Exploring a Contract: Amendments to Written Contracts

During commercial dealings, circumstances can often change and the need to amend or vary a contract may arise – the terms ‘amend’ and ‘vary’ are often used interchangeably to simply mean making alterations to a contract’s original terms. Where amendments are made to a contract, they must comply with the necessary formalities to ensure that they are effective and enforceable. This article explores the legal framework governing the amendment of commercial contracts and the required formalities, and key considerations for businesses.

Legal Framework for Contract Amendments

The fundamental principle is that contracts are binding on the parties once they are legally entered into. However, amendments to the contract terms can be agreed upon at any point during the life of a contract, provided that the terms of the original contract are complied with in relation to the process for making amendments. This will often include a condition that all parties consent to the changes. However, in some instances contract terms may allow one party to unilaterally make changes to the terms without the need to obtain the consent of the other.

The key legal principles governing contract amendments include:

• Mutual Agreement: Subject to the above, parties to a contract may amend its terms provided that the amendments are mutually agreed upon. This agreement must meet the requirements of a valid contract – offer, acceptance and consideration (or execution as a deed, if no consideration is provided).
• Consideration: For the amendment to be binding, there must be new consideration provided by all parties, which could involve a concession or something of value being exchanged. This may take the form of the exchange of new or additional rights and obligations. However, if the amendment is executed as a deed (which must be signed, witnessed, and delivered), the requirement for consideration can be dispensed with. Depending upon the subject matter, certain contracts may be required to take the form of a deed (including any amendments) to be valid.
• Formalities: An amendment can be oral or in writing. However, if the contract to be amended includes an express clause requiring any amendment to its terms to be in writing, or in writing and signed by the parties, this type of clause is likely to prevent oral variation. Further, if the contract to be amended is required by law to be in writing, that contract may only be amended in writing, at least if the amended contract is to have the same binding force as the initial contract. Some contracts may also require the consent of certain third parties (such as a parent company or lender) to any proposed amendments.

Practical Considerations

In practice, to alleviate any risk of disputes over valid consideration, commercial parties will often document their permitted amendments by deed or by referring in the written documentation to the payment of a nominal amount (e.g. £1) by way of consideration.

When amending a contract, parties should be mindful of the following:

• Clarity in Drafting: Amendments should be clearly expressed to avoid ambiguity. The modified terms should be set out in a written document that references the original contract, specifying which clauses are being amended and likewise which clauses are to remain as originally agreed.
• Consistency with Original Terms: The amendment should be consistent with the remaining provisions of the contract. If the amendment affects key terms such as payment, delivery, or performance obligations, parties must ensure that the rest of the contract is updated accordingly where required. The terms of previous amendments (if relevant) should also be considered.
• Legal and Commercial Implications: Before agreeing to any amendments, parties should assess the legal and commercial impact of the change. For example, amendments to liability or indemnity clauses may significantly alter the risk exposure of a party and may also affect related agreements, such as financing arrangements or insurance policies, which could depend on the original terms.
• Execution Formalities: Ensure that the amendment complies with any formalities required by the original contract, such as signing requirements. An amendment that is improperly executed may be unenforceable.
• Deemed Amendment by Conduct: if parties act in a manner that is contrary to the written terms of a contract, and neither party challenges the same, it could be deemed that the parties have amended the contract by their conduct and actions. This will very much depend upon the circumstances.

Remedies for Breach of Amended Contracts

If one party fails to comply with the amended terms, the other party can seek remedies similar to those available for breach of the original contract. Remedies may include:

• Damages: Compensation for losses suffered due to the breach of the amended contract.
• Specific Performance: A court order requiring the breaching party to fulfil its obligations under the amended terms.
• Rescission: In some cases, where an amendment was induced by fraud or misrepresentation, the innocent party may be able to rescind the amended contract. Rescission requires the parties to be returned to the positions they were in before they entered into the challenged contract.

Conclusion

Contract amendments are an essential part of commercial practice, allowing businesses to adapt to changing circumstances. You should ensure that any amendments are clearly documented, legally sound, and properly executed to avoid future disputes. Seeking legal advice before amending a contract is always prudent, especially where significant rights and obligations are concerned.

If you are considering amending a contract or would like us to assist in reviewing and amending a contract for you, please contact our commercial team on 0161 832 3434.