When To Amend A Contract And Why
If a contract already exists and you and the other party want to modify some element of it whether it’s an addition (addendum), deletion, correction, or similar change an amendment is an ideal solution. An amendment doesn’t replace the whole original contract, just the part that’s changed by the amendment (for example, the delivery date or the price for goods). If a contract requires extensive changes, it’s generally wiser to create an entirely new agreement or, alternatively, to create an “amendment and restatement,” an agreement in which the prior contract is reproduced with the changes included.
Put Your Amendment in Writing?
Some contracts contain clauses such as the one below, which requires that any amendments be made in writing and signed by both parties.
This is the entire agreement between the parties. It replaces and supersedes any and all oral agreements between the parties, as well as any prior writings. Modifications and amendments to this agreement, including any exhibit or appendix, shall be enforceable only if they are in writing and are signed by authorized representatives of both parties. Surprisingly, the requirement that modifications be in writing provided in the above clause is not always enforced. The reasoning, as expressed by one court, is this: Parties to a contract cannot, even by a written provision in the contract, deprive themselves of the power to alter or terminate that contract by a later agreement; so a written contract may be modified by the parties in any manner they choose. In other words, a contract clause requiring written amendments will not always be enforced. The chances of it being enforced go down if one or both parties relied on an oral modification in carrying out the contract. This is not to say that you should disregard clauses requiring modifications in writing or prohibiting oral amendments or avoid using such clauses in agreements. Written amendments like written agreements in general have many advantages over oral agreements, and a party seeking to enforce an oral modification despite a clause prohibiting them will face an uphill battle in court. In addition, state law requires that some types of amendments must be in writing for example, amendments for transfers of real or intangible property and certain financial contracts must be in writing.
Amendments, Consents, and Waivers
There are times when the parties want to deviate from the agreement, but don’t need to modify it. For example, one party to a nondisclosure contract might give the other party permission to disclose certain facts to certain people, even though that might technically violate the language of the contract. These deviations in which a party waives a provision or permits something that is otherwise prohibited by the contract are sometimes considered amendments, although they are more properly defined as “waivers” or “consents.” Unlike an amendment, a consent or waiver doesn’t modify the agreement itself; instead, it excuses or permits activities that are otherwise prohibited by the contract. Consents and waivers should be in writing.
Creating an Amendment to Contract
The goal when creating a contract amendment is to be as specific and concise as possible. The document can appear informal for example, like a letter agreement or it can resemble the original contract in font and layout. Generally, amendments come in one of three different styles.
Method #1: Redlines and strikethroughs. Under this method, additions and deletions to the contract are shown visually, with additions underlined and deleted text crossed out. (Most word processing programs allow you to choose “strikethrough” as a font style choice.) A statement describing the process used to draft the amendment commonly precedes the amendment itself.
Method #2: Clause is replaced in its entirety. In this method, when amending a contract you simply state that a whole clause has been replaced, and provide the new clause.
Method #3: Describing the amendment. Using this approach, the changes are described. This is often shorter but requires the parties to check against the existing text of the contract.
Modifications Before the Contract is Signed
If a contract is modified before it is signed, such changes are not “amendments.” If you wish to handwrite a change into an agreement that been printed out for signature — for example, because you noticed a typo at the last minute — you can use a pen to do so and have both parties initial it. Although not technically an amendment, these modifications are sometimes labeled as such.
A contract is a legally binding agreement between two or more parties. It is usually a written document that outlines the duties and benefits that are prescribed to each party. Some types of contracts, such as those subject to the statute of frauds (SOF), must be in writing in order to be legally effective. Whether a contract is in writing or orally agreed upon, it can usually be modified at a later date. Contract modification occurs when the parties agree to change any of the terms in the original agreement. A contract can be modified in whole or in part, depending on the needs of the parties. Also, a contract can be modified either before signing or after the contract is formally agreed to. For any modification to a contract to be considered valid, all parties must agree to the subsequent changes. If any party does not agree to a contract modification, the changes are not likely to be enforceable. Valid modifications will be enforced and are binding according to contract laws.
Why Might Contract Modification Be Necessary?
Contract modification can occur for a variety of reasons. In fact, there are as many reasons to modify a contract as there are to create one in the first place. Some common reasons that parties modify contracts may include:
• To extend the contract
• To modify the contract’s duration
• To alter the quantity items required under the contract
• To add or subtract any goods in the contract
• To change terms such as payment, delivery, or receipt of the product
A contract might also need to be modified for other reasons besides the desires of the interested parties. For example, contract modification might be necessary due to a statutory requirement. Or, a judge might order a contract to be modified under certain circumstances.
When Can a Contract Be Modified?
A contract can usually be modified at any time, as long as all the parties express their consent to the changes. Minor changes in a contract can often be handwritten into the original document, and then signed or initialed by the parties. Major changes to a contract will often have to be re-negotiated and subject to another printing and signing. Also, if the contract contains specific instructions on how to modify it, these will need to be followed.
If you will be modifying a contract before you sign it, consider the following tips:
• Take note of any provisions in the contract that you feel may be biased or unfair.
• Make a list of any changes or modifications that you feel are appropriate.
• Be sure to present the changes as you would like them to appear in the contract.
• Take note of the date, time, and location when you decided upon the changes.
• Attempt to foresee how the changes may affect the contract rights of both parties in the future.
Modifying a contract after signing can be somewhat more difficult than before signing. This is because the parties may have already begun performing their duties according to the contract requirements. Consider the following points when modifying a contract after signing:
• Take note of whether any party, including yourself, has already begun performing their contractual duties. For example, if the opposite party has already delivered a product, make sure to take note of the delivery.
• Consider how the contract modifications might affect such duties that have already been performed.
• Contract modification after the parties have already signed may require another round of negotiations. Be prepared to present your reasons for the modifications.
• Be sure the modifications satisfy all contract laws. For example, if the contract must be in writing according to the statute of frauds, then the contract modifications must also be in writing.
When Is Contract Modification Not Allowed?
Occasionally a contract will contain language that prohibits subsequent modifications in the future. For example, the contract may contain a clause that states, “This contract is not subject to future modification”. If this is the case, then it is likely that the other party will not consent to any modifications whatsoever. The parties will be obliged to follow the contract as it is, so long as it is not unfair or illegal.
Do I need a Lawyer for Modifying a Contract?
Not necessarily but it’s a really good idea. Depending on the contract you probably should at least call Ascent Law and ask. If you will be modifying a contract, you may wish to consult with an attorney before presenting any changes to the other party. This is especially true if you will be making major changes that would affect the substance of the agreement. An experienced contract lawyer can help you draft and review the changes so that the contract meets your needs more fully.
How to Handle Contract Amendments
Contracts are like photographs that capture the details of an agreement at a specific point in time. However, circumstances change, and even a contract written with an eye to the future may need to be changed. Amending a contact must be done carefully. You want to change the parts of the deal that are no longer working while preserving the parts of the deal that do work.
When You Need a Contract Amendment
Legally, an amendment is a change to a contract after it has already been signed. Any changes to a document before it has been signed are known as modifications. You may need a contract amendment when a handful of sections or clauses need to be changed. For an amendment to be enforceable, both sides have to agree to the changes. If the entire agreement needs to be altered, you are better off formally terminating the contract and executing a new deal. Every time you amend a contract, you increase the chances of accidentally altering the agreement in unintended ways. Common reasons parties amend contracts include changing market conditions, unexpected complications, or an evolution in the business relationship between the two sides.
Difference Between Amendments, Supplemental Agreement and Restated Agreements
There are many different legal terms that are related to amendments but are separate legal concepts that are often confused with amendments.
• An amendment to a contact means the original contract language is changed in some way.
• A supplement is an additional document to the contract that does not change the original terms but does add new terms.
• Supplemental agreement is a legal document that memorializes the settling of a dispute as to the original terms of the contract. A supplemental agreement will describe the dispute and the settlement in an objective fashion.
• Restated agreements are the replacement of an entire contract with an amendment. In most cases, restated agreements should be avoided in favor of termination and execution of a new agreement.
The law gives the parties to a contract a lot of freedom to amend the contract. This includes the quick and dirty method of crossing out terms and handwriting new terms on the face of the signed agreement. If both sides initial and date these markings, they are valid amendments. However, you should not use this quick and dirty method because it makes the contract harder to understand, and it can lead to misunderstandings, disputes, and accusations of fraud. A better practice for contract amendments is to write out the changes and make reference to the specific provisions that are changed by the amendment. This is cleaner and leaves a paper trail should litigation be needed in the future.
You need to clearly state the reason for the amendment. In the heat of the moment, it may be obvious why certain changes are being made. But, in the future, the reasons may be forgotten. Stating the reasons for any changes will help keep both parties on the same page. It can also help settle future disputes. Every contract and amendment should be written with the idea that some stranger may need to read and understand the terms of the agreement.
When writing a contract amendment, you need to be detailed. You should state that clauses are being changed, where those clauses are located in the contract, and what changes are being made. It is better to lean on the side of providing too much detail than not enough.
For an amendment to be enforceable, it must be executed. Authorized representatives, preferably the same ones who signed the original contract, need to sign and date the amendment. If the amendment is not signed by both sides, it isn’t legally valid. Depending on the contract and the circumstances, it may be technically possible to orally amend a contract. But, this almost always leads to disputes and litigation.
Tip 1: Is the proposed variation a lawful variation?
Not every problem in a contract can be cured by a variation. For example, changing a party to a contract is not properly the subject of a variation. Make sure that what is intended can be achieved by way of a variation.
Tip 2: Do what the contract says
Contracts will often contain a clause setting out form and substance requirements for how the contract may be varied. A common example is a requirement that a variation be in writing signed by the parties. These requirements will need to be followed. Parties should carefully check a contract for any provisions directing how variations are to be made, and ensure such directions are complied with.
Tip 3: Confirm who should agree to the variations and who can sign a variation
Contracts very rarely permit one party to unilaterally make variations (i.e. without the other party’s consent). All current parties to the contract will normally have to agree to any changes, whether they are affected by the changes or not. Also, having the right person sign a variation is essential to ensure its validity and enforceability. A person responsible for the day-to-day management of a contract may not necessarily have authority to agree to variations. For example, sometimes director approval may be needed.
Tip 4: Consider if a deed should be used
As a variation is a contract in itself, either consideration is required for the variation to be effective or the variation must be by way of a deed. Also, contracts (or variations) relating to the sale of land will need to be done by a deed.
Tip 5: Make sure the contract is still alive
A common mistake is for parties to attempt to vary a contract when it has already expired. This can arise when a contract has a fixed expiration date; however the tasks to be completed under the contract run over schedule. Often parties will attempt to vary the contract by inserting a new expiration date in order to keep the original contract on foot. While this may seem to be the most convenient method, it is unlikely to work. Once a contract has expired, it cannot then be varied. In these circumstances, a new contract is required.
Tip 6: Make sure that the contract as varied is internally consistent
Any variation should be certain on its terms and should fit seamlessly with the remainder of the contract. Avoid sweeping expressions. Descending to detail in the terms of the variation can remove the uncertainty of reconciling inconsistent terms at a later date.
Utah Contract Attorney
When you need a Contract Lawyer, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506