.

Parties choose the terms of the contracts they enter, and those terms will generally be enforced unless the contract is illegal or otherwise unenforceable. Pol v. Pol, 705 So.2d 51 (Fla. 3d DCA 1997) (“[A] court cannot rewrite the clear and unambiguous terms of a voluntary contract”); Int’l Expositions, Inc. v. City of Miami Beach, 274 So.2d 29 (Fla. 3d DCA 1973) (“[C]ourts may not rewrite, alter, or add to the terms of a written agreement between the parties and may not substitute their judgment for that of the parties in order to relieve one from an alleged hardship of an improvident bargain”). This right to freely contract is right under the Constitution. Nw. Nat’l Life Ins. Co. v. Riggs, 203 U.S. 243 (1906) (explaining that the right to contract is constitutionally protected). Parties are free to modify their contracts if they agree to do so. “It is well established that the parties to a contract can discharge or modify the contract, however made or evidenced, through a subsequent agreement.” St. Joe Corp. v. McIver, 875 So. 2d 375 (Fla. 2004). An oral agreement to modify a written contract may be enforceable if the written contract does not have any clause that prevents oral modification. Schroeder v. Manceri, 893 So.2d 603 (Fla. 4th DCA 2005) (oral extension of default date was enforceable as it was not required to be in writing by statute or terms of contract).

The freedom to modify a contract can be restricted by a clause that prohibits any modification of the contract except under certain circumstance. One such term is a “no-oral-modification” clause, which requires any modification to the written contract to be performed in a particular way, i.e., in writing and signed by the parties. When complied with, these no-oral-modification clauses help limit the risk that one party believes the terms of the contract had changed, while the other party believes that they have not. Courts are wary of entertaining arguments that the contract was orally modified when the contract has a no-oral-modification clause. It can be very easy for an unscrupulous litigant to claim that there had been an oral modification of an agreement when one had not actually occurred. Conversely, it would be unjust for courts to enforce a contract as written when a party can show that the other party acquiesced to a modification.

Courts will permit the oral modification of a written contract with a no-oral-modification clause in certain circumstances. “A written contract or agreement may be altered or modified by an oral agreement if the latter has been accepted and acted upon by the parties in such manner as would work a fraud on either party to refuse to enforce it.” Professional Insurance Corp. v. Cahill, 90 So.2d 916 (Fla.1956). Such an oral modification of a written contract must be shown by the parties “subsequent conduct,” and the modification be “supported by proper consideration.” St. Joe Corp. v. McIver, 875 So.2d 375 (Fla. 2004).

[A] party seeking to enforce an oral modification in the face of a ‘no oral modification’ clause must show that the parties accepted and acted upon the alleged modification […] and that a refusal to enforce the modification would ‘work a fraud’ because the party seeking to enforce the modification provided—and the resisting party accepted—additional consideration for the modification.

Okeechobee Resorts, L.L.C. v. E Z Cash Pawn, Inc., 145 So. 3d 989 (Fla. 4th DCA 2014); W.W. Contracting, Inc. v. Harrison, 779 So. 2d 528 (Fla. 2d DCA 2000) (finding that an agreement that stated that equipment was provided “as-is” may have been modified by the conduct of the parties when a party leasing heavy equipment relied on the representations by the leasing company that the equipment would be repaired by accepting the broken equipment and making payments on it); Rhodes v. BLP Assocs., Inc., 944 So.2d 527, 530 (Fla. 4th DCA 2006) (“A written agreement may be modified by the subsequent conduct or course of dealing of the parties,” provided the modification is by “mutual consent[ ] and supported by consideration”).

In Okeechobee Resorts, L.L.C. v. E Z Cash Pawn, Inc., 145 So. 3d 989 (Fla. 4th DCA 2014), the borrower entered into a written loan agreement with the lender and put its truck up as collateral for the loan. The contract contained a clause that stated “[n]o oral representations shall in any way change or modify these written conditions.” The borrower made a late payment on the loan, and the lender defaulted the borrower and sold the truck. The borrower filed a lawsuit against the borrower and claimed that the lender told the borrower that it would accept the late payment. The borrower said that it relied on the lender’s assurances and sold unrelated personal property to get the money necessary to make the payment after the lender allegedly agreed to accept late payment.

The trial court entered summary judgment against the borrower because the mere assertion that the parties simply came to different oral agreement was not enough to allow the oral modification of a contract when there was a no-oral-modification clause. Okeechobee Resorts agreed, and explained that the detrimental reliance at issue must be based upon both of the parties’ conduct, not simply unilateral reliance by one of the parties. “[T]he trial court was obligated to enforce the contract as plainly written. The parties bargained for the right not to be entangled in vexatious and prolonged litigation based upon alleged oral modifications of their agreement, and the trial court’s order correctly held them to that bargain.” Id.

Peter Mavrick is a Miami business litigation lawyer who also practices business litigation in Fort Lauderdale and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.