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Posted: February 25, 2016

Court Rejects Alleged Oral Modification of Written Agreement

On February 16, 2016, Justice Oing of the New York County Commercial Division issued a decision in Taib Bank, B.S.C. (c) v. West End Equity I, LTD, 2016 NY Slip Op. 30261(U), granting the plaintiff summary judgment on its claims based on a note and rejecting the defense that there had been an oral modification to the note preventing its collection, explaining:

Even assuming that there was such a prior oral agreement, it may not invalidate or otherwise alter the terms of the Bridge Agreement and Note. A party that for the accommodation of a bank, executes an instrument which, in its form, is a binding obligation, is estopped from enforcing an alleged oral agreement not to enforce the instrument according to its terms. Defendants’ contention that this rule is limited to domestic banks is incorrect.

Even if this rule were inapplicable, however, consideration of the alleged oral agreement is barred by the parol evidence rule and the statute of frauds. The parol evidence rule bars consideration of communications that contradict a subsequent or contemporaneous clear and unambiguous written agreement.

(Internal quotations and citations omitted). The court rejected the argument “that parol evidence is admissible here to prove the contracts were induced by fraud, citing” the Court of Appeals’ decision in Millerton Agway Cooperative, Inc. v. Briarcliff Farms, Inc., distinguishing Millerton because in Millerton,

the plaintiff allegedly agreed to forebear from enforcing the guaranty until a certain condition occurred. Here, defendants claim that [the plaintiff] agreed not to enforce the Note and Bridge Agreement under any circumstances, essentially negating these contracts. In this situation, the parol evidence rule applies.

(Internal quotations and citations omitted). The court went to explain that

[i]n addition, the statute of frauds presents a separate and independent bar to consideration of the alleged oral agreement. 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 or by his agent. Here, the Bridge Agreement contains such a prohibition, stating that it may not be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by [the plaintiff]. Therefore, the alleged prior oral agreement is barred by the statute of frauds.

(Internal quotations and citations omitted). The court rejected the argument that “the statute of frauds and parol evidence rule do not bar consideration of the alleged oral agreement because an oral agreement to modify a written contract will be effective if there has been partial performance thereof that is unequivocally referable to the modification.” (Internal quotations and citations omitted) (emphasis added). The court held that the evidence the defendant put forth to prove the modification was not unequivocally referable to it, and thus was unavailing. It explained that “the conduct in question must be explainable only with reference to the oral agreement and cannot be reasonably explained any other way.” (Internal quotations and citations omitted) (emphasis added).

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