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Current Developments in the Commercial Divisions of the
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Posted: July 1, 2014

Contract and Quasi-Contract Claims Based On Oral Modification to Contract Survive Despite “No Oral Modification” Clause

On June 25, 2014, Justice Demarest of the Kings County Commercial Division issued a decision in Laquila Group, Inc. v. Hunt Construction Group, Inc., 2014 NY Slip Op. 51007(U), refusing to dismiss claims based on alleged oral modifications to a contract that prohibited oral modifications.

The dispute in Laquila Group, related to construction work on the Barclays Center. Among the issues the court addressed in deciding the defendant’s motion to dismiss was whether the plaintiff’s contract and quasi-contract claims based on oral modifications to the parties’ written contract stated a claim in light of the contract’s no oral modification clause. The court held that they did, explaining:

Generally, a party may not maintain causes of action for quantum meruit or unjust enrichment if a valid, enforceable contract governs the same subject matter.

. . .

Quasi-contractual recovery may . . . be appropriate, however, in the face of a cardinal change, effecting an alteration to the essence of a contract sufficient to constitute an intentional abandonment of the original contract. Whether there has been a cardinal change sufficient to invalidate a contract is generally a question of fact, to be decided by the factfinder.

Here, plaintiff has pleaded that the scope and extent of changes made to the Project, resulting in additional costs of nearly half the Subcontract price, constituted a cardinal change to the contract that could justify treating it as abandoned and granting recovery in quasi contract. Although defendant has submitted evidence that many of the costs incurred by plaintiff were compensated in agreed change orders, plaintiff’s allegations are not conclusively refuted by documentary evidence sufficient to conclude that plaintiff has no claim as a matter of law. Accordingly, defendant’s motion must be denied as to the cardinal-change claim.

As the plaintiff’s surviving cardinal-change claim preserves the possibility of quasi-contractual recovery, dismissal must also be denied as to plaintiff’s quantum meruit and unjust-enrichment claims. Defendant’s reliance on a clause in the Subcontract specifically barring quantum meruit claims is misplaced, since the finding of an absence of a valid, enforceable contract, a prerequisite to quantum meruit recovery, would inherently render that clause unenforceable, along with the remainder of the Subcontract.

(Internal quotations and citations omitted) (emphasis added).

The court also upheld the plaintiff’s breach of contract claim based on the alleged oral modifications to the contract, explaining:

General Obligations Law § 15-301 (1) states, in relevant part, that “[a] written agreement . . . which contains a provision to the effect that it cannot be changed orally, cannot be changed by an executory agreement unless such executory agreement is in writing and signed by the party against whom enforcement of the change is sought.” Section 15-301 (1), however, nullifies only executory oral modification, and partial performance of an oral modification, inconsistent with other causes, may prove the modification’s validity. Furthermore, if a plaintiff has detrimentally relied on an oral modification, the doctrine of equitable estoppel will preclude a defendant from raising a clause barring oral modification and § 15-301 (1) in defense.

(Internal quotations and citations omitted) (emphasis added).

One of the reasons people choose New York law to govern their contracts is that in New York, contracts are generally enforced as written. As this decision shows, however, a contract provision prohibiting oral modifications to the contract might not be enforced when it appears that the parties chose to ignore it during the performance of the contract.

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