Can an Oral Modification Change a Written Agreement?

Posted on May 23, 2013
Can an Oral Modification Change a Written Agreement?

[1] Many contracts contain clauses that require modifications to a written agreement to also be in writing, but they are not always enforceable. “No Oral Modification” clauses—or, NOM clauses—are often included in commercial business contracts as boilerplate terms for the purpose of limiting future unintended contract modification or amendment.

Unless the statute of frauds applies, contracts that include such clauses can still be modified orally. The statute of frauds applies in a limited number of instances. For example, a contract for the sale of real estate, or a contract between merchants for the sale of goods greater than $500. If the statute of frauds applies, a written agreement or a written modification is always required.

Logic suggests that parties should be able to agree that their contract can only be modified by a writing.[2] However, that is not the law. The reason for this rule is that subsequent oral modifications have the same contractual force and effect of law as the written agreement.[3] In practice, parties to a commercial, business, or other written contract containing a NOM clause may essentially orally waive the limiting clause and subsequently amend or modify the contract without written evidence.

Failure to recognize the ineffectiveness of such clauses could provide the parties to the agreement with a false sense of security. If the parties assume that “No Oral Modification” clauses operate as a protective mechanism that allows them to talk freely and informally about the terms of an amendment or modification with no fear that discussions could lead to a modified agreement until they are reduced to writing, then they might be upset to learn that is not necessarily true.

Of course, this is not an exhaustive discussion of the law on these issues. For more information on this topic, please email Shannon Wilde, or call him at (361) 886-3800.

[1] Summary derived from: Benoit, Brent, Transcending Disciplines: What every transactional lawyer should know about litigation, Texas Journal of Business Law, Vol. 45, No. 2, Spring 2013, pgs. 145-166.

[2] Morrison, 6 S.W. at 609; Am. Garment Prop., Inc. v CB Richard Ellis-El Paso, L.L.C., 155 S.W.3d 431, 435 (Tex. App. – El Paso 2004, no pet.); Robbins v. Warren, 782 S.W.2d 509, 512 (Tex. App. – Houston [1st Dist.] 1989, no writ), Mar-Lan Indus., Inc. v. Nelson, 635 S.W.2d 853, 855 (Tex. App. – El Paso 1982, no writ).

[3] Am. Garment Prop., Inc., 155 S.W.3d at 435.