Didn’t get your contract exactly right? Amend it.
Amendments are ideal if you and the other party want to modify some of the elements of a contract—for example, one party wants to make an addition, deletion, correction or similar change. An amendment doesn’t replace the whole original contract, just the part that’s changed by the amendment (for example, the delivery date or 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.
Can you prohibit oral amendments? Some contracts contain clauses such as the one below, which requires that any amendments be made in writing and signed by both parties.
EXAMPLE: Entire Agreement. 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 prohibition against oral modification provided in this 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.[i] 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 the oral modification.
EXAMPLE: An insurance company had an employment contract with an agent that required any modifications to be in writing. The agreement also stated that the agent’s employment had to be terminated in writing. The agent was offered $500 to resign. When he refused to resign, his boss said, “You are fired.” The agent left the job, accepted his everance pay and accrued vacation pay, and stopped coming to work. However, he argued that he was still entitled to collect commissions because his employment was never terminated in writing, as required by the contract. A federal court of appeal did not agree. Despite the contract language requiring modifications in writing, the court determined that the agent and the insurance company had accepted, through their statements and actions, an oral amendment to the contract regarding notice of termination.[ii] Most importantly, the insurance company had reason to rely on the agent’s behavior after he was told he’d been fired.
This is not to say that you should disregard clauses 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, the law requires that some 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—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 amendments. The goal when creating a contract amendment is to be as specific and concise as possible. As James Brown might have stated, “You should hit it and quit it.” 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 a few different styles, as shown below.
Redlines and strikeouts. Additions and deletions are shown visually, with additions underlined and deleted text crossed out. (Most word processing programs allow you to choose “strikeout” as a font choice.) A statement describing the process commonly precedes it:
EXAMPLE: “The parties agree to amend the Agreement by the following additions (indicated by underlining) and deletions (indicated by strikethroughs):
Section 7 is amended to read as follows:
7. Term. The Term of this Agreement shall be from July 31, 2009 to July 31,
2010 2011. The Agreement may be renewed on an annual basis for additional two-year terms following the initial term, upon written agreement of the parties. The parties must mutually inform each other of their intention to renew the Agreement no later than January 31 June 1 of each year in which the Agreement is set to terminate.
“Replaced in its entirety.” In this manner, you simply state that a whole clause has been replaced and provide the new clause.
EXAMPLE: “Section 7 is replaced in its entirety by the following:
7. Term. The Term of this Agreement shall be from July 31, 2009 to July 31, 2011. The Agreement may be renewed for additional two-year terms following the initial term, upon written agreement of the parties. The parties must mutually inform each other of their intention to renew the Agreement no later than June 1 of each year in which the Agreement is set to terminate.
Describing without restating 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.
EXAMPLE: “The first sentence of Section 7 is amended by modifying “2010” to “2011.” The second sentence is amended by striking “on an annual basis,” and replacing it with “for additional two-year terms.” The date in the last sentence is modified from “January 31” to “June 1.
You can choose whichever method suits you or combine them if you wish. The important thing, as with all contract drafting, is that your intentions are clear to all parties as well as to third parties reading the amendment. In addition, be sure to change any cross-references, if necessary.
Note: 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.
Note: Amending certain assigned U.C.C. agreements. If your contract is a secured transaction—a loan or a credit transaction in which the lender acquires a security interest in collateral owned by the borrower—then there may be complications involving amendments to assigned agreements under Section 9-405 of the Uniform Commercial Code (UCC). You should consult with an attorney before amending an assigned contract for a secured transaction.
1. This amendment (the “Amendment”) is made by _________________ and _________________, parties to the agreement _________________ dated (the “Agreement”).
2. The Agreement is amended as follows:
3. Except as set forth in this Amendment, the Agreement is unaffected and shall continue in full force and effect in accordance with its terms. If there is conflict between this amendment and the Agreement or any earlier amendment, the terms of this amendment will prevail.
Printed Name: _________________
Printed Name: _________________
Completing the Amendment. Here’s how to complete the sample Amendment.
1. Introductory paragraph. Type your name or the name of your company and the other side’s name (an individual or a company).
2. Describe the amendment(s). Type in the amendments to the existing contract using any one of the three methods described above.
3. The concluding paragraph. This paragraph should be included to guarantee that other than the amendment, the contract remains as it is written.
4. Proofread and sign your amendment. Under the printed party names, each of you should sign and write in the date. Below, each should print his or her name and title, such as “Chief Operating Officer,” or “General Partner.” You’ll want to make sure the person signing the agreement has the authority to do so, and equally important, that you have fulfilled any signing or notice requirements included in the original agreement. Generally, agreements require the contracting parties to sign all amendments. However, in some cases—for example corporate amendments or amendments to financial agreements—other signatures or notices may be required.
5. Managing Amendments. Contracts may undergo multiple amendments, so it’s usually a good idea to number each amendment—for example “Amendment No. 1” or “First Amendment.” In addition, amendments should be filed and maintained with the original agreement so that anyone viewing the file will know that the agreement has been amended.