Defendants Cannot Avoid Summary Judgment on Contract Claim by Arguing Oral Modification

On November 27, 2018, Justice Bransten of the New York County Commercial Division issued a decision in Schon Family Found. v. Brinkley Capital Ltd., 2018 NY Slip Op. 33027(U), holding that defendants could not avoid summary judgment on a breach of contract claim by arguing that there was an oral modification of the contract, explaining:

A written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms. The plain language of Section 4 of the Settlement Agreement clearly imposes an obligation on Defendants to make monthly payments to Plaintiffs in addition to the one-time payment to the Foundation. This obligation is also reiterated in Paragraph Seven of the Settlement Agreement, which defines an event of default as any failure to make any payment set forth in the Settlement Agreement. Therefore, the Settlement Agreement clearly creates an obligation for Defendants to make payments to Plaintiffs.

It is undisputed that Defendants failed to make the required monthly payments in May 2015 and failed to remit the onetime payment of $76,000 to the Foundation before April 30, 2015. Pursuant to the Settlement Agreement, in the event Defendants failed to make any payments, Plaintiffs were required to send Defendants a demand to cure within five business days. Then, if Defendants failed to cure, Defendants would be in default without any further right to cure and Plaintiffs had the right to commence an action to enforce the Settlement Agreement. Plaintiffs sent the Notice of Default on September 21, 2015. It is undisputed that Defendants failed to cure on or before September 28, 2015. Therefore, Plaintiffs have established that Defendants breached the Settlement Agreement.

Defendants argue there was no breach because Henry Schon modified the Settlement Agreement by entering into an oral forbearance agreement with Emanuel Wolff in the summer of 2015. Pursuant to the purported oral forbearance agreement, Mr. Schon allegedly agreed to forbear on any action relating to the Schon Loan amount until January, 2016.

General Obligations Law § 15-301(I) provides 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.

If the only proof of an alleged agreement to deviate from a written contract is the oral exchanges between the parties, the writing controls. Here, the Settlement Agreement provides the agreement may not be modified, altered or amended in any way, except by a writing executed by each of the parties affected by such modification, alteration or amendment.

However, General Obligations Law § 15-30 I(1) only prohibits executory oral modification of written contracts. Once executed, the oral modification may be proved. Where there is only partial performance of the oral modification sought to be enforced, a party claiming oral modification can only prevail upon proof that there was an oral modification and that the performance occurred in a manner that was unequivocally referable to that oral modification. See id. Here, the performance of the purported forbearance agreement was not completed because Plaintiffs served the Notice to Cure in September 2015 and brought this action to enforce the Settlement Agreement in November 2015. Thus, the Court must determine whether Defendants raise an issue of fact regarding the existence and partial performance of the purported oral forbearance agreement.

To establish the existence of an enforceable agreement, a party must establish an offer, acceptance of the offer, consideration, mutual assent, and an intent to be bound. The Court notes there is a dispute as to whether Mr. Schon ever agreed to forbear from taking action on Defendants' default under the Settlement Agreement. Mr. Wolff attests that Mr. Schon agreed not to take any action and agreed to meet with Mr. Wolff in January 2016 to work out a resolution. On the other hand, Mr. Schon attests that he never agreed to forbear in July 2015, yet he unilaterally decided not to take action until after Rosh Hashana. Nevertheless, the Court finds this issue of fact insufficient to deny summary judgment, as Defendants fail to raise an issue of fact regarding the consideration for the forbearance agreement.

It is well settled that valuable consideration may consist of some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other. Here, Defendants fail to allege or provide evidence that Mr. Schon received any consideration for his purported promise not to take action regarding the defaults under the Settlement Agreement. As noted above, Defendants were obligated to make payments to Plaintiffs pursuant to Paragraph Four. Yet, at the time Mr. Schon allegedly agreed to forbear, Defendants had already missed the required monthly payments since May 2015 and failed to make the one-time payment due to the Foundation in April 2015. Without an allegation or evidence regarding the consideration received for Mr. Schon's promise, Defendants cannot raise a material issue of fact regarding the existence of the alleged oral forbearance agreement. Therefore, Defendants fail to raise a triable issue of fact regarding the purported modification.

Furthermore, while not addressed in the parties' briefs, there is an additional exception to the writing requirement pursuant to Section 15-301 of the General Obligations Law. Once a party to a written agreement has induced another's significant and substantial reliance upon an oral modification, the first party may be estopped from invoking the statute to bar proof of that oral modification. Nevertheless, the Court finds this exception does not apply, as Defendants fail to demonstrate any significant or substantial reliance upon Mr. Schon's alleged promise to forbear on any action relating to the default. Defendants fail to allege or provide any evidence of a change in their course of conduct in reliance on the promise. Therefore, Defendants fail to raise an issue of fact regarding the estoppel exception to General Obligations Law § 15-30 I.

(Internal quotations and citations omitted).

Oral contracts are (usually) enforceable in New York, but as this decisions shows, once you have a written contract, there are hurdles to claiming that there was an oral modification to the contract. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where you are unsure how to enforce rights you believe you have under an oral contract.