Whether a fund document or an acquisition agreement, most of the contracts your private equity firm has entered into contain a provision such as the following: “No amendment or waiver of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Parties.”

Does that mean a purported oral agreement between you and your counterparty to change or waive the terms of your agreement is ineffective because it is not in writing? Or that your actions following the execution of the agreement cannot effect a change in its terms on the grounds that those actions did not include a writing signed by both parties?

Those are not trick questions! It turns out the answer is less clear than one might think. Subject to certain specific exceptions, oral agreements are generally binding. This includes an oral agreement to change a contractual provision that requires changes to be in writing. Thus, under Delaware law, “contract provisions deeming oral modifications unenforceable can be waived orally or by a course of conduct just like any other contractual provisions.” So held the Delaware Court of Chancery in late June of this year, citing a long line of Delaware cases to this effect. CPC Mikawaya Holdings, LLC v. MyMo Intermediate, Inc., et al., (Del. Ch. June 29, 2022).

The same is true under New York law. The principle was stated succinctly more than a century ago by Benjamin Cardozo, when he sat on the New York Court of Appeals: “Those who make a contract may unmake it. The clause which forbids a change may be changed like any other. The prohibition of oral waiver may itself be waived.” (Alfred C. Beatty v. Guggenheim Exploration Co., et al., N.Y. Jan. 28, 1919).

Not surprisingly, ultimately succeeding on a claim that the parties have orally agreed to amend a contractual requirement that amendments must be in writing presents difficult burden of proof challenges, and courts are inclined to be skeptical of such assertions. However, defending such a claim can nonetheless be expensive. As the court stated in CPE Mikawaya Holdings, in upholding such a claim against a motion to dismiss, “the strenuous evidentiary standard for an oral waiver of a non-oral-modification provision” comes into play only after discovery. A plausible assertion of an oral waiver is likely to survive a motion to dismiss.

The moral remains that of Proverbs: Be careful what you say.