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California Contracts: Are No Oral Modification Clauses Enforceable?

Many written business contracts contain what are commonly called no oral modification clauses. In general, such no oral modification clauses state that any modification of the contract must be in writing and signed by the parties. However, business owners should take a cautionary view of such clauses.

San Diego Contract Modifications: Legal Principles

California Corporations Code § 1698 governs modifications of written contracts. Subsection (a) states that a written contract may be modified by “a contract in writing.” As for oral modifications, the statute provides in pertinent part:

“(b) A contract in writing may be modified by an oral agreement to the extent that the oral agreement is executed by the parties. (c) Unless the contract otherwise expressly provides, a contract in writing may be modified by an oral agreement supported by new consideration…. (d) Nothing in this section precludes in an appropriate case the application of rules of law concerning estoppel, … [or] waiver of a provision of a written contract….”

Pursuant to the statute, even if a written agreement has a no oral modification provision, the parties to the contract may, by their words or conduct, waive contractual rights. See Galdjie v. Darwish, 113 Cal.App.4th 1331 (Cal. App. 2nd Dist. 2003). Essentially, California courts apply subsection (d) as quoted above and hold that one party (or both) have waived the no oral modification clause. Waiver is the intentional relinquishment of the no oral modification clause or acting in a manner that is “so inconsistent with an intent to enforce the right as to induce a reasonable belief that such right has been relinquished.” DuBeck v. California Physicians’ Service, 234 Cal.App.4th 1254 (Cal. App. 4th Dist. 2015).

A recent case involving Disney Studios provides a good case example. See Wind Dancer Production Group v. Walt Disney Pictures, 10 Cal. App. 5th 56 (Cal. App. 2nd Dist. 2017). Disney had various payment agreements with producers of various shows and films. The agreements provided that Disney would provide payments along with a payment statement. The agreements also stated that a producer had 24 months to object to any payment statement and that failure to object waived any further right to sue or contest the statement or the payments received. Disney also allowed the producers to demand audits of the statements, but the audits were often delayed. The agreements had no oral modification clauses, but because of the audit delays, the producers often demanded extra time. In the lawsuit, the producers claimed that Disney executives orally waived or extended the 24-month deadline for the producers at issue in the case. The Court of Appeals held that a jury should decide the facts on that question. The court held that the no oral modification clauses did not preclude the possibility that Disney voluntarily waived the right to enforce the no oral modification clauses.

San Diego Contract Modifications: Steps Your Business Should Take

If you have business contracts containing no oral modification clauses, you should first and foremost, consult a good San Diego corporate attorney for advice and counsel with respect to the unique circumstances. Beyond that, in general, avoid waiving the no oral modification clause in emails or letters and avoid taking actions that might be interpreted as a waiver. If your business wants to take such actions, then written correspondence should be sent stating that the actions are not meant to waive the no oral modification clauses.

Contact San Diego Corporate Law Today

If you would like more information about no oral modification clauses or other common provisions in your business contracts, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard can be reached at (858) 483-9200 or via email.