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Tuesday, November 23, 2010

"No oral modification" clause dooms claim under public contract

A Courts are often reluctant to enforce contract clauses that prohibit the parties from making oral modifications to contracts and require that all changes be in writing signed by the parties. California courts tend to ignore these "no oral modification" clauses in private transactions, as we’ve noted before.

But when it comes to public contracts, the rules are different, according to a recent decision by the California Court of Appeal, which as usual refuses to publish its contract decisions. In P&D Consultants, Inc. v. City of Carlsbad, No. D054810 (Cal. App. 4th Dist. Nov. 19, 2010), 2010 Cal. App. Unpub. LEXIS 9209, a contractor (P&D) racked up costs in performing work authorized orally by the city. The contract had a provision that prohibited oral modifications. The trial judge gave what look to be normal "no oral modification" instructions:

P&D . . . claims that the original contract was modified, or changed. P&D . . . must prove that the parties agreed to the modification. [The] City . . . denies that the contract was modified.

The parties to a contract may agree to modify its terms. You must decide whether a reasonable person would conclude from the words and conduct of P&D . . . and [the] City . . . that they agreed to modify the contract. You cannot consider the parties' hidden intentions.

A contract in writing may be modified by an oral agreement to the extent the oral agreement is carried out by the parties.

The jury found for P&D and the city appealed.

Wrong, said Presiding Judge Judith McConnell, holding that P&D’s claim was barred as a matter of law by the contract provision. While courts may ignore that "no oral modification" language in private agreements, the writing requirement in a public contract is apparently critical:

We reverse the judgment on the first amended complaint (hereafter complaint) based on the contract's requirement of a written change order. Unlike private contracts, public contracts requiring written change orders cannot be modified orally or through the parties' conduct. Thus, even if P&D's evidence pertaining to the oral authorizations of a city employee for extra work are fully credited, P&D cannot prevail. The court erred by submitting the matter to the jury; it should have granted the City's motion for nonsuit. Because the contract issue resolves the matter, we need not address Government Code section 406021 or the sufficiency of the evidence.

What is particularly interesting in the decision is that the court relied solely on the contract language for its decision.  The court gave no apparent explanation for drawing a distinction between the same clause in private and public contracts—that’s presumably one of the advantages in issuing opinions that can't be cited back to you later if you change your mind—except to note that one who deals with a public official must at his own peril make sure that the official has the necessary authority.

Given that at one point in the opinon Judge McConnell notes that "The fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties," I'm not sure why the same language indicates different intent in public vs. private contracts.

FGS

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