Amended Contract Definition
An amended contract is a legally binding document that alters an existing legal agreement. When parties choose to amend a contract, it can be a result of various factors such as changes in the law, new business practices, changed perspectives on the value of goods or services being exchanged, or updated implications for a previously agreed-upon clause or term of the contract.
It is often in the interest of one or both parties to amend contracts to remove conflict or confusion that has arisen from a current contract, typically to the mutual benefit of both parties.
An amendment may remove, add to, or otherwise alter the stipulations of a contract . The existence of a contract is not a prerequisite for a contract amendment – which can be made before or after the original contract was formed.
Amended contracts are usually drafted by the attorney for one party and presented to the other party to sign. That party may or may not negotiate the terms of the amendment before signing.
Amended contracts or amendments to contracts can take many forms, from application-specific versions to more comprehensive forms that can be applied to many amendments requested.
The parties to a contract may also agree to have an oral contract to amend their contract, however, oral amendments are more difficult to accept as valid in a court of law, whereas written amendments are almost always considered valid.
Reasons for Amending a Contract
Several different scenarios might cause a business to seek to make amendments to a contract. When a significant event occurs, or some new circumstance presents itself, changes to an existing contract may be necessary to address those issues. In many cases, parties simply develop a better understanding of what the realities of a specific situation are and whether the terms of existing contracts adequately reflect that reality.
One common reason for amending a contract is changes in business circumstances. If a company undergoes a move resulting in a larger or smaller facility, it may need to modify its lease agreement with some or all of its landlords. As leases are often multi-year agreements, there is sometimes significant incentive for a business to extend the terms of an existing lease or amend other terms rather than seeking out a brand-new space.
If for example a party has been collecting its accounts receivable on a monthly basis, and begins to fall behind in that process, it may seek to amend its contract with its creditors to allow a more flexible repayment schedule. A restructuring of corporate debt may also lead to amendments to contracts that will help facilitate the payment of loans or an improved cash flow.
Another common reason for amending a contract is the presence of a mistake in a contract that results in unfair terms for one or both parties. While mistakes are likely to have a high likelihood of occurring if contracts are drafted without the assistance of an experienced business attorney, these mistakes can and do happen from time to time.
Changes in the laws or regulations affecting specific industries can also result in contract amendments. If a business experiences changes in the taxes or licenses it must pay in order to continue operating within the law, tenants may seek to adjust the rent or other relevant portions of a lease agreement.
Contract Amendment Process
After identifying that an amendment to an existing contract is needed or desired, the next step is to negotiate the proposed changes with the other parties to the contract. Contract amendments can take the form of a formal written document or even a less formal document, such as e-mails or letters. In fact, as technology has changed the way we communicate, informal electronic communications have minimized the need for formal documents. For important or complicated contracts, however, it is best to use a formal amendment because doing so minimizes problems that could be caused by a failure to include all changes in the amendment. Drafting an amendment that includes all changes can be tricky and could lead to disputes if the other parties do not agree with the amendment’s provisions. For this reason, it is always best to send any proposed amendment to the other parties for their comments and/or agreement before making the changes to the contract. Once all parties have agreed upon the changes to the contract, the amendment should be signed by all parties to the contract and then incorporated into the contract. The incorporation may occur by restating portions of the contract in the amendment or by including a provision in the amendment that incorporates the contract into the amendment by reference.
Types of Amendments
Amendments can come in the form of minor revisions, addendums, technical changes, or complete overhauls. Your relationship with your customer, supplier or partner can change as the circumstances change and so can the terms of your agreement with them.
A minor revision in the terms and conditions of your contract may be all that is required and could involve nothing more than the addition of an attachment and the re-issuance of a new version of the agreement. For example, your customer may request that pricing be increased or decreased and instead of issuing an entirely new agreement to support the revision, you just attach a new price list detailing the changes. The new version of the agreement no longer references the old price, but you save the cost of preparing a whole new agreement.
If a party wants to significantly change the terms of a contract or add additional provisions that didn’t exist in the original agreement, an addendum may be more appropriate. This legal document modifies specific existing terms of the original contract. Parties are oftentimes on opposite ends when it comes to amending contracts. An addendum does not ordinarily discharge the original contract but adds to it by augmenting some of the existing terms.
Complete overhauls can take place which changes the entire contract, including the parties, contractual obligations, payment terms, suppliers, terms and conditions, etc. In the example above, if the customer were to ask for a new contract altogether and does not want to amend the existing agreement, then a complete overhaul may be necessary.
In order to avoid confusion, always refer to the amended agreement as "Version 1.1" or "Rev. A" and never refer to the amended contract as the "Revised Agreement." The term "Revised" means "to erase or remove" which implies that there is a "no-longer-enforceable Version" that was erased or removed. So, calling the new agreement "Revised" would suggest that its predecessor is wiped off the books.
It’s always a good idea to pay attention to the language of the amendment so that you don’t create any unintentional loopholes. Very clear language and very specific references are required to amend a contract where an exchange of money is involved.
Legal Nature of a Contract Amendment
When a contract is amended, the fundamental purpose of the amendment is to alter the legal obligations of the parties. Therefore, a legally enforceable contract amendment must contain an offer, an acceptance, and consideration. Under common law, one party’s promise to perform a particular act if the other party promises to pay a certain sum of money is sufficient consideration for a valid contract. Where a valid contract is present, subsequent amendments impose new obligations on the contracting parties (rather than giving rise to a new contract), and give rise to the same legal obligations and rights as the original contract. After a party provides consideration, he may not withdraw it, unless the other party fails to perform his portion of the bargain. If two parties in a contract agree to an amendment, but one party has not yet performed its obligations under the original contract , the original contract may not be enforced against either party. Courts will not enforce a contract between parties where there is no consideration, and one party has already performed. In such a case, the performance of one party is not consideration because the contracting parties were participating in an unconsummated transaction. If the parties to a contract agree to an amendment, but determine that the amendment was not enforceable based upon lack of consideration, the original contract is voidable. This means that the legal obligations of the original contract are not binding, unless he chooses to ratify the original contract. However, where an amended contract states whether the original contract remains enforceable, the parties are bound by that stipulation unless it is unconscionable. A court will not enforce a contract not supported by consideration, unless the amendment represents an express or implied waiver of the original contract.
Creating an Effective Contract Amendment
The goal of drafting a well-written contract amendment is to clearly express how the original agreement will be changed. This, in turn, will help all parties understand their responsibilities and obligations. As a basic rule, amendments can be made by specifying the existing section or clause that is being changed. Amendments can also direct the parties to another section (like an addendum) and then specify the exact change or action required. When drafting the amendment, it is important to include the effective date of the change, who is responsible for carrying it out, how it will be carried out and when it should be carried out. Specifically incorporating relevant contract language lets the parties quickly review what part of the original agreement relates to the amendment. Whatever you do, never forget that the contract amendment is a legally binding agreement and should be signed (preferably notarized) by all parties.
Common Contract Amendment Errors
Common mistakes when it comes to amending contracts include misunderstandings of the nature of contract amendments and ambiguity. People often refer to an "amendment" to describe a document that actually contains both an amendment and an entirely new contract. This is particularly common in real estate transactions, where the buyer and seller both sign a document that "amends" the original purchase and sale contract. In fact, both parties are signing an entirely new agreement at this point, not an amendment. Therefore, the original agreement should be clearly "superseded" or "repealed" by the new agreement.
Ambiguity persists in amorphous amendments, where the parties are not clear on what the amendment is supposed to be doing. When this happens, the clear intent of the parties may be lost, especially when there is any kind of dispute down the road. It is also important not to confuse "amending" a provision with "repealing and replacing" the provision.
Sometimes there are also omissions in the amendments that are not discovered until after execution. For instance, post-September 11, some people might have assumed that the force majeure provision was amended to reflect the passage of the USA PATRIOT Act. But the USA PATRIOT Act does not address force majeure and therefore practitioners should be sure not to leave those provisions to chance. Because there is little judicial authority as to what constitutes a "force majeure," deciding what force majeure is can be a contentious issue in the event of a dispute. It is therefore important to clearly define in the new agreement and/or specifically amend any force majeure provisions that are in the original agreement.
There are some amendments that do legitimately "amend" or "supplement" a provision. This could be to revise an existing provision to reflect a new date, for example. However, for the reasons above, clarity is always better than ambiguity.
Finalizing and Signing the Amended Contract
As soon as the amended contract is drafted, the steps to finalize and execute the amended contract can begin. No matter how simple it seems – or how small the changes are – always carefully review any and all changes to the existing contract. A lot can happen in a relatively short period of time. If all parties are in agreement with the changes, all parties must sign the amendment or addendum. It is also important to distribute copies of the fully executed contract to all parties named under the initial contract . All amendments and addendums must be placed in the original contract file. This will help avoid any confusion later on between the original contract and the amended version. In addition, if the amended contract is not placed directly within the original contract file, or if copies of the amendments are not sent to all relevant parties – it could create a hazy situation if there is ever a disagreement regarding the terms of the contract. It is always extremely vital to have important documents organized, distributed, and correctly filed.