The Dubious Enforceability of ‘Only Can Be Modified by a Written Instrument’ Clauses
July 8, 2021
How many times over the years have you seen a clause in a contract stating that it only can be modified by a written instrument signed by the parties? Depending upon how long you have been practicing, the answer may well be hundreds, if not thousands. The problem with such a clause, however, is that it may not be as binding as it appears. Indeed, in a recent decision by Judge Saris in the Federal District Court, she ruled that a series of contracts prohibiting oral modifications or modification by conduct were, in fact, modified by words and acts.
In May of 2019, Sasha Hoffman began working for Thras.io Inc. pursuant to a written “Consulting Agreement” covering the period May 1 through July 31, and the parties subsequently entered into three additional Consulting Agreements that extended the term of her work through October. Each Consulting Agreement contained the following clause:
No provision of this Consulting Agreement may be modified, amended, waived or terminated except by a prior instrument in writing signed by the parties to this Consulting Agreement. No course of dealing between the parties will modify, amend, waive or terminate any provision of this Consulting Agreement or any rights or obligations of any party under or by reason of this Consulting Agreement.
After their relationship ended, a dispute arose as to whether Hoffman was entitled to a grant of equity in Thras.io, and she eventually brought suit on a variety of theories. Thras.io moved to dismiss Hoffman’s complaint, in part because (i) the Consulting Agreements contained the entire agreement between the parties, (iii) there was no equity grant referenced in any of the Consulting Agreements, and (iii) there had been no written modification stating that she was entitled to equity in the company. Judge Saris rejected this argument, however, stating:
The complaint has alleged sufficient facts to plausibly overcome the modification clause. “[A] provision that an agreement may not be amended orally but only by a written instrument does not necessarily bar oral modification of the contract.” … “Whether an oral modification occurred can be inferred from the conduct of the parties and from the attendant circumstances of the case.” … The proponent of the oral modification must present evidence “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.” … Here, Hoffman has alleged a repeated course of communications with [Thras.io] confirming the terms of her equity grant. She has also alleged multiple promises by [Thras.io] through emails. These allegations are sufficient to overcome this presumption.
So, while a clause in a contract saying that it only can be modified by a writing signed by the parties may have presumptive enforceability, that presumption can be overcome. Further, it is critical for in-house counsel to keep this in mind, not just to ensure that they do not say or do anything that might lead to an inadvertent modification of an agreement, but also so that they can monitor and advise the company’s business people to do the same.
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