Monthly Archives November 2012

Nov 192012

Oral Modification to Construction Contracts

Construction contracts typically contain provisions that explicitly require the parties to reduce all modifications to the contract into writing. These “additional work” provisions are written to prevent the enforceability of oral modifications to the contract and, hopefully, prevent both parties from a potential loss. However, the Tennessee Court of Appeals recently allowed the parties to modify a construction contract by oral agreement even though the original contract explicitly required modifications to be in writing.

In Song & Song Corporation, and Jin Y. “Jim” Song, Individually v. Fine Art Construction Company, LLC, et al., No. W2011-01708-COA-R3-CV (Tenn. Ct. App. June 14, 2012), a property owner hired a general contractor to perform construction work on a commercial building. The contractor later performed additional work deemed necessary to install missing fire dampers without written authorization from the property owner to do so. When the work on the building was completed, the property owner refused to pay for the additional work pertaining to the fire dampers and the contractor sued.

The property owner argued that the lack of a written change order allowed him to avoid his obligations here as the contract included the following provision: “[T]his Agreement may not be modified except by separate written instrument executed by Owner and Contractor.” The Court of Appeals disagreed and found that the parties had in fact orally agreed for the contractor to perform the additional work, said oral agreements were valid and enforceable, and the property owner could not avoid his obligations thereunder simply because of the lack of an additional signed writing. The contractor was awarded full payment for the additional work despite the absence of written authorization.

Tennessee courts generally follow the rule that allows contracts to be orally modified even if the contracts specifically state that the contract can only be modified in writing. Even where the written contract prohibits oral modifications of the agreement, oral alterations will still be given effect by the Courts if otherwise valid. Regardless, contractors are still advised to document “additional work” agreements, utilize change orders, and adhere to the provisions of a construction contract to avoid future payment disputes.