News & Noteworthy

Authored - NJ Contract Law Update - This Time, an Alleged Oral Modification of a Formal Contract is Defeated by Summary Judgment
FEBRUARY 05, 2013 | Windels Marx - Commercial Litigation

In a December 2012 New Jersey Appellate Division decision, the Court rejected an undocumented attempt at establishing an oral agreement that purportedly modified an original writing and a written modification. Unlike the results in cases such as Pinecrest Village (please see my Article of August 23, 2012, "The Written Contract Is As Clear As Day -- And It Was Reaffirmed In Writing -- But It Can't Be Enforced"), the documents controlled in this case.

Specifically, a commercial loan agreement, promissory note, and guarantee, together with a written modification later extending the maturity date for approximately nine months, were held to be the exclusive source of the parties' obligations. This, notwithstanding defendant's assertion of an oral agreement for a further extension. That assertion was rejected by the courts (trial and appellate) on summary judgment. The courts pointed to:

  1. The absence of any documentation of the modification "commitment".
  2. The affirmative fact that there was correspondence between the parties, which made no mention of any such commitment.
  3. The only supporting Certification having stated simply that "statements were made" by plaintiff regarding the extension; rather than reciting the kind of language that would constitute an agreement to extend the loan.

Pinecrest teaches us that oral modifications may be found to occur, and behavior may be relevant. On the other hand, there is often skepticism about binding oral modifications, when there have been a series of formal written agreements preceding them.

Under some circumstances (e.g., Pinecrest), courts are receptive. There are a variety of circumstances that could affect enforceability of an alleged oral agreement. Sometimes the courts look to actual performance at variance with the written documents. Some focus on the quantum of proof. Sometimes, even an oral agreement of which there is evidence will not be enforced; sometimes the allegation is rejected without much in the way of legal citation.

These issues will pervade (1) every litigation involving alleged oral agreements or modifications; and (2) the drafting of an agreement, to try to avoid future claims of oral agreements to the extent possible. (Sometimes drafting does not help as much as one would expect; see my 8/23/12 Article, id.) Conversely, clients should realize that if it is intended that a discussion constitute a binding agreement, they cannot count on that result unless the agreement is properly memorialized.

Contact & Legal Disclaimer

Clark Alpert is the author of Guide to New Jersey Contract Law, published by the New Jersey Institute for Continuing Legal Education, originally published in 2007 and updated in November 2011. His updates on New Jersey contract law are based in recent issues and practical methods for addressing similar situations in your practice or business. They are not intended to serve as legal advice. Clark welcomes your questions and comments.

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