Once you’re attuned to my framework of “categories of contract language,” as laid out in chapter 2 of MSCD, you’ll see its implications at every turn.
A big part of my recent article on the AAA standard arbitration clause (pdf here) was a discussion of categories of contract language. The boilerplate governing how contracts are amended raises a similar issue.
Here’s what a text on contract boilerplate offers as a “basic” no-oral-modification provision (optional language omitted):
Amendments. The parties may not amend this Agreement, except by written agreement of the parties.
That’s language of prohibition. It follows that if the parties amend other than by written agreement, they’re in breach. That doesn’t make much sense.
Here’s my version:
Amendment. No amendment to this agreement will be effective unless it is in writing and signed by both parties.
That’s language of policy, which is used to state the groundrules for how the contract is to operate. I think it states more clearly what’s going on.
As is often the case, you could use a yet another category of contract language to express the same meaning. Here it is expressed as a condition using language of obligation:
Amendment. To amend this agreement, the parties must express the amendment in a writing signed by both parties.
This version exhibits the elements of this kind of condition: must used instead of shall, because you’re not stating a duty, and an introductory phrase that makes it clear that you’re dealing with a condition. But using a condition to express this meaning is way too cumbersome—I’d stick with language of policy.
At this point you might be asking yourself why anyone should care about this. After all, no one would ever find themselves in a dispute over whether the “amendment” section articulates prohibition or policy. I can think of three reasons:
First, it might be that not much is at stake with respect to any one provision, but the cumulative effect of minding your categories of contract language is dramatic.
Second, mishandling the categories of contract language can give rise to disputes. A classic example of this is confusion over whether a given provision states a condition or an obligation (see this January 2007 blog post).
And third, minding your categories of contract language throughout a contract enforces discipline on the drafter. Spotting a categories-of-contract-language glitch, such as a shall that fails the “has a duty” test, can result in your picking apart the provision and restructuring it. That’s what I did with the AAA standard arbitration clause.
A question Ken: are these provisions clearly enforceable? Could the parties orally agree to terminate or rescind? Could they enter into a new oral contract (supported by adequate consideration) that covers the same subject matter and supersedes the written agreement? There might be questions of proof, statute of frauds, etc., but assuming the parties both acknowledged a subsequent oral amendment, is it negated by the prior written provision limiting their authority to amend except in writing. Suppose, for example, that Party A calls Party B and orally proposes an amendment. Party B sends an email acknowledging the amendment (Party A does not reply). Would a court refuse to enforce the amendment in a subsequent action by Party A to against Party B on the basis that there is no writing signed by both parties?
See, e.g., http://www.wilmerhale.com/publications/whPubsDeta…
Are these provisions clearly enforceable Ken? Could the parties orally terminate a written agreement, despite such a clause? Could they enter into a new oral agreement with respect to the same subject matter that entirely supersedes the written agreement?
Suppose Party A calls Party B on the phone, they agree to an amendment, Party B sends a letter or email acknowledging the amendment, but Party A never replies in writing. Would a court enforce the amendment, based on the letter, in an action brought by Party A against Party B, even though there was no writing signed by the parties?
I found at least one law firm memo online that indicates courts may ignore these provisions.
Jim: You're correct that courts have routinely held that no-oral-modification provisions don't in fact preclude the parties from orally amending a contract. But a court will regard such a provision as stating the intent of the parties at the time the contract was entered into, so they might nevertheless have some value in the event of a dispute. But I'd put them low on the list of must-have boilerplate. Ken
For clarity, you may want to add the concept that the writing identifies itself as an amendment to the contract. The wording would read as follows:
No amendment to this agreement will be effective unless it is in writing, identifies itself as an amendment to this agreement and is signed by both parties.
Jeff: Adding that concept would avoid dispute as to what, if anything, had been amended. But you have to take into account the issue that Jim raised: if the parties agree to something in writing without specifying that it's an amendment, it's unlikely your amendment provision would be enough to cause a court to decline to consider the new writing to be a contract amendment. Ken
Why signed by both parties rather than signed by the party sought to be charged with the amendment? Thoughts
Fredric: If an amendment is other than rudimentary, it likely won't be simply a matter of one side being "charged with" that amendment. So for purposes of an arrangement that applies to all amendments, it's best to have everyone sign.
Of course, if the parties get into a fight over whether the contract has been amended and one side produces something signed by the other party agreeing to the amendment, a court would likely take that into account.
Ken
Let me posit what I have found to often occur. Take a 3 party agreement, buyer, seller and consultant for example. Amendment occurs that affects the fee to be paid by buyer to consultant. Buyer and consultant sign the amendment and seller, doesn't or worse, refuses.
Under your construct, its a lawsuit that cannot be disposed of at an early stage because the court will take the execution by two of the three parties into account. If it need only be signed by the party sought to be charged (the buyer or consultant in this case depending upon which way the amendment went), it seems to be there is a suit which can be disposed of at the summary judgment stage, if one gets that far.
Same scenario it seems to me it the two party situation. One (the proponent of the amendment) who hasn't signed and the one objecting who has signed. If the party taking the position there was no amendment hasn't signed, either of our constructs work it seems to me. And, with due respect, it not a matter of the substance.
Perhaps, its "charged" that is not a particularly good word, perhaps its "signed by the party against whom the amendment is sought to be enforced".