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Oral Contract Variation Invalid, Rules Supreme Court

The Supreme Court has decided a case which will be of significance to anyone who is used to making oral variations to contracts.

The dispute involved a firm that had a licence to occupy office space provided by another company. The contract term was 12 months and it provided that any variations had to be made in writing and signed by both parties.

When the licensee fell into arrears, a variation of the payment schedule in the contract was agreed over the telephone with the property owner's credit controller. However, the owner decided that the new schedule was not acceptable and terminated the licence, locking the other firm out of the offices.

The Court of Appeal had held that the contract could be varied orally by agreement, because such agreement would also be an agreement to vary the 'no oral modification' (NOM) clause.

The Supreme Court rejected that analysis, holding that to allow oral agreements to modify the contract would require a change of the contract in accordance with its own terms – accordingly, the change to allow oral modifications must be in writing.

The decision is important as it is relatively common for contracts to be modified informally. Where a NOM clause exists, it will be even riskier to rely on an oral agreement unless the NOM clause is itself varied in writing.

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    In general, varying a contract in writing is to be preferred, as it gives certainty. We can help you ensure that your contracts do not present unexpected pitfalls.

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