There are times when parties enter into a contract and the terms and conditions are acceptable to both for the entire term of the contract. Yet, there are also times when something in the contract needs to be changed. This is often done by contract amendments. In this article, we’re explaining the basics of contract amendments.
What Purpose Is Served by Creating a Contract Amendment?
The purpose of a contract amendment is to change something stated in the original contract. This could be something minor, such as correcting a date in the original contract. It could also be used to change other terms in the contract.
A contract amendment may be oral or it may be in writing. Although both are legal means by which to effect change, it is more difficult to prove that an oral amendment was made. In the event of a disagreement, relying on an oral amendment creates, at best, a “he said / she said” situation. That could lead to a breakdown in communication as well as a desire to no longer work together in the future. In addition, some contracts specifically state that they may “only” be modified via a written amendment signed by both parties, sometimes elevating that requirement to specify signature by a company executive, for example: “VP or above”. A written contract amendment provides documentation of the change or changes made to the existing contract. Certain types of contracts, such as those that transfer real or intangible property or that are financial in nature, are required to have written amendments.
Can a Contract Amendment Be Added Before the Contract Is Signed?
If changes take place before a contract is signed, those changes are known as modifications. A contract amendment is available for use only after the contract is executed. Small modifications may be made before the contract is signed, such as a typo. When this occurs, the change can be made by hand with an ink pen. Both parties would then review the change and place their initials by it. This is still a modification since the contract hasn’t been executed, but many people also refer to this as an amendment. For small issues, there’s certainly no reason to split hairs over what to call that action.
How Can a Contract Be Amended?
The contract may have an amendment proposed by any party. How a contract is amended depends primarily on the type of amendment that must be made. One method to amend a contract is to use Word to open the contract document and include text that states the parties agree to amend a certain section by underlining the additions and using strikethrough to indicate which part or parts of the section are being removed. Then, the section is edited to reflect just that.
If an entire clause requires an amendment, the document could, again, be opened in Word and have text that reads that the clause is being replaced in its entirety. Then, include the new clause text. This provides the new document with a cleaner look than using multiple strikethroughs and underlines to indicate an amendment.
Another option to amend a contract is to state that a certain part of the contract is being amended and explaining which changes took place. Although this is certainly a shorter option, the parties would still need to compare the original contract to the contract that was amended to truly get the full picture of the changes made.
Does a Contract Amendment Replace the Entire Original Contract?
The purpose of a contract amendment is to change only a certain part of the contract. It does not replace the entire original contract. Most contract amendments do not include the entire text of the original contract. It only provides the necessary information to create the amendment.
How Are Contract Amendments Executed?
Before any contract amendment is executed, it should be reviewed and agreed upon by the parties. If the parties do not agree, the amendment cannot be used. The parties may need to negotiate before settling on an accepted amendment. Then, the parties should review the amendment. If the parties are happy with the proposed amendment, the amendment is signed and dated by the parties. The parties should each keep a copy of the signed amendment with the original contract for easy reference.
Is a Contract Amendment the Same as a Contract Addendum?
As terms, “contract amendment” and “contract addendum” are often used as if they are interchangeable. While they both refer to changes made to a contract, they are not the same. As you’ve learned, a contract amendment changes an existing part of the contract. Whereas a contract addendum is used if the parties are adding something new to the existing contract.
What If More Than One Contract Amendment Is Made?
If there is more than one contract amendment, you’ll need an easy way to track them. Of course, you’ll want to create individual amendments for each clause or term that needs to be amended. Each amendment could be titled to reflect the part of the contract they change.
If there is more than one amendment for the same clause or term, you could name them as First Amendment, Second Amendment, and so on. Just keep in mind that you’ll want to keep them all in order and attached to the original contract for easier reference. Remember to date and sign each amendment as well.
Larsen Law Offices, LLC – Experienced Contract Law Attorney for Businesses
Contract amendments are often necessary to make a contract easier to understand or to reflect the changes that took place within the working relationship. Susan Larsen has more than 30 years of contract experience. In addition to being a licensed Colorado lawyer, Susan also holds advanced degrees in technology management and applied communications as well as a degree in accounting. To discuss contract amendments, call Larsen Law now at 303-520-6030 to schedule your free initial consultation.