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Litigation
Insights July 1, 2010
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Litigation Practice
Group Leaders
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Modification
of a Contract Containing an Anti-Waiver or No Oral Modification
Clause By Conduct or Oral Statements
Anti-waiver
and no oral modification clauses are almost always included in commercial
agreements to prevent modification of the written agreement through
conduct, silence, or oral statements. The intent of these
clauses is to provide certainty that the language of the written
agreement will control if a dispute unfolds during the contractual
relationship. But are there any exceptions to this basic tenet
under Michigan law?
In Quality Products &
Concepts Co. vs Nagel Precision, the Michigan Supreme
Court opened the door to contractual modifications by mutual conduct
of the parties. The case involved a former employee demanding
commissions, despite an employment contract clause restricting the
employee's commissions to sales made in a designated area.
In his lawsuit
for payment of commissions for sales made outside his designated
area, the employee argued that the employer waived this clause and
modified the agreement when it failed to act after learning that the
employee was making such sales. Although the agreement contained both
an anti-waiver clause and a clause requiring modifications to be in
writing, the court reiterated the principle that parties to a
contract are free mutually
to waive or modify their agreement through written and oral
agreements, as well as through conduct, notwithstanding the presence
of clauses purporting to restrict that ability. Although the Quality Products
Court upheld the trial court's ruling in favor of the employer,
based on the absence of evidence that the employer assented to the
alleged modification, the Court's message regarding the freedom
to modify contracts must be noticed.
Writing for the Court majority, Justice Young, explained that
although mere "knowing silence" generally cannot constitute
a waiver, if a party shows that a waiver or modification through mutual
conduct occurred, the contract can be modified, despite written
prohibitions against such modification. Quality Products could be
read to support the proposition that even where parties agree in
writing that their contract cannot be varied later on, it can
be. Going a step further than her colleague, Justice Kelly,
writing for the dissent, maintained that Michigan case law and modern
legal treatises do allow mere "knowing silence" to
constitute a waiver when it amounts to estoppel. In other
words, according to the dissent, a contract clause may be waived if
there is silence plus knowledge by one party and detrimental reliance
by the other.
In light of this decision, parties to all contracts should consider
what message their post-contractual action or inaction sends to
the other party during the course of the contractual
relationship.
Leslie Gutierrez, the article author, is a Summer Associate with
Clark Hill and is pursuing her Juris Doctor at Loyola University
Law School in Chicago, Illinois.
If you have questions regarding this
article or topic, please contact the contributor or your Clark Hill
attorney.
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For further
information about the content of this Litigation Insight Update,
please contact Dan Scully or Brian Ziff. To find out more about Clark
Hill and our Litigation team, visit clarkhill.com
or call 800.949.3124
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