United States: 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 an intent to close in early 2009 and paid an additional good faith deposit applicable to the cost of the helicopters. When the transaction did not close in early 2009, Oceanic made representations to Aircraft Services that Oceanic was committed to completing the transactions and the parties discussed modifications to the helicopters. As a result of these communications and deposits, Aircraft Services kept the helicopters off the market. Accordingly, the court found that Oceanic breached the contract when it failed to consummate the purchase.

Neither Court Applied the New York Uniform Commercial Code

Interestingly, neither the District Court nor Second Circuit decision applied the New York Uniform Commercial Code (N.Y.U.C.C.) to the analysis. Arguably, as a sale of goods case, the provision of the N.Y.U.C.C. addressing modifications would apply to determine whether there was an oral modification. N.Y.U.C.C. Section 2-209(2) provides, in relevant part, that "a signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded." Prior decisions within the Second Circuit recognize the operative effect of such clauses.2 In addition, N.Y.U.C.C. Section 2-209(3) provides that the requirements of the statute of frauds must be satisfied if the contract as modified falls within the statute's provisions.3

Application of the N.Y.U.C.C., however, may not have changed the ultimate result. N.Y.U.C.C. 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." Thus, the statute recognizes that even if a contractual provision may not be modified in the absence of a writing, there are situations where the provision may be waived by course of conduct.

Importantly, for conduct to amount to a waiver under the N.Y.U.C.C. "it must not otherwise be compatible with the agreement as written. Rather, the conduct of the parties must evidence an indisputable mutual departure from the written agreement."4 Had the court applied such a waiver analysis, it likely would have determined that Oceanic's conduct operated as a waiver of the contracted-for delivery date and reached a similar result.5 Nevertheless, it is important to recognize the distinctions between the analyses under the General Obligations Law and the N.Y.U.C.C.

"No Oral Modification" Clauses May Result in False Security

The Oceanic case is a useful reminder of the importance of not being overly reliant on a "no oral modification" clause governed by New York law. Indeed, the provisions of and exceptions to the General Obligations Law and the N.Y. Uniform Commercial Code may result in a finding that conduct, performance, or representations that deviate from the terms of the written agreement constitute waiver or oral modification of the written agreement. In the context of aircraft transactions, parties should be especially mindful of deviations from delivery dates and delivery conditions to ensure that such deviations do not evidence an "indisputable mutual departure" from the written agreement.

Footnotes

1. Aircraft Services Resales LLC v. Oceanic Capital Co. Ltd., No. 13 Civ. 3738, __ Fed. Appx. __, 2014 WL 5032409 (2d Cir. Oct. 9, 2014). As a "summary decision," the decision does not have precedential effect but may be cited.

2. See, e.g., Austrian Airlines Oesterreichische v. UT Finance Corp., 567 F. Supp. 2d 579, 592 (S.D.N.Y. 2008), aff'd, 336 Fed. Appx. 39, 2009 WL 1940715 (2d Cir. July 2, 2009) (the aircraft purchase agreement would have required a writing to modify the delivery date); Dallas Aerospace, Inc. v. CIS Air Corp., 352 F.3d 775 (2d Cir. 2003) (suggesting that N.Y. U.C.C. §2-209 would have applied if the agreement excluded modifications).

3. Under N.Y. U.C.C. 2-201, a contract for the sale of goods for the price of $500 or more is not enforceable in the absence of a sufficient writing signed by the party against whom enforcement is sought.

4. See Austrian Airlines, 567 F. Supp. 2d at 593.

5. Compare Austrian Airlines, 567 F. Supp. 2d at 593 (communications by an aircraft purchaser concerning possible extension of the delivery date did not evidence an "indisputable mutual departure" from the aircraft purchase agreement).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions