Written Contract May Be Modified By Course of Conduct

On July 20, 2015, Justice Scarpulla of the New York County Commercial Division issued a decision in Rao v. International Licensing Industry Merchandisers' Association, 2015 NY Slip Op. 31281(U), analyzing the requirements for modifying a written contract by course of conduct.

In Rao, the plaintiffs brought an action against the defendants for business-related services they had provided to the defendants but for which they were not paid. One of the plaintiffs' allegations was that the written agreement between them and one of the defendants had been orally modified. The court refused to grant the defendants summary judgment on that claim, explaining:

A written agreement can be changed by the parties' course of conduct. For a contract to be modified or altered, all parties must consent. Consent to contract modification may be shown by the parties' conduct.

The modification of a contract results in the establishment of a new agreement between the parties which pro tanto supplants the affected provisions of the original agreement while leaving the balance of it intact. When the language of the original contract and subsequent modification conflict, the new terms control.

(Internal quotations and citations omitted). The court found that there was evidence supporting the plaintiffs' allegations that the parties had orally-modified their agreement. It went on to explain that "[o]nce the parties agree to a modification of their contract, neither party may cancel the modification with the intent of restoring the old contract without the consent of both parties. A modification, because it is an agreement based upon consideration, is binding according to its terms and may only be withdrawn by agreement." (Internal quotations and citations omitted) (emphasis added).