Call 07 834 6000

Can you vary a contract orally when the contract says you can't?

31 May 2018

Many contracts include a clause stating that no amendment to the contract is effective unless it is in writing and signed by the parties. Bank loan agreements and building contracts are examples of contracts that usually include such a clause. On the face of it you would think this means that the parties to the contract cannot verbally agree to change the terms of the contract - because this would mean a change to the clause stating that changes must be in writing. However, this is not necessarily the case.

Conqueror International Limited v Mach’s Gladiator Limited [2018] NZHC 265

In a recent case a company (Conqueror International Limited) purchased the commercial door business of another company (Mach’s Gladiator Limited, formerly called High Speed Doors Limited). Following completion of the sale the parties fell out over some arrangements to apply after settlement. The seller of the business (High Speed Doors) claimed the parties had varied the signed contract and the variation was enforceable even though the contract provided for variations to be in writing. The buyer (Conqueror) disputed the existence of the variation and whether, in fact, it was possible for the contract to be varied orally.

Variation of contracts – the law

The judge stated the law in relation to variation of contracts. A contract can be varied by agreement between the parties by way of adding, omitting or altering specific terms. To be effective the variation must contain all the elements necessary under the law for an enforceable contract. One of those elements is the intention of the parties to be bound by the variation. The onus of showing an intention to be bound rests on the party claiming there has been a variation. This means that a clause providing that variations must be in writing can be varied by an oral agreement. However, for an oral variation to be enforceable, the evidence must be clear and unambiguous. There must be compelling evidence displacing the clear intention expressed in the clause stating that variations must be in writing.

No oral variation of contract

He judge considered the evidence and found that it did not support an oral variation of the original contract for the following reasons:

  • The contract was a comprehensive and detailed document which was made following a significant due diligence process
  • The oral variation was raised once the parties were in dispute
  • The seller gave evidence of different versions of the variation
  • One version of the oral variation was “inconceivable” because it involved $480,000 and was alleged to have been made in a one minute discussion only one week before settlement
  • There was no paperwork supporting the existence of an oral variation. The only evidence was that given by the seller and it was not convincing
  • The benefit to be gained by the purchaser in making the variation was out of proportion to the amount of $480,000 which it was losing

Requirements for an enforceable contract not always obvious

There are legal requirements for the making and varying of contracts which are not always obvious to the uninitiated. It pays to take professional advice if you want to make sure that your contract, or variation of it, is legally enforceable. Having to prove the variation of a contract in court is an expensive process which is best avoided.   

 

Please email me at barbara.mcdermott@nwm.co.nz with your ideas for future articles. Keep an eye out for next month's column, where I will discuss another relevant rural legal issue.


Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.

 

Barbara McDermott