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no oral modification” (“NOM”) clause in their contracts

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I DIDN’T SAY THAT!: “NO ORAL MODIFICATION” CLAUSES IN ENERGY TRANSACTIONS
BY LUCY D. ARNOLD
ASSOCIATE
FULBRIGHT & JAWORSKI LLP
Companies frequently include a “no oral modification” (“NOM”) clause in their contracts.
Generally, and often to a party’s surprise, NOM clauses are not enforced by courts. Courts
typically reason that either (1) oral modification is allowed because parties can agree to change
the terms of their contract at any time, including changing a NOM clause, or (2) the parties have
waived the NOM clause through their behavior. Courts may justify non-enforcement on the
basis of equity; where the complaining party can show it has relied on or performed the oral
modification, the modification will likely be upheld. For parties to a contract, the legal reasoning
is less important than the outcome: a NOM clause you are counting on may not be enforced.
Colorado, Louisiana, North Dakota, New Mexico, Texas, and Utah do not enforce NOM clauses.
See, e.g., Agritrack, Inc. v. DeJohn Housemoving, Inc., 25 P.3d 1187, 1193 (Colo. 2001) (“[A]
subsequent oral agreement between the parties may modify a provision of an earlier written
contract, even in the face of a provision in the original contract that modifications must be in
writing."); Fleming v. Merit, 985 So.2d 141, 146 (La. App. 2008) (“[W]ritten contracts may be
modified by oral contracts or by the conduct of the parties, even when the written contract
contains the provision that it must be modified in writing.”); Forster v. W. Dakota Veterinary
Clinic, Inc., 689 N.W.2d 366 (N.D. 2004) (oral agreements made subsequent to a written
agreement containing a NOM clause are not rendered ineffective by the NOM clause); Magnolia
Mountain Ltd., P’ship v. Ski Rio Partners, Ltd., 131 P.3d 675 (N.M. App. 2005) (a written
contract may be modified by a subsequent oral agreement, even in the face of an explicit NOM
clause); Adams v. Can-Dee Oil Corp., 357 S.W.2d 808, 808 (Tex. Civ. App. 1962) (“A written
agreement not to modify a contract except in writing does not preclude an oral modification.”);
Harris v. IES Assocs., Inc., 69 P.3d 297 (Utah App. 2003) (parties to a written agreement may
orally modify or abandon a written agreement subsequent to entering into the initial written
agreement, even in the face of an explicit NOM clause).
Wyoming provides a slight variation on the general Western rule. Wyoming courts will enforce
a NOM clause if the Statute of Frauds prohibits the modified transaction without a written
agreement. Cooley v. Frank, 235 P.2d 446, 456 (Wyo. 1951). If, however, there is no Statute of
Frauds bar to the modified transaction, then Wyoming will not enforce a NOM clause. Id.; see
also Forshee v. Delaney, 118 P.3d 445 (Wyo. 2005) (oral modification enforced where
modification fully performed).
Montana is the only one of these Western states with a relevant statute. Mont. Code Ann. В§ 282-1602. The statute partially upholds NOM clauses by providing that oral modifications are not
enforceable unless the oral agreement is fully performed by both sides. Richards v. JTL Group,
Inc., 212 P.3d 264 (Mont. 2009). Without full performance, an oral agreement will not
overcome a NOM clause under Montana law.
Practice points:
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Contract drafting: Determine whether you want to have a NOM clause in your contract at all.
Will it just provide another avenue for litigation if the parties are not going to live up to it? This
can be costly for no apparent benefit. On the other hand, such clauses may be useful to indicate
the intention of the parties when the equities do not necessarily impel a court to enforce the oral
modification (for example, if it has not yet been performed). Additionally, Western states other
than Montana may (someday!) enact legislation enforcing NOM clauses which may make the
clause useful.
Keep in mind that if you are only selling goods under a UCC contract, then you can enforce a
NOM clause. UCC В§ 2-209(2). The UCC does allow a party to waive the NOM clause
protection, however. Id. at В§ 2-209(4). All the Western states have adopted the UCC, but make
sure to check whether your state varied the language at all when adopting.
Merger and Acquisition Due Diligence: There are various ways you can protect yourself
from the consequences of an oral modification, ranging from the easiest (lowest protection) to
the most intrusive (best protection): (1) discuss with the other party to your transaction whether
there have been any oral modifications to any contracts; (2) require a representation or warranty
from the other party that there have been no oral modifications to its contracts; (3) require the
other party to obtain from any counterparties to its contracts a written statement that there have
been no oral modifications. The third option is the most intrusive and likely quite timeconsuming, and, unless you have a fair amount of leverage, it may be difficult to get. Ultimately,
if there are not other warning signs, you may want to settle for one of the first two options as a
more cost-effective solution.
Litigation: Oral modifications must be proved up at trial, just as an oral contract would have
to be. In the face of a NOM clause, state courts may increase the standard of proof for what
constitutes an oral “modification” to the higher “clear and convincing” standard. See, e.g.,
Forshee, 118 P.3d at 449. Reliance on or performance of the oral modification are frequently
cited by courts as reasons to uphold oral modifications. Developing your facts to show or
disprove such reliance or performance can make or break your case. Remember to check
whether any email, instant message, text, etc. may constitute a “writing” sufficient to overcome
any NOM issue.
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