Second Circuit Considers 'No Oral Modification' Clause In Helicopter Contract

Marc L. Antonecchia is a Partner in our New York office.

HIGHLIGHTS:

Parties to aircraft purchase agreements should recognize that there are potential exceptions to "no oral modification" clauses. Conduct that evidences an indisputable mutual departure from the written agreement may constitute a waiver. The Second Circuit recently issued a summary decision1 concerning the scope of a "no oral modification" clause in contracts governing the sale of helicopters. The underlying dispute involved three separate helicopter purchase agreements for Oceanic Capital Company Limited ("Oceanic") to purchase three helicopters from Aircraft Services Resales LLC ("Aircraft Services") in July and August 2008. Each agreement provided that any modification was to be made "by an instrument in writing executed subsequent to the date hereof by authorized representatives of both Parties."

In 2009, after the original delivery dates had passed and Oceanic had purchased only one of the three helicopters, Aircraft Services commenced suit in the Southern District of New York for breach of contract. The District Court held that Oceanic breached two of the agreements by failing to purchase the other two helicopters because the parties had orally modified the agreements to extend the closing date to July 2009.

Two Exceptions to No Oral Modifications Clauses

On appeal by Oceanic, the Second Circuit evaluated the exceptions to New York General Obligations Law §15-301(1), which provides that a contract containing a proscription against oral modification cannot be changed "unless such executory agreement is in writing and signed by the party against whom enforcement ... is sought."

The first exception is that a party may be estopped from invoking the statutory bar on oral modifications if that party has induced the other party's significant and substantial reliance upon an oral modification. For such estoppel to be effective, the parties' conduct "must not otherwise be compatible with the agreement as written." The second exception occurs where there is partial performance on the oral modification sought to be enforced. For there to be a finding of partial performance, the parties' conduct must be unequivocally referable to the oral modification. The Second Circuit held that the District Court correctly determined that the parties had made an enforceable modification to the closing date under both exceptions. After the scheduled closing date had passed, Oceanic communicated...