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Contract Clauses Which Prohibit Oral Modifications: How Effective Are They in Tennessee?

Many Tennessee breach of contract cases involve written contracts which contain clauses which provide that no modifications or amendments to the contract are valid unless they are in writing and signed by both parties.  How effective are such clauses?  Can a party successfully prove that a contract was verbally changed or modified even if it contained a “no oral modification” provision?

Clauses which require modifications to be in writing do not always foreclose the possibility that one of the parties can successfully prove that the contract was, in fact, orally modified.  An opinion that gives some pretty good perspective on how such clauses might play out in breach of contract cases is Crye-Leike, Inc. v. Carver (Tenn. Ct. App. 2011).

In the Crye-Leike case, the seller (“Seller”) of a home entered into an “Exclusive Right to Sell Agreement” (the “Agreement”) with a real estate agency (“Agency”).  The Agreement was an exclusive six-month listing agreement.  It provided that the Agency was entitled to a commission from any sale to anyone during the six-month period or from a sale to someone who was shown the home during the six-month period who purchased the home within ninety days after the Agreement expired.

The Agency claimed that it was entitled to a commission from the sale of the home to the person who bought it.  The Seller contended that she did not owe any commission because the buyer was shown the home the day after the Agreement expired.  (It was undisputed that the buyer was shown the home one day after the Agreement expired.)

The Agreement contained a clause which provided that any amendments to the Agreement had to be in writing and signed by both parties.  The Agency filed a breach of contract lawsuit against the Seller. The Agency claimed that the parties had orally agreed to extend the expiration of the Agreement.  The Seller denied this and pointed to the clause disallowing verbal changes.

The trial court held for the Seller on the grounds that the no oral modification clause prohibited any oral modifications.  The Court of Appeals of Tennessee disagreed with the rationale of the trial court.  It held that, as long as the Agency carried its burden of proving that the parties had waived the clause prohibiting oral modifications, the fact that that clause was in the contract was not necessarily outcome determinative.

The Court of Appeals decided that, even though the Agency was entitled to try to prove waiver to defeat the no oral modification clause, it had not done so.  It pointed out that the party seeking to prove waiver has a high burden because a waiver must be proven by clear and unequivocal evidence and by a preponderance of the evidence.

The significance of the Crye-Leike case is that it stands for the proposition that a party in a breach of contract case is allowed to try to prove, and may be able to prove, an oral modification even in the face of a no oral modification clause.

Another significant case involving a no oral modification clause is Tidwell v. Morgan Building Systems, Inc. (Tenn. Ct. App. 1992).  In the Tidwell case, the defendant alleged that the plaintiff could not prove her case because her case depended on an oral modification.  In that case, the court relied on the doctrine of mutual rescission to negate the effect of the no oral modification clause.  It held that the subsequent oral agreements of the parties amounted to a new contract and a mutual rescission of the prior contract which contained the no oral modification clause.

The bottom line is that clauses which prohibit verbal changes to a written contract will not necessarily win the case.  However, as evidenced by the above cases, what they will do is require the party who wants to rely on the oral modifications to present more compelling evidence than he or she would have to present if the written contract contained no such clause.  Tennessee lawyers who handle breach of contract cases are frequently confronted with no oral modification clauses, and should remember that they can’t necessarily do what they say they do — prevent the parties from, in fact, relying on a verbal change or modification.