November 2014 Business Transaction Newsletter

For a link to the PDF version of the Newsletter click here November Commercial Law Newsletter

COURSE OF DEALING AFTER SIGNED CONTRACT CAN CHANGE THE CONTRACT

In the case of University Corporation v. Wring, the Court held that the parties’ course of conduct after a written agreement modified their written agreement. The facts in the Wring case were that Wring purchased foreclosed properties for University Corporation. Wring would oversee all necessary repairs and renovations and ultimately sell the foreclosed properties for the benefit of University Corporation. University Corporation’s Executive Director was given authority to act on its behalf in all dealings with Wring. As compensation, Wring would receive commissions on the purchase and sale of each property, and a percentage of the repair costs for his oversight of the repairs and renovation of each property.

After operating under an oral agreement for a length of time, Wring and University Corporation executed a written agreement for the same purpose that required Wring to provide repair costs on foreclosed properties for University Corporation. After this arrangement lasted for a period of time, University Corporation discovered that their records did not contain documentation of actual repair costs. Therefore, University Corporation filed a lawsuit against Wring seeking an accounting. As a result of that proceeding, the Trial Court entered an Order requiring Wring to disclose all funds received by virtue of the written agreement.

On appeal, Wring challenged whether the course of conduct between Wring and the Executive Director of University Corporation had modified the written contract. The Court of Appeals held that the course of conduct between Wring and the Executive Director of University Corporation modified the written agreement. The Court of Appeals pointed out that there was considerable testimony in the record that the Executive Director did not require written documentation of repairs or require any details or breakdowns of the repair costs. Clearly, both under the oral and written agreement, Wring and the Executive Director operated based on the estimated repair costs provided by HUD’s approved inspector and not detailed documentation by Wring. Correspondingly, the subsequent course of conduct between Wring and the Executive Director impliedly modified such requirement and therefore modified the contract.

MY RECOMMENDATION: Certainly, written contracts are the preferred method of having a contract. However, be sure to follow the terms of your contract. Otherwise, a course of dealing that develops between the parties on a repeated basis may serve as a subsequent modification of a written contract.

RAINEY, KIZER, REVIERE & BELL, P.L.C.

William C. Bell, Jr., Attorney at Law