Can A Contract Be Amended By An Oral Agreement?

If the vast majority of people were asked whether or not a formal contract could be amended simply by way of an oral agreement, they would probably reply with an emphatic “no”. After all, most people who do not claim to hold any legal knowledge will have heard that an oral contract is not worth the paper it’s written on. However, those of us who understand the basics of this law of obligation may well come to a different conclusion.

It is fair to state that it is wise to put any formal agreement into a proper, written contract. The courts will always prefer this, and a written contract will enable all concerned to apprehend their contractual duties at all times and without ambiguity. However, there will be times where an oral agreement could amend a contract, as transpired in MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553. 

Rock Advertising Ltd was leasing premises from MWB Business Exchange Centres Ltd and fell into arrears. When MWB Business Exchange Centres attempted to terminate the agreement, Rock Advertising asserted that an oral agreement was in place to cover a new schedule of payments that would eventually pay off the arrears Rock Advertising had accrued, and that this was agreed between the Managing Director of Rock Advertising and the Credit Controller of MWB. 

It is very important to note that in this case it was actually written into the contract that variations to the agreement could only be effected in writing, and this had been signed by both parties. Therefore, with such a definite express term in place, it is surprising that Rock Advertising felt as though they would have any potential room for redress in contract law – surely they would be merely grasping at straws here and flogging a dead horse?

No! Rock Advertising certainly was not flogging a dead horse when they defended their position in the Court of Appeal. The Court had to decide on two important factors to ascertain whether an oral agreement could amend a contract, and these were:

•    whether the parties were able to vary the original licence agreement orally, because a provision within it stipulated that any variations must be set out in writing and signed by the parties; and
•    whether there had been consideration given for the oral variation, ensuring that it created a binding contract between the parties.

As a payment had already been accepted, as per the oral agreement, the Court decided that this was tantamount to fresh consideration. After all, MWB would be benefiting from the fact that it would be securing additional money in this new agreement that would eventually pay off the debts that had been accrued by Rock Advertising. The Court therefore ruled against the express term in the contract that required any amendment to be made in writing and decided that this oral arrangement was perfectly legally binding on both parties. 

The implications of this ruling may well end up being very far reaching. If a contract that contains an express term for written amendments can so easily be overturned, this will certainly mean that contracts without any such additional provisions could be amended through oral agreement alone. At the end of the day, it will always be a case of discerning whether or not the parties have provided the relevant “consideration” in order for this oral amendment to take legal effect.