Most, if not almost every matrimonial settlement agreement that I have seen contains language providing that modifications to the agreement must be in writing to be effective.  What happens, then, when an agreement is orally modified, and then the parties abide by that oral modification?  This was one of the issues on appeal in the new unpublished (not precedential) decision from the Appellate Division, Loch v. Loch

What do you need to know?

  1. The parties were divorced and entered into a written settlement agreement.
  2. The agreement provided that husband would pay wife a certain number per month in child support, and limited duration alimony.
  3. The agreement provided:   [t]his agreement . . . is the whole and only agreement between Husband and Wife and shall not be modified or varied by oral understanding. A modification or waiver of any of the provisions of this Agreement shall be effective only if made in writing and executed with the same formality as this Agreement.”
  4. Soon after the PSA took effect, plaintiff’s business experienced financial difficulty.  In order for plaintiff to remain current with his support obligation, defendant gave him permission to make withdrawals from the undivided marital retirement assets with the written proviso that the withdrawals would not diminish her one-half interest.
  5. In early 2006, the husband sold his interest in the business.  The transaction impacted husband’s ability to pay support, so the parties and attorneys met to discuss modifying the settlement agreement.
  6. The terms of the agreement reached were never memorialized in writing and negotiations broke down.
  7. Husband alleged that wife agreed at the meeting to permanently reduce alimony and child support.  He also alleged that his former attorney drafted an undated document titled “Amendment to Property Settlement Agreement”, which, among other things, memorialized the reduced support figure.
  8. Husband reduced his support payment to that set forth in the undated “Amendment” document.  Wife accepted the reduced payments and did not seek to enforce the agreement, claiming it was not worth it, and that she had “accepted his payments with the understanding that some kind of written document would be forthcoming…”
  9. Husband later further reduced his support payments.
  10. In July 2011, wife filed a motion to enforce the original settlement agreement.  Husband responded, asking that the agreement be enforced/modified, based on the 2006 oral agreement and subsequent course of conduct.
  11. Without oral argument or a plenary hearing, the trial court entered an order in September, 2011, finding that an oral agreement existed between the parties, but that it did not modify the original agreement.  As a result, it compelled husband to pay support arrears pursuant to the original agreement, among other forms of relief.
  12. In a subsequent Order, following a phone conference between the attorneys and the court, the court provided that, while the wife orally agreed to a decrease in support, she had not waived the arrears.

Addressing the issue of whether the settlement agreement could be orally modified, the Appellate Division recited fundamental principles of contract law, providing:

It is well-settled that a contract provision requiring modification by writing ‘may be expressly or impliedly waived by the clear conduct or agreement of the parties or their duly authorized representatives.'”

As a result, the Court concluded that the trial court erred in “holding that, absent a written modification, it could not consider whether the parties verbally agreed to modify the PSA or demonstrated such an intention through their five-year course of conduct.”

For practitioners, this case confirms that language in a settlement agreement providing that modifications to an agreement are only effective if made in writing may not hold when compared to the parties’ subsequent conduct.  Perhaps additional language providing that the parties’ course of conduct cannot override the written modification requirement may prove effective.  Ultimately, each situation will rest on its own facts and circumstances.

 

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