Getting to Know Contract Amendments
A contract amendment is a legal tool used to modify the terms of an existing legal agreement. The amendment does not dissolve the initial contract, but rather serves to add, delete, or alter certain provisions. Both parties must agree to the change in terms and authorize it in writing to make it enforceable. In short, the amendment is a post-signature correction that upholds the relevance of a pre-existing contract.
How long after signing a contract can you amend it? This depends on several factors. The practical answer is that there is no set timeframe since making an amendment can be done whenever both parties are in agreement as to the changes. In some situations, amending a contract after it is signed may be necessary because of a misunderstanding, changed business circumstance, or new information. In these cases, the parties may agree to the change at any point during the period the contract is active . The legal answer is that an amendment made within the statute of limitations for a breach of contract will be enforceable if both parties agree to the change. Even if one party refuses to sign, the amendment may have a limited effect if the second party is willing to comply.
A contract amendment is important due to the role of contract law in the business world. Contracts are foundational legal agreements that govern the commercial relationships of businesses and employees, as well as sales, purchases, and exchanges. Both parties are responsible for upholding the terms of the agreement, but when there are changes in either circumstance or information that affect the relationship, a contract amendment serves to make the necessary and desired changes. Whether it’s paying more for the property, moving the deadline for completion, incorporating a necessary term, or removing an old term, an amendment allows for the enhancement, clarification, addition, or deletion of certain terms.
Top Reasons to Amend a Contract
Several reasons exist for the amendment of a contract. Contracting parties may have to amend a contract, after its formation, due to changes in the terms of the contract or the conditions under which it will be performed. For example, a change may have to occur in the price of the goods that will be delivered under the contract. Additionally, contracting parties may have to amend their contract if they have made a mistake in executing it. A contract may also be amended to include facts that were not incorporated into its initial formation, including, but not limited to, changes in circumstances that occur after its execution. Finally, a contract may require amendment due to changes in the applicable laws concerning its enforcement.
Amending a Contract: An Illustrated Example
How do you amend a contract and make sure that it is effective, like the Kathi Wilkerson case we talked about last week? The simple answer is to make sure that you do it in writing and that the writing clearly and unambiguously shows the intent of the parties to change the contract’s terms. In the Kathi Wilkerson case, the parties handwrote the list of changes on their copy of the contract when they made the oral agreement. That did not work because the change was ambiguous – the handwritten list didn’t identify which specific section of the contract was changed (it just said "section 2" and then listed the new terms). A listing of new terms without reference to which specific section of the contract they are changing does not make it clear which part of the contract was actually changed. THIS is why a well-drafted contract has a change-of-terms section, to create a clear system that deals with the problem.
You can handle this by doing the following:
- Title the Change Notice "Amendment to (insert name of original contract)".
- Reference the original contract by date of signing.
- Reference the specific section or sections of the contract that are changed.
- Type out, verbatim, the new section or sections that replace the existing section that was specified. (This is what was missing in the Wilkerson case. You do not have to type out, verbatim, the entire section that is changed, but you DO need to specify the exact words that are different.)
- Type out the signature block for the original contract for each party to sign and date.
- Sign and date the amendment. (What was missing in the Wilkerson case.) Especially important if there are both spouses on the original contract – either spouse can void a contract without the consent of the other spouse, so both must sign.
- Deliver the signed copy to the other party. The best way to do this is to send it as an email attachment. That way, you have a record of delivering it.
What to Consider When Making an Amendment
To be legally enforceable, a contract amendment must meet the same basic requirements as the original agreement. Above all, the parties must have mutual consent — both must agree to the change. If one side consents to the change while the other does not, the document is probably a change order (a unilateral change) and not a true amendment. As such, it is not binding unless it falls under some other form of agreement such as ratification.
In addition to mutual consent, a proper amendment must be documented. A so-called "oral amendment" to a written agreement is invalid generally; however, if the amendment adds something in consideration of which not all of the original agreement is performed, the amendment is valid.
Under Washington law, for example, a contract can be modified where there has been a material change of circumstances that is unforeseen and beyond the control of the parties. A typical way for courts and arbitrators to deal with issues of unforeseen circumstances is to allocate the loss or expense to the party in the best position to bear it.
Where no such event has occurred , a court applying Washington law will uphold a "cardinal change" theory if the change caused a substantial increase in the cost of performance of a construction contract and if it was impossible to reasonably foresee the increased cost.
Generally, in order for an amendment to be enforceable it must meet the statute of frauds. For example, Washington’s statute of frauds provides, "An action cannot be brought to charge an executor or administrator upon a special promise to answer any debt or damages out of his or her own estate, … unless the promise or agreement upon which the action is brought, or some memorandum or note thereof, be in writing, and signed by the party to be charged therewith, or some other person thereunto by him lawfully authorized."
An amendment signed by one party is sufficient, provided this party is bound by the document. However, any other party must ratify the amendment by signing it.
Best Practices for Contract Amendments
If you’re amending a contract, best practice is to do so in writing. Especially for contract formations or modifications above $500, in Florida the Statute of Frauds requires that they be executed in writing, signed by the party to be charged therewith, and include the essential terms. Because amendments are commonly limited to the essential terms, they are not ordinarily governed by the Statute of Frauds—but when the Contract states that any amendments must be in writing, then the Statute of Frauds does apply. It is recommended that all parties sign the amendment, however, to prevent confusion about who is responsible for which term of an agreement.
Relatedly, if there have been many changes, you may want to begin with the first agreement’s post dated end date and add amendments one by one, back to back. In our example below, the second mortgage was originally taken out in January of 2019, but the first amendment altered the end date from December of 2027 to August of 2030.
In short, if you are clear with every amendment, it can be a simple process—the trick to amending a contract is knowing what not to do.
Common Missteps when Making an Amendment
Whether it’s drafting a whole new contract or simply amending a specific section, avoid the following pitfalls:
- Forgetting to reference the original contract. Too often, I’ll receive an email with only the amendment, without the original agreement. That’s a major red flag to me because it means it’s unclear what the agreement between the parties even is. Make sure you always include the contract too.
- Leaving the title of the party blank. Instead of entering "XYZ Corporation" or "Client ABC, LLC," the other party will just leave the space blank. Is this an oversight or a sign they are doing business under the table? Make it clear who you are having an agreement with by expressly referencing the other party that was named in the original contract.
- Inserting vague language. I see too many contracts that say words to the effect of "[amended language] OR words to the effect of [amended language]." This lacks the necessary detail I need to provide quality legal advice. Don’t try to be all things to all people. If you need a contract good enough to be upheld in court, be specific and ensure the amended language clearly states which party is responsible for what and when.
- Omitting other amendments. When amending a contract, other sections may change in tandem . For instance, there may be a section included in the contract that is no longer applicable but remains in force and effect in the amendment. Be sure to make necessary changes to other sections that could be affected by the amendment.
- Focusing on the form, not the function. It’s easy to get stressed over what the contract looks like and forget about what the contract does. The point of contracts is to document the agreement between two or more parties so that it can be enforced in court. If you have two sections that provide "the same thing" but use different language, the courts will pick one to be enforced. For that reason, pay attention to what language you are proposing to change and what it does and make sure that it is the same as the original. Making three changes just because it sounds better means that you may lose the protection you already had. Avoid playing Musical Chairs with a contract. Remember that it is a document that is meant to do something, not one that is simply read for fun.
- Not offering consideration. Finally, an amendment requires consideration between the two parties. If one party is amending a contract with no compensation for the other party, the other party should ask what they are getting in return. Without consideration, the amendment will not be legal (or enforceable).