Amending a Contract: When and Why

Why You Need a Contract

Contracts can technically be either written or oral. Generally speaking, however, when someone refers to a “contract,” they usually mean a written document, while an oral contract is often referred to as an “agreement.” While an oral contract is often just as enforceable as a written contract, there are serious evidentiary issues if there is a dispute. It is much harder to prove what an oral contract contains because the evidence is usually based on “he said, she said.” Oral contracts are also simply not enforceable under the law for certain kinds of agreements, such as real estate purchase agreements or arrangements that are expected to last more than one year.

It is always best to err on the side of caution when creating a written contract. The written agreement should contain every single portion of your agreement, both big and small. A contract is important for several reasons:

• It provides a description of each party's rights and responsibilities – Perhaps the most valuable part of having a written contract is that it explains what each party should be doing under the agreement. It clearly describes each party's role, which helps avoid confusion or disputes in the future.
• It establishes a time frame for deadlines – Deadlines are often an important part of agreements. Having a contract that specifically describes when each portion of a project should be completed can be helpful to avoid confusion.
• It provides recourse if problems arise – Written contracts should contain information about what will happen if one or both of the parties does not fulfill their obligations under the contract. It will also include steps to discontinue the relationship if problems arise.
• It lays out compensation or other responsibilities – A contract creates a binding legal document that sets out how much a party (or parties) will be paid for their work. If payment is not forthcoming, the contract can be used in a lawsuit to compel payment or, in some situations, specific performance of the responsibilities as set out in the document.
• It decreases costs associated with a dispute or litigation – You can incorporate clauses in the contract that deal with conflict resolution. Requiring a specific type of dispute resolution, such as mediation or arbitration, can significantly cut down on costs related to litigation. Using alternative dispute resolution (ADR) generally takes less time, effort, and money than arguing a contract dispute in court. You can also specify which state will have jurisdiction in the event of a dispute. This is particularly useful for contracts between parties that work or live in different states.

Contracts come in many forms, and they can be tailored to meet your needs. Purchase agreements and promissory notes are considered contracts despite the fact that they have a specific name.

When Do You Need a Contract?

Contracts are a good idea for virtually every relationship you have, whether it is in a business or personal setting. The following specific examples are instances that you should have a contract:

• You are creating a partnership and need a partnership agreement
• You need workers to commit to a non-disclosure agreement or confidentiality agreement
• You are entering a long-term or ongoing sales or purchase agreement with another party
• You are arranging for services to be rendered or a development of a product
• You need a written contract with a subcontractor or employee
• Your customers need to agree to terms and conditions when purchasing a product or using your services
• You are allowing another person to use your property or rent from you

Contracts are useful for a variety of situations. When in doubt, it is better to use a written agreement.

Types of Contract Breaches

There are two general types of contract breaches: minor and material breaches. A minor breach means that there has been a small deviation from the requirements of the contract. This kind of violation can usually be remedied, and some contracts include a certain amount of time in which the minor breach must be addressed. Generally, minor violations do not affect the most important portions of the contract, such as the price or when goods or services should be delivered.

A material breach, on the other hand, affects the vital aspects of the contract. There may be ways to fix the breach built into the contract, but a material breach is generally reason to void the contract completely.

The Importance of Good Contract Language

The language in a contract is vital for contract enforcement. If the contract does not lay out the relationship between the parties properly, something that you thought was a breach may not be under the actual contract. In most circumstances, the contract is the “end all, be all” of the relationship.

The law presumes that every agreement between the parties is encompassed within the contract. This is sometimes referred to as the “four corners rule.” It also means that the evidence outside the contract is not admissible. This concept is known as the “parol evidence rule.” It essentially signifies that you cannot enter evidence that extends beyond the contract to show what the arrangement was really like. This can be a serious problem for those trying to enforce provisions of the contract that were agreed upon between the parties but were never incorporated into the contract.

When Deviation from a Contract Is Not a Breach

Not every deviation from the specific language in a contract is considered a breach of contract. There are situations where the other party may “waive” certain provisions or where they may “consent” to specific non-material breaches. A party can waive certain terms of an agreement by their words or actions.

For example, if you breach the contract in a minor way, but the other party continues to do business with you regardless of the violation, then they may have “waived” that term of the agreement. The contract as a whole has not been voided, but that portion may not truly be “part” of the deal anymore.

In other situations, a party may consent to a limited breach. If, for example, you are running behind on a delivery, which would violate the terms of the contract, the other party may give you permission to tack on some extra time to make the delivery. This consent does not alter the terms of future deliveries, but it modifies the agreement slightly so that you do not breach the contract.

Amending a Contract

In situations that require more than just a limited waiver or consent, a contract amendment may be appropriate. When you amend a contract, you change the original contract in some way. This can include adding, deleting, or correcting portions of the contract. The contract amendment does not replace the entire contract, but often substitutes a part of it.

It is important that the modification is in writing so that it can be attached to the written agreement. Often, a contract will specifically state that any changes need to be made in writing, so it is imperative to be mindful of that type of language. Nonetheless, the requirement to put changes in writing is not always enforced in court. It is still a good idea regardless because it allows everyone to be on the same page about the specific terms of the amendment.

If extensive changes are required, it might be better to simply create a new contract that has language based on the existing agreement.

Modification before the Contract Is Signed

Any change that occurs before the contract has been fully executed (signed) is not technically an amendment. You can change the terms of the contract before the parties sign it and it will be considered part of the initial contract. You can also make simple changes like correcting typos just before the contract is signed. Just make the change in pen and be sure that each party initials it.

When Do You Need a Contract Amendment?

Any time the relationship deviates from the original contract, you should amend the contract to reflect the actual practices of the parties. You may also need to make a change if some provision of the contract does not appear to be working as planned. There are also situations where outside forces, such as prices of component parts or changes in regulations, may affect the contract.

It is a good rule of thumb to make an amendment any time the parties agree to a change. Getting the amendment in writing will be important to future contract enforcement.

How to Amend a Contract

Contract amendments do not have to be as formal as the original contract. Instead, an amendment can take the form of a letter or it can mimic the format and layout of the original contract. There is no specific requirement that the modification take any precise form.

There are three general types of contract amendments, and each one will usually be valid under the law as long as both parties agree to the change.

Use a Contract Amendment Template to Amend Your Contract

We offer a guided walk-through to create a contract amendment that will fit virtually any type of contract.

Whether you need to delete, modify, or include additional terms, our contract amendment template can help you amend any contract in just minutes.