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Can an oral agreement modify a previous written agreement?

Mcallen, TX |

Closely held business had a partnership agreement with provisions relating to the death of a partner's spouse (there were two partners). The agreement stated that the surviving spouse would be bought out by the surviving partner and would not own anything relating to the business. Later, the partners bought life insurance policies and agreed (orally) that the surviving spouse would get the life insurance proceeds in lieu of being bought out. One of the partners died and the surviving spouse (who did get he insurance proceeds) is also claiming interest in the company.

Attorney Answers 4

Posted

Parties to an agreement are always allowed to change the terms upon mutual agreement. Oral modifications can occur - but hard to prove. Sometimes circumstances reveal a change of the agreement, or at least that one party acquiesced to the change.

The written agreement is right there for all to read and understand - powerful evidence.

I hope this helps.
Respectfully,
Steven A. Leahy
www.chicagotaxteam.com

Please note that the above is not intended as legal advice, it is for educational purposes only. No attorney-client relationship is created or is intended to be created hereby. You should contact a local attorney to discuss and to obtain legal advice.

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Posted

The written agreement may contain a clause stating that the agreement cannot be modified except in writing. In that case, it would be even more difficult, if not impossible, to argue successfully that the later oral agreement changed the written agreement. There are some limited exceptions to this (for example, if a party to the original contract was induced to sign it by fraud), but you would need an attorney to review the contract and surrounding circumstances to give you a more in-depth answer.

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1 comment

Martin L Bearg

Martin L Bearg

Posted

Your oral agreement really did NOT change the terms of the partnership agreement, what you did was secure a funding mechanism to buyout the interest of the deceased partner. You can go to court and seek enforcement of the buyout provision. If the agreement established a method for determining the purchase price of a partner's interest, you will either owe the widow money or be due a refund unless it states whatever insurance was secured is the price that will be paid (this may result in a tax issue for the purchase price should equal the fair market value of the interest being purchased). Not also that in evey state that I am aware of, NO NEW PARTNER can be admitted without the consent of either all, or a majority of the remaining/existing partner(s). In this case, the widow would be entitled to distributions, but not to participate in management.

Posted

As hinted at in the first answer, you are going to have to prove that the course of conduct of the parties proves the agreement was modified. However, if there is a provision that precludes oral modifications, you're out of luck. In your case, you may be able to prove the oral modification. You will need to show that the oral agreement was made around the same time that the life insurance policies were taken out. If a court or jury agrees that the partners would not have purchased the life insurance unless the main purpose was to provide a funding mechanism for the buy out, then you may be able to prove the modification.

Any response is not legal advice and should not be considered legal advice. Always consult an attorney in your state or jurisdiction, as laws vary from state to state.

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Posted

Under Texas law, any agreement can be modified orally -- even those that state that there can be no oral modifications or that all modifications have to be in writing. The courts have held that the parties can orally agree to modify the no-modification provision.

The problem that you have with an oral modification is proving it, particularly where on eof the parties is now deceased.

But, you can use the actions of the parties to prove an oral modification. Here, in addition to the testimony of the surviving partners, you could argue that if the surviving spouse were to get both the insurance proceeds and an interest in the partnership, she would be receiving a windfall not intended by the parties. Perhaps the insurance agent or company has some documentation for the purpose of the insurance -- that could be your written proof.

Good luck.

Hope this helps. If you think this post was a good answer, please click the “good answer” button below and/or designate my answer as the best answer. Thanks.

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