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Contract Modification
Waiver of the Non-Waiver Clause
By Bradley D. Blakeley, Esq

As a vendor, you enter into a distribution agreement with a customer. The agreement contains a clause that any modification to the agreement must be in writing. Is it possible for you to waive, without a writing, the non-waiver clause? Under the recent case of Wireless Distributors, Inc. v. Sprintcom, Inc., it may well be.

In Wireless Distributors, ABC Wireless entered into a telephone distribution agreement with Sprintcom, Inc., d/b/a Sprint PCS. The distribution agreement provided that any modification or waiver must be in writing and signed by both parties. Pursuant to the agreement, ABC Wireless agreed not to use independent contractors, franchises, dealers or other distributors to sell the products. However, Sprint PCS continued doing business with ABC Wireless with the knowledge that ABC Wireless sold the products to its dealers and subdealers not listed in the distribution agreement and that this was the predominate way in which ABC Wireless conducted its business.

Thereafter, ABC Wireless assigned its rights under the distribution agreement to Wireless Distributors. Prior to the assignment, Wireless Distributorsís president met with Sprint PCSís account representative and informed that Wireless Distributors did not own any retail stores and would be selling the products to dealers and subdealers nationwide. Based on the conversation and visit, Sprint PCS knew and understood, prior to the assignment, that Wireless Distributors would be selling the products to its dealers and their subdealers nationwide and not directly through any retail stores. Sprint PCS consented to the assignment and did business with Wireless Distributors pursuant to the terms of the distribution agreement.

Later in the year, Sprint PCS amended the compensation structure under the distribution agreement. Wireless Distributors agreed to the amendment and the compensation addendum and agreed to continue to do business with Sprint PCS. Issues between the parties arose over the changes to the compensation structure and Sprint PCS terminated the distribution agreement in accordance with its terms. At no time prior to the termination of the distribution agreement did Sprint PCS claim that Wireless Distributors breached the distribution agreement by selling the products to its dealers and their subdealers.

Wireless Distributors filed suit against Sprint PCS alleging breach of contract and fraudulent misrepresentation. The distribution agreement was governed by Kansas law. Under Kansas law, when a contract is complete, unambiguous, and free from uncertainty, any parol evidence of prior or contemporaneous agreements or understandings tending to vary the terms of the contract evidenced by the writing is not admissible. Evidence of prior agreements, course of dealing and course of performance can be used to explain or supplement existing terms; however, they cannot be used to contradict the terms of a fully integrated written contract.

Wireless Distributors argued that Sprint PCS waived any rights it had relating to sale of the products through dealers or other distributors; thus, the parol-evidence rule is not applicable. Under Kansas law, a contract or portion of a contract may be modified or waived. The Kansas Code, which adopts the Uniform Commercial Code, provides that a signed agreement which excludes modification unless by a signed writing cannot be otherwise modified. However, if an attempt at modification is not in writing, it can still operate as a waiver. Waiver in contract law implies that a party has voluntarily and intentionally renounced or given up a known right, or has caused or done some positive act or positive inaction which is inconsistent with the contractual right.

Wireless Distributors conceded that the distribution agreement provided that any modification or waiver must be in writing and signed by both parties, and that the distribution agreement was not modified or waived in writing by the parties. The court found that the allegations that Sprint PCS continued doing business with Wireless Distributors with the knowledge that Wireless Distributors sold the products to its dealers and subdealers and that this was the predominate way in which Wireless Distributors conducted its business supported a finding that Sprint PCS not only waived the exclusive dealing requirement but also the provisions requiring that any waiver be in writing.

Reprinted by permission from Trade Vendor Quarterly Blakeley & Blakeley LLP Fall 04

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