Don't Bet the Business

Nearly every contract I ever see contains some type of language stating that in order to modify the contract terms there must be a writing signed by the parties. Sometimes referred to as “modification” or “anti-waiver” clauses, this type of provision is always prudent to include. 

It helps to establish the parties’ intention that the signed four-corners of the writing includes the entire agreement, and that to change the writing the parties intended that there will be another signed writing. End of the story, right?  Not always.

The Michigan Supreme Court ruled in the case of Quality Products & Concepts Co v Nagel Precision, Inc that parties to a contract are free to mutually waive or modify the contract even if they included in their contract some form of a written modification or anti-waiver clause. Putting aside that this mutuality requirement is only satisfied where a change is established through clear and convincing evidence (which can take the form of a written agreement, an oral agreement or conduct establishing a mutual agreement), the court also cautioned that for such a modification to be effective it had to be supported by either additional consideration or a signed writing. This requirement traces its roots to the legislative mandate found in MCL 566.1.

I have written before about contract consideration. Consideration underlying a contract is a "bargained-for exchange."  In other words, there must be a benefit on one side of the deal or a detriment suffered or service performed by the other side.  

Consideration can take the form of a return promise or a performance of some sort, including some act or forbearance. It can also be the creation, modification or destruction of some type of legal relationship. While the courts typically will not inquire into the sufficiency of consideration, there must, of course, be identifiable consideration. 

In the case of consideration supporting the alteration of a contract that can otherwise only be modified by a signed writing, the consideration clearly must be new.  In other words, the requirement of “additional consideration” cannot be based upon the same consideration found to support the original agreement. 

Known as the “preexisting duty rule” it states that doing what one is legally required to do is not consideration for a new promise. As the Michigan Supreme Court long ago stated in the context of a promise to repay a debt:  "’since a promise to do nothing more than one is already legally bound to do is no consideration for a promise given in return, there is no consideration for an extension of the time of payment’ of a legal obligation, ‘which involves promise to forbear, where the only consideration is the debtor's promise to pay the debt at the extended time of payment, without anything more, or his promise to pay in installments.’"

The punch line of all this is be safe; if you are trying to change a signed writing, get the amendment in a signed writing. Even then it is helpful to recite, in the signed writing, some form of new consideration.  While plainly a belt and suspenders approach, it can’t hurt and you just may end up avoiding a long and expensive relationship with someone like me.