Can I Orally Change A Written Contract?
When can an oral agreement modify a written contract? This is a question that arises frequently in construction contracts. There is usually a written construction contract at the beginning of a project and then “change orders” during construction. Unfortunately, sometimes those change orders are oral. When a dispute arises over what the terms of those oral change orders were I find that Civil Code section 1698 if often overlooked.
Civil Code section 1698 deals with oral modifications to written contracts. It states only two situations that a written contract may be modified by an oral agreement. They are the following:
- An oral agreement that is “executed” by the parties. Executed means performed by both the parties. (work done and paid for)
- An oral agreement supported by new consideration- unless the contract expressly prohibits this.
Construction Contracts May Prohibit Oral Modifications
If the construction contract provides that any changes to the contract must be in writing, then the second exception does not apply. This means that if the owner verbally agrees to pay for additional work per an oral change order to a written contract that expressly requires written change orders, the contractor cannot enforce the promise to pay for the work without a writing under a breach of contract theory.
Oral Agreements to Postpone the Trustee Sale on a Foreclosure
Another interesting area where oral modifications are found shows up in foreclosures on property. One argument owners (borrowers) might like to make is that the lender orally agreed to postpone the foreclosure sale. Essentially this is an oral “forbearance agreement.” This argument is probably a loser. Most deeds of trust that are being foreclosed on (if not all) contain a clause that states there can be no oral modifications of its terms. This language kicks in Civil Code section 1698.
If the lender forecloses after it promised not to over the phone the borrower can’t claim foul because the promise was a mere oral contract attempting to modify the written deed of trust (that presumably contains a 1698 provision). Therefore, the oral agreement is “executory” and is unenforceable under 1698.
If the borrower was behind on the mortgage payments and agreed to pay a portion of what was owed in exchange for a postponement or a cancellation of the foreclosure sale then there was no new consideration because the offer to pay was for a debt that already existed. The consideration for the oral agreement cannot be something that was already owed. On this point is a great quote from Professor Corbin on Contracts. This quote is cited in Raedeke v. Gibraltar Savings, a 1974 California Supreme Court Case. It goes:
“If a creditor promises to give an extension of time, this promise is not enforceable if the only consideration is the debtor’s promise of a part of his overdue debt or the debtor’s promise to pay his debt on or before the end of the extension… But if the debtor gives his pocket knife in addition as part of the consideration for the creditor’s promise of an extension, the promise is enforceable.”
Always check with a lawyer before making decisions that affect your particular circumstances. The law may have changed since the time I wrote this article. Or, your situation may be an exception to the general rule!