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Tuesday, February 5, 2013

NY Appellate Court Enforces No Oral Modification Clause

AppDiv1DeptBuyer and seller enter into a contract of sale for property in Manhattan for a purchase price of over $56 million.  The contract sets a closing date and contains a no oral modification clause.  The parties had extended the closing date numerous times by written agreement.  The buyer, however, did not appear at the scheduled closing. Later that day, the parties began negotiating an amendment to the contract of sale.  While the parties communicated by email, their negotiations did not result in a written modification agreement.  The seller declared the buyer in breach of contract for failure to close and notified the buyer that the seller would retain the down payment (upwards of $9 million).  The buyer sued for its return.

After the trial court granted the seller’s motion for summary 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 contracts is one requiring any modification of the agreement to be in writing. Nevertheless, courts are presented over and over again with litigation arising out of circumstances where one party to a contract wrongly presumes, based on past practice, that an oral modification will be sufficient. This appeal illustrates the problem.

The Appellate Division affirmed:

The question then becomes whether [the buyer’s] evidence suffices to create an issue of fact as to whether the parties’ written agreement was modified by an agreement extending the closing date. Since the contract of sale provided that any amendments or modifications must be in a signed writing, under General Obligations Law §15-301, the contract cannot be changed 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 fully performed the oral modification of the contract providing for the adjournment of the closing, since they met at 3:00 p.m. on [the date of the scheduled closing]. At best, that 3:00 p.m. meeting could qualify as partial performance of the alleged oral modification. But, while partial performance of an alleged oral modification may permit avoidance of the requirement of a writing, any such 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 the conduct is "reasonably explained" by other possible reasons, it does not satisfy this standard (Anostario v. Vicinanzo, 59 NY2d 662, 664 [1983]). If "the performance undertaken by plaintiff is also explainable as preparatory steps taken with a view toward consummation of an agreement in the future," 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 unequivocally referable to the alleged oral extension. The unexecuted proposed fifth amendment to the contract, the emails exchanged between the parties after noon on [the scheduled closing date], and the 3:00 p.m. meeting attended by the parties that day are insufficient. Not only do the emails fail to even indicate that the closing was adjourned by agreement, but all these items were clearly explainable as preparatory steps taken with a view of attempting to arrive at a possible agreement in the future (see Sutphin Mgt. Corp. v. REP 755 Real Estate, LLC, 73 AD3d 738 [2d Dept 2010]; RAJ Acquisition Corp. v. Atamanuk, 272 AD2d 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 scheduled closing; it may be understood to merely reflect that [the seller] was willing to attempt to negotiate a new modification, as the parties had done once before, and which, if accomplished, would have nullified the default. Since [the buyer] had already invested $9 million into the project, it had many reasons to continue meeting and negotiating in order to attempt to salvage the deal despite the expiration of the closing deadline, so meetings held after the time set 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."

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

[Meredith R. Miller]

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