What does it mean to amend a contract?
An amendment is a change that alters the original terms of your contract. It is certainly not uncommon for parties to a contract, based on unforeseen circumstances or changing needs, to choose to amend that contract after the fact. While some amendments come as a result of a new agreement by the parties to change the terms of the contract, in other cases, one party’s performance of his/her contractual duties requires a change to the contract. A brief primer on why and when contracts are amended follows.
Amendments may be called for where, for example, a construction contractor has incurred a labor cost that exceeds the stated contract sum, and the contractor is unable to absorb the additional cost. The contractor would request an amendment to the contract so that the owner would agree to pay the contractor the increased labor cost . Or, if a medical care provider is contractually obligated to render medical services to your family member in an agreeable manner, and the provider will be unable to do so due to changes in your family member’s medical condition, an amendment might be needed if the provider is willing to continue providing medical services without significant changes to the contract.
Amendments may come after the operation of the contract, which we will discuss below, or before it. Your circumstances regarding the contract may make it clear that an amendment is desirable or necessary. In other cases, your situation with the contract may make evident less obvious, but equally important reasons for amending the contract.
Reasons for amending contracts
Amendments to contracts are not uncommon. They occur for a variety of reasons. When the parties originally entered into the contract, it is possible that they had not foreseen a certain issue that warranted a change in the agreement. At other times, a change in the law may trigger the need to amend a contract so it is compliant with the newly enacted statutes.
Another common reason to amend a contract is due to a change in business or personal circumstances. A company may require that a supplier deliver ten truckloads of widgets instead of the originally agreed-upon eight truckloads, or a client may want to pay the invoice of a lawyer based on an alternative billing method.
Amendments can also occur if the parties agree to revised terms that are better suited to the current needs of one or both of the contracting parties. For example, a business may sell a unit to a new owner. That enterprise may have already entered a contract with a supplier for widgets being resold by the new owner. The parties would need to prepare an amendment so the contract provides that the new owner will be the purchaser of the widgets.
Legal requirements for amending contracts
Amending a contract is not merely a matter of practical consideration, but hinges on various legal considerations as well. For example, whatever amendments one intends to make must be fashioned so as to carry out the original intent of the parties or to further the public policy behind the original contract. Anything that strays from that path may not be enforceable as a matter of law. An amendment may also require the consent of all the original parties to the agreement, as in the case of a third-party beneficiary clause, which cannot be amended without the approval of the parties and the intended beneficiaries.
Opposition and/or lack of consent by even one of the parties could make the amendment a nullity and, thus, unenforceable. This is especially true of an attempted waiver of any part of the original agreement, which is subject to separate rules of construction. If the amendment omits any of the pre-existing terms, it is deemed a complete new agreement, and such a document contains no original obligations or rights. That new contract must be prepared and signed by all the original parties. In addition, the parties must take care to ensure that an amendment to a unilateral contract does not constitute a rejection of the unilateral offer.
Procedure of amending contracts
Adding the Amendment to the contract. If you are amending a new contract, the parties will need to sign it, but if you are amending an existing contract, you may be able to get away with an exchange of emails confirming the amendment, although I would recommend that the amendment be reduced to writing. Even if the contracting parties exchange emails and agree to the amendment but the email is not reduced to writing and signed by both parties, the amendment to the existing contract is probably not binding on the parties. Typically the amendment is added as a separate form in the document . The amendment will usually make a reference to the original contract and a provision that describes who is making the amendment. The original contract is usually attached to the amendment for reference, but sometimes, the entire contract is not attached. The purpose of the attachment is two folds: (a) to frame the context of the amendment; and (b) it allows the reader to understand the scope and relevance of the amendment. The entire document must be dated however, so if the original contract is not attached, it will likely be referenced at number and date.
An executed copy of the document should be stored in a safe place so that it is readily accessible to anyone who needs to review the document.
Risks of amendments and how to avoid
Like any other business transaction, amending a contract can be filled with risks. The most obvious is that a dispute may arise over the terms of the amended contract. Not only can the result be an expensive business litigation, but based on the issues of the amended contract, it may also put the entire business agreement in jeopardy. Actions to Mitigate the Risk Disputes over the language of an amended contract can (and should) be prevented by ensuring that all parties are working from a clear and concise drafting of the change. Even if all agree on the underlying proposal, adding or altering the language can lead to disagreements on interpretation. It is always best practice to have any amendments in writing, allow for review and edits, and consult with a contract lawyer to ensure the language is legal. The second potential risk is that the amendment will not be agreed upon by all parties. A party could unreasonably refuse to allow an amendment to go through or may wait to see if the other party is willing to negotiate. Actions to Mitigate the Risk These disputes may be avoided simply by allowing the opportunity to address objections. Without the benefit of open communication, it can be difficult to know whether it is even necessary to negotiate new terms or simply amend the document without opposition.
Amended contracts in commerce
A wide variety of contract amendments occur in the business world. Technology and software companies often amend contracts to reflect updates, launches of new products, or changes to the services being provided. Even when these companies sell their products through one-time purchases, such as movie or music downloads, amended transactions are used to support customers who are dissatisfied with the service or who disagree with the terms of the sale.
The most obvious example of an amended contract is where a previously executed agreement is modified. A contract amendment between two real estate companies in Texas amended a purchase contract for a tract of land for development. Details about the property, the project, and zoning requirements were enumerated in an exhibit attached to the contract. Six months after the contract was signed, the cities of Houston and Sugar Land approved plans to widen a highway that would cut through the development in its proposed design. Designers needed to alter their plans for the project result in a smaller project with greater height per floor for the buildings to be constructed. The developer sent a letter with a signed amendment to the contract removing the exhibit that had established the specific details of the project and providing them in a new document. In the new plan, the developers changed the plans for everything from parking space to walkways to fountains. They maintained the original footprint of the property but made every effort to construct it according to local laws and in keeping with the company’s own standards.
In every industry, a number of companies amend employment contracts. These contracts may address termination guidelines, requirements that employees sign for portable equipment , or issues like "non competes" and "non disparagements." An IT company incorporated employee feedback into its employment contracts after an HR conducted interviews with top talent that might be leaving for competitors. The amended agreements negated the requirement that employees submit for "photo authorization" and "dine-in reimbursement." Employees resented the requirement to submit receipts for food, which took time and effort. They felt their managers should make that a responsibility of management, not an inconvenience forced on employees. The "photo authorization" requirement felt similarly invasive. It also required employees to provide their company with access to their social media accounts, which they felt was unwarranted.
Amendments to contracts also property leases. When a lease is renewed for a period in which the law changes in a way that affects either party to the lease, the landlord may ask the tenant to agree to amended terms. For example, a changing retail market means that leasing requirements by the malls have gotten stricter. As a new class of businesses emerges, landlords are enforcing higher standards for credit checks. Landlords can terminate leases if they think any tenants would be a bad "fit," or they can restrict which types of businesses occupy certain spaces. The Dillard’s department store in Oklahoma lost its location in the Sooner Mall when the mall discovered that it had announced plans to build a store in another shopping center in a nearby university town. While Dillard’s is a successful department store, its plans to expand created an issue for the Sooner Mall because its presence in the Oklahoma City area would draw business away from the mall’s primary customer base of university students.