Statutory Limitations on Oral Contract Modifications

Business owners and consumers alike know that contracts are an everyday part of life. Equally common though are modifications or amendments to those contracts. Some modifications are memorialized in writing. Many more, however, are made orally and even worse some are implied through a party’s conduct. As we have discussed previously, Illinois law permits the parties to a contract to orally modify their contracts, even if the contract provides that all amendments must be in writing. However, certain contracts are subject to specific statutory provisions that prohibit oral modifications.

One such statutory prohibition against oral modifications is Section 2-209 of the Illinois Commercial Code, 810 ILCS 5/2-209(2). Section 2-209 of the Illinois UCC governs modification, rescission, and waiver of contracts for the sale of goods. Specifically, Section 2-209(2) bars oral modifications but only when the prior written contract includes a provision that “excludes modification or rescission except by a signed writing.” Business owners must be aware though that Section 2-209 does not apply to all contracts. It is limited to transactions in goods and may be extended only to contracts that are predominantly for the sale of goods. Business owners must be aware of the requirements for Section 2-209 to apply. 

Business owners must also be wary of depending too heavily on Section 2-209 for protection against unwritten modifications. The reason for this is because, while sub-section (2) bars oral modifications, subsection (4) creates an exception to the rule. Section 2-209(4) provides that “Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver.” Courts have found though that when a party asserts subsection (4) to argue that the other party has waived the protections of subsection (2), the party arguing waiver must show either (i) it reasonably relied on the other party’s waiver of the requirement of a writing or (ii) that the waiver was clear and unequivocal.

The second statutory limitation on oral modifications comes from the Chicago Municipal Code. Any company that does business with the City of Chicago must be aware of Section 2-92-050 of the Chicago Municipal Code. This section of the municipal code provides that “No contract shall be binding upon the city, nor shall any work contracted for be commenced, or any materials or supplies be delivered thereunder, until the contract, in the requisite number of copies, has been duly executed.” In U.S. Neurosurgical, Inc. v. City of Chicago, the Seventh Circuit considered this particular provision of the municipal code and found that it precluded enforcement of an alleged oral modification by a City employee.

The takeaway is this: contract modifications are unavoidable but all modifications to a contract should be reduced to writing in one form or another. It pays to be aware that there are some statutory limitations on the ability to orally modify certain types of contracts. No business owner wants to expend time and money because a customer orally modified the contract only to find out that modification is unenforceable. And while it pays to be aware of these statutory limitations, it also pays to be aware of the limits of those limitations.

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