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.
A 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.
Don’t Use the Quick and Dirty Method
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.
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Clearly State Reason for Amendment
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.
Use Detailed References
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.
Execute the Amendment
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.
Take the time to execute a written amendment to the contract.
Store Amendment with Original Contract
Once the amendment has been executed, it is not a separate legal document. It is part of the contract. You need to store the amendment with the original contract in your contract management system. Most contract management software makes this process easy.