Article: Oral Contracts Amending Written Contracts

One issue which may be of interest is whether oral contracts can amend written contracts. Oral contracts may be valid contracts if the necessary elements for a valid contract are present.[1] Thus, an oral contract may, in theory, amend, vary or discharge an existing contract, including a written contract.

It is possible that a written contract (the “main contract“) has an express provision to the effect that the main contract can only be amended or discharged in writing. Since general contract law principles apply in such scenarios, the effect of the provision has to be determined based on construction of the provision. However, the legal effect of such provisions may be affected by certain contract law doctrines. Some relevant contract law doctrines which could apply are:

a. variation;
b. waiver;
c. estoppel by representation;
d. promissory estoppel; and
e. the equitable doctrine of part performance.

Variation

A variation of a contract has to be done by way of a new contract between the parties. It is therefore possible to vary a contract by way of a new oral contract. However, where there exists an oral preclusion clause, it is unlikely that such a new oral contract can take effect to vary the main contract. Such a new oral contract would also therefore be unenforceable, for to do so would countenance a breach of the main contract, in particular, the oral preclusion clause.

It is possible for parties to enter into a new contract to vary the oral preclusion clause. However, it is unlikely that parties can enter into an oral contract to vary the oral preclusion clause, since the latter clause is precisely intended to prevent parties from varying the main contract by way of an oral contract.

Depending on the exact wording of the oral preclusion clause, it is also possible that the new contract to vary the main contract is partly oral, partly written and/or partly in conduct, which could result in an effective variation. The two possible types of oral preclusion clauses would lead to differing results.

The first type of oral preclusion clause would be phrased to the effect that the main contract “cannot be changed orally”. It is likely that a new contract that is partly oral and partly in writing would not be made ineffective by such an oral preclusion clause. The Singapore Court of Appeal has taken such an approach to part-oral and part-written contracts in the context of the parole evidence rule, stating that “the parole evidence rule only operates where the contract was intended by the parties to contain all the terms of their agreement” (Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] 3 SLR(R) 1029 (CA) at [112]). This is consistent with a line of English authorities that take a similar approach. See the English Court of Appeal decision of J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 1 WLR 1078 at 1083, Roskill L.J; Andrew Phang, ed., The Law of Contract in Singapore (Academy Publishing: 2012) at para. 08.040; Cheshire, Fifoot and Furmston’s Law of Contract, 16th edn. (Oxford University Press: 2012) at 169.

The second type of oral preclusion clause would be phrased in a way that requires all variations to or discharge of the main contract to be made in writing. A reasonable construction of such a clause would lead to the result that any new contract that is oral or part oral, part written and/or partly by conduct, would have no effect.

Waiver

Waiver does not vary the terms of a contract. Instead, it is conduct on the part of a party to a contract which affects his remedies for a breach of contract by the other party.[2] A pure waiver is a unilateral divesture of certain rights that a party has; it is the abandonment of a right in such a way that the other party is entitled to plead the abandonment by way of confession and avoidance if the right is thereafter asserted.[3] Hence, a party can expressly or by its conduct suggest that the counterparty need no longer perform its future obligations under the contract; there is no need for a pre-existing breach of the contract.[4]

For such waiver to operate, there must be:

(i) an unequivocal representation by a party either by words or conduct that it will forgo certain rights; and

(ii) that party makes that representation when it is aware of the facts that give rise to the rights which are being forgone, of the right to forgo those rights and the connection between the two.[4]

It is possible for a party to waive an oral preclusion clause by words or conduct. Thus, two analyses of application are possible.

First, the act of the counterparty entering into a new oral contract to vary a main contract, such an act being clearly contrary to the oral preclusion clause, could by itself amount to a waiver of the right to the oral preclusion clause by conduct.

Second, where the parties make a new oral contract to vary a main contract, it may be initially ineffective. However, where one party acts on that new oral contract, it is possible to construe such an act as an ‘unequivocal representation … by conduct’ that he is waiving the right of the oral preclusion clause, assuming that the party was aware of the facts that give rise to that right (i.e. the oral preclusion clause) and of the foregoing of that right.  The counterparty is therefore entitled to rely on the new oral contract.

It is likely that the doctrine of waiver could apply in both versions of the oral preclusion clause discussed above. This is because waiver does not amount to a variation or discharge, so it a waiver would be fall outside the ambit of the oral preclusion clause altogether.

Estoppel by Representation

An estoppel by representation will arise between A and B where:

(i) A makes a false representation of fact to B or to a group of which B was a member;

(ii) in making the representation, A intended or knew that it was likely to be acted upon;

(iii) B, believing the representation, acts to its detriment in reliance on the representation;

(iv) A subsequently seeks to deny the truth of the representation; and

(iv) no defence to the estoppel can be raised by A;

(Sean Wilken and Karim Ghaly, The Law Of Waiver, Variation And Estoppel, 3rd edn. (Oxford, Oxford University Press: 2012) at [9.02]; Yokogawa Engineering Asia Pte Ltd v Transtel Engineering Pte Ltd [2009] 2 SLR(R) 532 (HC) at [6]-[8]; United Overseas Bank Ltd v Bank of China [2006] 1 SLR(R) 57 (CA) at [18]-[19].). Representation may be made by conduct so long as it is sufficiently unequivocal (Sean Wilken and Karim Ghaly, The Law Of Waiver, Variation And Estoppel, 3rd edn. (Oxford, Oxford University Press: 2012) at [9.46].).

The doctrine of estoppel can be applied in the following way. The act of the counterparty entering into the new oral contract to vary the main contract is a representation of fact that it is waiving the oral preclusion clause. This representation is proven false because the counterparty later denies this waiver. The counterparty knew that such a representation would be acted upon by the party enforcing the oral contract to its detriment. The counterparty is therefore estopped from denying that it did make such a representation and therefore cannot deny the enforceability of the oral contract.

It should be noted that it is arguable that the requirement for a representation of fact may not be met. While a false representation of present intention may be deemed a false representation of fact, it would often be difficult to prove that the representor did not in fact hold the relevant intention; the representor could simply argue that it had changed its mind later.

An alternative analysis is that the act of the counterparty accepting or acquiescing to the performance of the party enforcing the oral contract amounted to a representation that the counterparty had already waived the oral preclusion clause. It is therefore estopped from denying the waiver and thus the oral contract. In this regard, the English authorities suggest that the failure to assert an inconsistent legal right is sufficient to amount to a representation regarding such a right and thus could give rise to an estoppel (Spiro v Lintern [1973] 1 WLR 1002 (CA) at 1010).

Promissory Estoppel

Promissory estoppel may arise where a party to an existing legal relationship makes a clear and unequivocal promise to a counterparty that he will not enforce his strict legal rights with the intention that such promise be relied upon by the other; the latter does rely on the promise and alters his position as a result; it would therefore be inequitable for the promisor to go back on his word in all the circumstances.

However, the doctrine of promissory estoppel, as the law stands in Singapore, is likely only applicable as ‘shield not a sword, i.e. as a defence and not a cause of action (Sea-Land Service Inc v Cheong Fook Chee Vincent [1994] 3 SLR(R) 250 (CA) at [23]).

The counterparty, by entering into a new oral contract to vary the main contract, had made to the party seeking to enforce the oral contract, certain promises in respect of the rights and liabilities between the parties. The latter party did rely on these promises by part performance of the oral contract to his detriment, i.e. there had been expenditure of time and money and/or change of benefit. It would be inequitable for the counterparty to resile from his oral promises. Accordingly, the counterparty cannot deny the oral promises and the party seeking to enforce the oral contract is entitled to do so.

Equitable Doctrine of Part Performance

The equitable doctrine of part performance was historically developed by the English courts to respond to the injustice caused by the failure of parties to comply with certain statutory formality requirements, i.e., requirements that certain types of contracts be made in writing. The doctrine has been applied in Singapore (Joseph Mathew and another v Singh Chiranjeev and another [2010] 1 SLR 338 (CA) at [63]; Reindeer Developments Inc v Mindpower Innovations Pte Ltd [2007] SHC 170 at [47]-[49]; Midlink Development Pte Ltd v The Stansfield Group Pte Ltd [2004] 4 SLR(R) 258 (HC) at [66]-[67]).

The requirements for the doctrine of part performance to be applicable are as follows (Andrew Phang, ed., The Law of Contract in Singapore (Academy Publishing: 2012) at para. 08.145-08.164):

a. the party seeking to rely on the doctrine must specifically plead the doctrine;

b. payment of money by the plaintiff may amount to sufficient part performance;

c. the doctrine displaces the defendant’s defence of non-enforceability of the contract in question;

d. the plaintiff would still need to prove that there was a contract for which the Court could order specific performance of;

e. the plaintiff’s performance of his part of the contract is the relevant performance needed for the doctrine to apply;

f. the order of specific performance of the contract is made on the basis that it would otherwise be a fraud on the plaintiff;

1. the plaintiff’s actions must have been in fulfilment of what he perceived he had been legally obliged to perform under the contract;

2. such fraud could be made out where (among others) the defendant had encouraged, induced or at least acquiesced to the plaintiff’s course of action; and

3. the plaintiff’s action must refer to the contract in question.

However, it is most likely that the applicability of the doctrine is confined to contracts relating to sale of land which are otherwise unenforceable by virtue of section 6 of the Civil Law Act (Cap. 43, 1999 Rev. Ed.). The position at common law is unclear on this, although the weight of authority suggests that the doctrine is restricted to the said scenario. There are however no Singapore authorities on this point.

Conclusion

The law as it presently stands is not clear as to the application of the contract law doctrines discussed above to the issue of whether an oral contract can amend a written contract notwithstanding an oral preclusion clause.

[1] Andrew Phang, ed., The Law of Contract in Singapore (Academy Publishing: 2012) at para. 08.001.

[2] Sean Wilken and Karim Ghaly, The Law Of Waiver, Variation And Estoppel, 3rd edn. (Oxford, Oxford University Press: 2012) at [3.07].

[3] Sean Wilken and Karim Ghaly, The Law Of Waiver, Variation And Estoppel, 3rd edn. (Oxford, Oxford University Press: 2012) at [4.28]; Banning v. Wright [1972] 1 WLR 972 at 979.

[4] Ibid.

[5] Sean Wilken and Karim Ghaly, The Law Of Waiver, Variation And Estoppel, 3rd edn. (Oxford, Oxford University Press: 2012) at [4.45]; Andrew Phang, ed., The Law of Contract in Singapore (Academy Publishing: 2012) at para. 18.089; Wishing Star Ltd v Jurong Town Corp [2005] 1 SLR(R) 339 (HC) at [15], albeit cited in the context of election (decision reversed on other grounds).

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