This article has been written by Shubhangee Singh pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution course from LawSikho  and edited by Shashwat Kaushik.

This article has been published by Shashwat Kaushik.

Introduction

A contract deals with the legal framework that enables each party to determine the terms and conditions of their agreement, which facilitates the performance of the contract and provides for remedy in case any breach happens in its performance. As per Section 10 of the Indian Contract Act of 1872, the essential prerequisites that must be complied with by all the agreements to get transformed into a contract are free consent, competency of both parties, consideration and lastly, the object of the contract must be lawful and the subject matter must be legitimate and void.

Section 2(e) of the Indian Contract Act considers agreement as “every promise and every set of promises, forming consideration of each other.” It implies that an agreement could be written as well as oral. The Indian Contract Act makes no discrimination in the enforcement of oral and written contracts. But, when observed from a practical point of view, it can get very difficult to prove the existence or exact terms of an oral contract in case of any dispute between the parties. A written contract is granted preference over an oral one as per Section 59 of the Indian Evidence Act. When a contract is drawn up in written form, it clearly explains all the terms and conditions and also serves as a legally enforceable instrument that provides clarity by giving accurate records in case of disagreements.

Admissibility of oral evidence

The Indian Contract Act recognises both oral and written contracts, and either of these two modes could be used to make or modify the contract. Section 59 of the Indian Evidence Act of 1872 mentions that a written contract is the preferred mode in the case of documentary evidence as it gives the most perfect picture of its content. The scope of further modification/alteration in any contract is narrowed down by imposing certain restrictions on the admissibility of oral evidence under the Indian Evidence Act of 1872 and the Indian Registration Act of 1908.

In the case of S. Saktivel (Dead) By Lrs. vs. M. Venugopal Pillai And Ors. (2000), the question that was raised in this appeal was whether any parol evidence could be let in to substantiate a subsequent oral arrangement in order to rescind or modify the terms of a registered settlement deed. To which the Hon’ble Supreme Court held – “ Once under law a document is required to be in writing, parties to such a document cannot be permitted to let in parol evidence to substantiate any subsequent arrangement that has the effect of modifying earlier written documents. If such parol evidence is permitted, it would divest the rights of other parties to the written document. We are, therefore, of the view that the subsequent oral arrangement set up by the defendant-appellant cannot be proved by the parol evidence. Such evidence is not admissible in evidence.”

Under the Indian Registration Act of 1908

Section 48– This Section of the Registration Act talks about the situation where there is an evidentiary conflict between documentary and oral evidence. It gives preference to registered written documents over any oral agreement or declaration in the case of a non-testamentary transfer. In such cases, it considers the written document more valid. If the oral agreement or declaration is followed by the delivery of possession, then the oral agreement or declaration could be taken into consideration. The registered document may be superseded by an oral agreement or declaration if it is accompanied by or follows the delivery of possession, which qualifies the transfer as legal under the Act. This Section is read with Section 54 of the Transfer of Property Act of 1882, which permits the sale of any immovable property of a value less than 100 rupees by either a registered deed or by an oral agreement followed by delivery. 

Under the Indian Evidence Act  

Section 91 and Section 92 of the Indian Evidence Act predominantly deal with the admissibility of oral evidence in the case of written documents. These provisions are guided by the principle of the best evidence rule, which is to be followed while dealing with the admissibility of oral evidence in the case of written documents. 

Section 91 defines that if there is a contract, grant, disposition, or any matter that is mandatorily required by law to be documented in the form of writing, then that document could be admitted in court only when it is proved by the original or main document.

Section 92 of the Indian Evidence Act states that when the terms and conditions of any written document are proved as per Section 91, then such terms and conditions cannot be amended or modified by admitting any oral evidence between both parties or their representatives. However, any third person, apart from both parties to the contract and their representatives, is free to admit any oral or written evidence to prove and claim any variations in the terms of the contract under Section 99 of the Indian Evidence Act. The restriction is only imposed on the parties and their representatives. 

Furthermore, Section 92 of the Evidence Act of 1872 states six instances under which oral evidence can be given to modify or amend any written contract. 

• Proviso 1 to Section 92- Oral evidence of any such fact that would invalidate any document or disentitle any person from receiving the benefit of any decree or order on the account that such title or benefit was obtained through fraud, intimidation, etc., want of due execution or any party being incapable of contract, failure of due consideration or mistake in fact or law.

This includes evidence of:

• Fraud: A false statement of fact made with the intention of deceiving another person and causing them to act on that statement.
• Intimidation: The use of threats or force to coerce someone into doing something they do not want to do.
• Illegality: An act that is prohibited by law.
• Want of due execution: A failure to follow the proper procedures for executing a document.
• Incapacity to contract: A lack of legal capacity to enter into a contract.
• Failure of due consideration: A lack of adequate consideration for a contract.
• Mistake in fact or law: A misunderstanding of the facts or the law that led to a contract being entered into.
• Proviso 2 to Section 92- In case there exists any separate oral agreement with respect to any matter on which the whole document is totally silent,. Then, such an agreement could be admitted orally. Provided the terms and conditions of such an oral agreement cannot be inconsistent with the original agreement. 

For example, if the original agreement is silent on the issue of whether or not the parties are responsible for their own attorneys’ fees in the event of a dispute, then the parties may enter into an oral agreement that each party will be responsible for their own attorneys’ fees. However, if the original agreement states that the parties will share the cost of attorneys’ fees equally, then the parties cannot enter into an oral agreement that one party will be responsible for all of the attorneys’ fees.

• Proviso 3 to Section 92- In case there exists any separate oral agreement that acts as a prerequisite to any contractual obligation. Then, such an agreement could be admitted orally. Any oral agreement that proves the condition precedent to the attachment of any obligation under any such contract, grant or disposition of property under a written contract may be proved by adducing oral evidence.
• Proviso 4 to Section 92- Contracts that are mandatorily required by law to be in writing and registered cannot be changed orally. The above mentioned provisos are not applicable to such contracts that are legally required to be registered and to be in written form. This is because these contracts are already considered to be of a more formal nature and do not require the additional protection of being able to be changed orally. For example, a contract for the sale of real estate would typically be required to be in writing and registered. This is because real estate is a valuable asset, and it is important to have a clear and unambiguous record of the terms of the sale. If the contract could be changed orally, it would be more difficult to enforce the contract and to protect the rights of the parties involved. 

A contract for the sale of a used car would not typically be required to be in writing or registered. This is because a used car is a less valuable asset, and the parties involved are less likely to have a dispute about the terms of the sale. If the contract could be changed orally, it would not have a significant impact on the parties involved. The distinction between contracts that are required to be in writing and registered and those that are not is important because it helps to ensure that contracts are clear, unambiguous, and enforceable.

• Proviso 5 to Section 92- Any doubt or ambiguity resulting from any custom or usage that is expounded upon in the document may be clarified orally. If there is any confusion regarding any word that has a distinctive meaning locally, then oral evidence could be adduced to clarify the intended meaning and in what sense it was used at the time of contract formation. Provided that the meaning intended to be attached cannot make the document inconsistent with the original contract. 
• Proviso 6 to Section 92- This clause gives the parties the opportunity to explain how the written document provisions apply to the existing facts. It explains the manner in which the language of the document relates to the existing facts. For example, if the document states that a party is obligated to pay a certain amount of money, this clause would allow the party to explain how that obligation arises from the existing facts. This clause can be helpful in clarifying the meaning of the document and ensuring that all parties understand their obligations.

Role of NOM clause

In recent years, the world has become more global and more accepting of e-commerce. Commercial contracts are becoming part of one’s everyday life, and rules around such contracts are becoming stringent. To develop people’s faith and invoke their confidence in the process, the “No Oral Modification” clause has emerged. 

As per this clause, any modification or alteration to such contracts could only be done in writing and it needs to be signed by or on behalf of the contracting parties. Any oral modification under this clause is strictly prohibited. This clause is added to show that both parties have the clear intention to make the modification process strict and formal, as it could only be done through written means. 

In 2018, England Court, in the case of Rock Advertising Limited vs. MWB Business Exchange Centres Limited (2018), held that any change after the insertion of the NOM clause in the contract could only be done in the way the NOM clause states. It held NOM’s effectiveness and said that “it continues to bind until the parties have expressly (or by strictly necessary implication) agreed to do away with it, which would give the parties most of the commercial benefits of certainty and the avoidance of abusive litigation about alleged oral variation for which its proponents contend.”

Recently, the Singapore Court of Appeal, in the case of Charles Lim Teng Siang and Anr. vs. Hong Choon Hau and Anr. (2021), discussed the legal implications of No Oral Modification (NOM) clauses. The Court held that the existence of the NOM clause raises the presumption against oral modification and if the party wants to claim any oral modification contrary to the terms of the NOM clause, then they must give strong evidence to counter this presumption. The doctrine of equitable estoppel could be a valid reason to prevent one party from enforcing a written contract.

The NOM Clause has been adopted as a constant practice in commercial contracts by various countries, such as the USA, the United Kingdom, Singapore and India. This clause is significantly important as it changes the process of alteration in the contract and makes any modification in the commercial contract very formal. Thus, it helps prevent misunderstandings that can come with oral changes and makes it simpler for organisations to manage decisions about variations and other situations by clearly defining who has the authority to amend them.

Conclusion

In conclusion, as per the Indian Contract Act, all the oral agreements are legally enforceable in court. However, it is highly recommended that one always adhere to the written language while making a contract. A contract, when reduced to the composition of text, has great value and carries more weight in cases of dispute. The scope of oral modification has narrowed down and the commercial world is shifting towards the NOM clause, which gives preference to the written document and makes oral modification more restrictive. 

Globalisation is taking the whole world on a single stage, and e-commerce is making trade happen between citizens of various different countries. Amidst all the circumstances, it is crucial for all the countries to make the contract statutes more formal and user friendly. Adding a NOM clause to the contract gives more confidence to both parties.

References 

• https://www.lexology.com/library/detail.aspx?g=cd687b63-c777-4bc7-9350-35a188da01f0 
• https://www.indiacode.nic.in/handle/123456789/2187?sam_handle=123456789/1362  
• https://www.indiacode.nic.in/bitstream/123456789/15351/1/iea_1872.pdf
• https://www.indiacode.nic.in/bitstream/123456789/2190/1/A1908-16.pdf
• https://indiankanoon.org/doc/447653/
• https://indiankanoon.org/doc/877630/
• https://www.mondaq.com/india/contracts-and-commercial-law/768278/enforceability-of-oral-a