NY Appellate Court Enforces No Oral Modification Clause

Buyer and seller enter into a contract of sale for propertyin Manhattan for a purchase price of over $56 million.  The contract sets a closing date andcontains a no oral modification clause. The parties had extended the closing date numerous times by written agreement.  The buyer, however, didnot appear at the scheduled closing. Later that day, the parties begannegotiating an amendment to the contract of sale.  While the parties communicated by email, their negotiationsdid not result in a written modification agreement.  The seller declared the buyer in breach of contract forfailure to close and notified the buyer that the seller would retain the downpayment (upwards of $9 million). The buyer sued for its return.

After the trial court granted the seller’s motion forsummary judgment, the buyer appealed. Judge Saxe writing for a unanimous appellate court (App Div 1st Dep’t)began the decision:

A standard provision included in many commercial contractsis one requiring any modification of the agreement to be in writing.Nevertheless, courts are presented over and over again with litigation arisingout of circumstances where one party to a contract wrongly presumes, based onpast practice, that an oral modification will be sufficient. This appealillustrates the problem.

The Appellate Division affirmed:

The question then becomes whether [the buyer’s] evidencesuffices to create an issue of fact as to whether the parties’ writtenagreement was modified by an agreement extending the closing date. Since thecontract of sale provided that any amendments or modifications must be in asigned writing, under General Obligations Law §15-301, the contract cannot bechanged by an executory agreement that is not in a signed writing.

The court rejected the buyer’s argument that the existence of a modification was proved by the parties’ full (or at least partial) performance of the alleged oral modification:

We reject [the buyer’s] contention that the parties fullyperformed the oral modification of the contract providing for the adjournmentof the closing, since they met at 3:00 p.m. on [the date of the scheduledclosing]. At best, that 3:00 p.m. meeting could qualify as partial performanceof the alleged oral modification. But, while partial performance of an allegedoral modification may permit avoidance of the requirement of a writing, anysuch partial performance must be unequivocally referable to the modification(see Rose v. Spa Realty Assoc., 42 NY2d 338, 341 [1977]). The”unequivocally referable” standard requires that the conduct must be”explainable only with reference to the oral agreement.” Where theconduct is “reasonably explained” by other possible reasons, it doesnot satisfy this standard (Anostario v. Vicinanzo, 59 NY2d 662, 664 [1983]). If”the performance undertaken by plaintiff is also explainable aspreparatory steps taken with a view toward consummation of an agreement in thefuture,” then that performance is not “unequivocally referable”to the new contract (id.).

* * *

[The buyer’s] submissions fail to satisfy this standard.None of the documents and events that [the buyer] relies on are unequivocallyreferable to the alleged oral extension. The unexecuted proposed fifthamendment to the contract, the emails exchanged between the parties after noonon [the scheduled closing date], and the 3:00 p.m. meeting attended by theparties that day are insufficient. Not only do the emails fail to even indicatethat the closing was adjourned by agreement, but all these items were clearlyexplainable as preparatory steps taken with a view of attempting to arrive at apossible agreement in the future (see Sutphin Mgt. Corp. v. REP 755 RealEstate, LLC, 73 AD3d 738 [2d Dept 2010]; RAJ Acquisition Corp. v. Atamanuk, 272AD2d 164 [1st Dept 2000]). In the absence of a resulting written modification,the mere fact that the parties met at 3:00 p.m. does not negate [the buyer’s]default at the 12:00 p.m. closing, or reflect an adjournment of that scheduledclosing; it may be understood to merely reflect that [the seller] was willingto attempt to negotiate a new modification, as the parties had done oncebefore, and which, if accomplished, would have nullified the default. Since [thebuyer] had already invested $9 million into the project, it had many reasons tocontinue meeting and negotiating in order to attempt to salvage the dealdespite the expiration of the closing deadline, so meetings held after the timeset for the closing do not establish that an extension was orally agreed to.

The court also held that estoppel was inapplicable.

Get those modifications in writing! As Beyonce says, “if you liked it then you should’ve put a pen to it.”

NassauBeekman, LLC v. Ann/Nassau Realty, LLC, 116402/08 (NY App. Div. 1stDep’t Jan. 31, 2013).

[Meredith R. Miller]