1999 03-04A March - April Article; When Can Oral Agreements Modify Written Contract

The Law Offices of DAVID J. SUTTON, P.C., ------

When Can Oral Agreements Modify Written Contracts?

Mr. Small Businessman and Mr. A. Client reached an oral agreement and later put the agreement into writing. When a dispute arose over what they had agreed to, Mr. Businessman filed suit. At trial, will the court allow him to introduce the oral agreement into evidence to prove what they had agreed to?

Timing Is Everything

Whether a court will allow into evidence an oral agreement that modifies or conflicts with a written agreement usually depends on when the oral agreement was reached. Courts generally disallow an oral agreement that precedes a written document. Courts assume that when parties reduce an agreement to writing, all previous oral agreements merged in the writing. The resulting written contract cannot then be modified or changed by evidence of preceding oral agreements, absent mistake or fraud in the preparation of the writing.

This requires the court to inquire into and determine the parties’ intent. When a contract does not express the parties’ complete agreement and understanding, a court may consider previous oral communications, but only to explain the meaning of the contract -- not to vary its terms.

Later Oral Agreements

What if the original written contract precludes any oral changes? In most states, the courts allow parties to alter or modify a written contract by later oral agreements. But only if the parties show that they thought they were entering into an enforceable oral agreement. This is because courts usually hold that parties to a contract should be free to modify their agreement with consent of all parties at any time in any way they see fit.

Some Agreements Must Be in Writing

Agreements that must be in writing to be enforceable include marriage proposals, agreements that cannot be performed within a year, the sale of land or granting an interest in land for longer than a year, and certain guarantee agreements. Good business practice would suggest always putting agreements into writing in case enforcing them in court becomes necessary.

As a practical matter, legal counsel when reviewing contracts usually insert a clause stating that the contract represents a final expression of the parties’ intent. Such a clause would typically read: “This agreement sets forth the entire understanding of the parties hereto with respect to the transactions contemplated hereby. This agreement supersedes all previous agreements and understandings between or among the parties regarding the subject matter hereof, whether written or oral.”

If your business needs help with contracts, please call us. We would be glad to suggest ways to meet your needs.