Opinion ID: 848763
Heading Depth: 3
Heading Rank: 1

Heading: Analytic Framework

Text: In order to decide this case, we must consider what circumstances may support amendment of a contract, particularly where the contract protects itself against certain methods of waiver or modification. At the heart of this inquiry is the freedom to contract. As this Court recently observed in Wilkie v. Auto-Owners Ins Co, 469 Mich.___,___, 664 N.W.2d 776 (2003): This approach, where judges ... rewrite the contract ... is contrary to the bedrock principle of American contract law that parties are free to contract as they see fit, and the courts are to enforce the agreement as written absent some highly unusual circumstance such as a contract in violation of law or public policy. This Court has recently discussed, and reinforced, its fidelity to this understanding of contract law in Terrien v. Zwit, 467 Mich. 56, 71, 648 N.W.2d 602 (2002). The notion, that free men and women may reach agreements regarding their affairs without government interference and that courts will enforce those agreements, is ancient and irrefutable. It draws strength from common-law roots and can be seen in our fundamental charter, the United States Constitution, where government is forbidden from impairing the contracts of citizens, art. I, § 10, cl. 1. Our own state constitutions over the years of statehood have similarly echoed this limitation on government power. It is, in short, an unmistakable and ineradicable part of the legal fabric of our society. Few have expressed the force of this venerable axiom better than the late Professor Arthur Corbin, of Yale Law School, who wrote on this topic in his definitive study of contract law, Corbin on Contracts, as follows: One does not have `liberty of contract' unless organized society both forbears and enforces, forbears to penalize him for making his bargain and enforces it for him after it is made. [15 Corbin, Contracts (Interim ed.), ch. 79, § 1376, p. 17.] While the freedom to contract principle is served by requiring courts to enforce unambiguous contracts according to their terms, the freedom to contract also permits parties to enter into new contracts or modify their existing agreements. Thus, as in the present case, we are required to resolve the tension between the freedom to enter into a contract concerning the same subject matter as a previous contract and provisions in the previous contract restricting the manner in which original contractual terms may be modified or waived. Justice CAMPBELL wrote on this issue over a century ago when he stated: [T]he case seems to settle down to the simple question whether a person who has agreed that he will only contract by writing in a certain way, precludes himself from making a parol bargain to change it. The answer is manifest. A written bargain is of no higher legal degree than a parol one. Either may vary or discharge the other, and there can be no more force in an agreement in writing not to agree by parol, than in a parol agreement not to agree in writing. Every such agreement is ended by the new one which contradicts it. [ Westchester Fire Ins. Co. v. Earle, 33 Mich. 143, 153 (1876).] Echoing Justice CAMPBELL was this Court's similar conclusion in Reid v. Bradstreet Co., 256 Mich. 282, 286, 239 N.W. 509 (1931): It is well established that a written contract may be varied by a subsequent parol agreement unless forbidden by the statute of frauds; and that this rule obtains though the parties to the original contract stipulate therein that it is not to be changed except by agreement in writing. In discussing the subject of varying written instruments by parol, Prof. Williston says: Nor does it make any difference that the original written contract provided that it should not subsequently be varied except by writing. This stipulation itself may be rescinded by parol and any oral variation of the writing which may be agreed upon and which is supported by sufficient consideration is by necessary implication a rescission to that extent. Williston, Contracts, § 1828. The theory of the rule is that: Whenever two men contract, no limitation self-imposed can destroy their power to contract again. [Citation omitted.] Moreover, the next year, in Banwell v. Risdon, 258 Mich. 274, 278-279, 241 N.W. 796 (1932), we held that contracting parties are at liberty to design their own guidelines for modification or waiver of the rights and duties established by the contract, but even despite such provisions, a modification or waiver can be established by clear and convincing evidence that the parties mutually agreed to a modification or waiver of the contract. Accordingly, it is well established in our law that contracts with written modification or anti-waiver clauses can be modified or waived notwithstanding their restrictive amendment clauses. This is because the parties possess, and never cease to possess, the freedom to contract even after the original contract has been executed. However, the freedom to contract does not authorize a party to unilaterally alter an existing bilateral agreement. Rather, a party alleging waiver or modification must establish a mutual intention of the parties to waive or modify the original contract. Banwell, supra . This principle follows from the contract formation requirement that is elementary to the exercise of one's freedom to contract: mutual assent. Where mutual assent does not exist, a contract does not exist. Accordingly, where there is no mutual agreement to enter into a new contract modifying a previous contract, there is no new contract and, thus, no modification. Simply put, one cannot unilaterally modify a contract because by definition, a unilateral modification lacks mutuality. [4] The mutuality requirement is satisfied where a modification is established through clear and convincing evidence of a written agreement, oral agreement, or affirmative conduct establishing mutual agreement to waive the terms of the original contract. In meeting this clear and convincing burden, a party advancing amendment must establish that the parties mutually intended to modify the particular original contract, including its restrictive amendment clauses such as written modification or anti-waiver clauses. Upon proof of an express oral or written agreement, the mutuality requirement is clearly satisfied. This is because where the parties expressly modify their previous contract, rescission of the terms of the prior agreement is a necessary implication. Reid, supra . By the clear expression of the parties, contradictory provisions in the prior agreement are waived. However, in situations where a party relies on a course of conduct to establish modification, mutual assent is less clear and thus the rescission, or waiver, of the original contract's terms is not so evident. [5] As a result, where course of conduct is the alleged basis for modification, a waiver analysis is necessary. As we have stated in other contexts, a waiver is a voluntary and intentional abandonment of a known right. Roberts v. Mecosta Co. Hosp., 466 Mich. 57, 64 n. 4, 642 N.W.2d 663 (2002); People v. Carines, 460 Mich. 750, 762 n. 7, 597 N.W.2d 130 (1999). This waiver principle is analytically relevant to a case in which a course of conduct is asserted as a basis for amendment of an existing contract because it supports the mutuality requirement. Stated otherwise, when a course of conduct establishes by clear and convincing evidence that a contracting party, relying on the terms of the prior contract, knowingly waived enforcement of those terms, the requirement of mutual agreement has been satisfied. Further, whereas an original contract's written modification or anti-waiver clauses do not serve as barriers to subsequent modification by express mutual agreement, the significance of such clauses regarding the parties' intent to amend is heightened where a party relies on a course of conduct to establish modification. This is because such restrictive amendment clauses are an express mutual statement regarding the parties' expectations regarding amendments. Accordingly, in assessing the intent of the parties where the intent to modify is not express, such restrictive amendment provisions are not necessarily dispositive, but are highly relevant in assessing a claim of amendment by course of conduct. Any clear and convincing evidence of conduct must overcome not only the substantive portions of the previous contract allegedly amended, but also the parties' express statements regarding their own ground rules for modification or waiver as reflected in any restrictive amendment clauses.