Oral Modification Prohibitions In Tennessee Contracts

Tennessee
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“It is worth noting that the language of an executed and lawful written agreement is important to the determination of the parties intended consent.”

It has been long settled in Tennessee that non-written contract modification agreements may be given effect notwithstanding written provisions strictly prohibiting the same. Lancaster v. Ferrell, 397 SW2d 606, 611-612 (2011). During WWI, Tennessee courts followed the reasoning that “men cannot tie their hands or bind their wills so as to disable them from making any contract allowed by law.” Co-Operative Stores Co. v. United States Fidelity & Guaranty Co., 195 S.W. 177 (1917). Even where a written agreement specifically prohibits subsequent modification, unless in a writing signed by all parties, parol evidence and the conduct of the parties may prove the existence of an agreed modification. Galbreath v. Harris, 811 SW2d 88, 91-92 (Tenn.Ct.App. 1990).

The parol evidence rule is inapplicable to a situation where the extra contractual evidence is being used to show the existence of an agreement separate from a written contract. GRW Enterprises, Inc. v. Davis, 797 SW 2d 606, 610-611 (Tenn.Ct.App. 1990). The Middle Section of the Tennessee Court of Appeals also recognized that the parol evidence rule does not necessarily disallow contracting parties to vary or to circumvent the plain meaning of a written contract where the extraneous evidence is used to prove that the contract does not correctly embody the parties’ agreement. Id. As a written contract is little more than a memorialization of mutual assent to the exchange of bargained-for benefits and detriments, it follows that contracts may be construed or modified to comport with the actual agreement intended by the parties.

It is worth noting that the language of an executed and lawful written agreement is important to the determination of the parties intended consent. Aft er all, an executed written agreement is probably the best evidence of the parties’ mutual intent. Indeed, under the general rule, contracts are enforced in Tennessee according to their plain meaning. Id. at 610. However, contracts may be enforced in a manner at variance with their plain meaning if competent evidence demonstrates mutual assent to a contradictory meaning. Id. at 611.

Contract modifications are akin to the formation of a new contract and generally must be supported by all elements needed for the formation of any contract, including consideration. Galbreath at 91. However, a post-formation contract modification may not necessarily require additional consideration. GuestHouse Intern., LLC v. Shoney’s North America Corp., 330 S.W.3d 166, 190 (Tenn. Ct. App. 2010). A “modification of an existing contract need not be supported by new consideration so long as it is agreed upon by the parties in light of unforeseen difficulties, and the modification is fair and equitable under the circumstances.” Id. at 191. Where there exists an honest dispute as to the meaning of a contract provision, a modification may be enforceable despite a lack of additional consideration. Id. Also, in the context of the sale of goods, consideration usually is not required to support contractual modifications agreed between the parties. TCA § 47-2-209(1), UCC § 2-209(1).

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Some written contracts in Tennessee may enforceably prohibit oral or course of conduct modifications not reduced to a signed writing. Regarding the sale of goods, contractual prohibitions against oral or course of conduct modifications should be enforceable. TCA § 47-2- 209(2), UCC § 2-209(2). The application of the statute of frauds may also impact the enforceability of non-written contract modifications. However, even where the statute of frauds is applicable, parol and course of conduct evidence can be used to prove waiver or equitable estoppel. GRW Enterprises, Inc. v. Davis at 611.

Ultimately, contracts containing language at variance with established jurisprudence may be adjudicated unenforceable. Written contracts should accurately memorialize an agreement and should not include provisions in conflict with applicable case law. Sam Dreiling

Alert Communications

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