108 Essential Elements of Contracts; Formality Required for Contracts, Changes, Etc

• Jurisdiction: Arizona

(a) Modifications

Written contracts may not be modified by prior oral agreements, only by subsequent oral modifications. Whether a subsequent written agreement will be permitted to modify existing contractual obligations depends upon all of the circumstances.

In Pleasant v. Arizona Storage & Distrib. Co., 34 Ariz. 68, 267 P. 794 (1928), Arizona Storage, in addition to suing on a written contract, sought to recover on an oral agreement entered into “at the time of entering into” the written contract. The court held that this could not be enforced because it sought to modify a simultaneous written contract, which is contrary to the parol evidence rule. If the oral contract, supported by new consideration, had been entered into after the written contract, then it would be enforceable, but no oral agreement entered into at the time of a written contract may vary the terms of the written contract.

In Rental Dev. Corp. of America v. Rubenstein Constr. Co., 96 Ariz. 133, 393 P.2d 144 (1964), the contract provided that the contractor would correct any defects which appeared within a period of one year after completion of the building. When the building was completed, the owner refused to sign a broad release but did sign a letter which stated that “it will not make further demands upon the contractor by reason of the construction of the project . . .” Id. at 135.

Latent defects appeared within the one year, and the owner sued the contractor for the correction of those defects. The court held that the letter was not an unambiguous release. It noted that the parol evidence rule, which is a rule of substantive contract law, does not prohibit evidence to determine whether the letter agreement was intended to release the contractor from the existing contractual obligation to correct the defects. Significantly, the court pointed out that the reference in the letter to the fact that the project was “fully completed . . . and in accordance with plans and specifications” could mean that the owner did not waive defects occurring because of a failure to comply with the specifications. 96 Ariz. at 138.

See also the discussion of oral authorization of extra work in Section 112.

(b) Agreements to Agree

Agreements to agree may be enforceable if the parties manifest assent or intent to be bound.

The cases discussed in this section should be considered in light of Arok Constr. Co. v. Indian Constr. Servs., supra, which is discussed at the end of the section, and which changed...