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What is an Addendum To Contract?
What’s important to know about it?
In this article, I will break down the meaning of an Addendum To Contract so you know all there is to know about it!
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What Is Addendum To Contract
An addendum to contract refers to a post-contract agreement where the contracting parties add, modify, or change some of the terms of a legally binding contract.
Quite often, contract addendums are used to “add” new provisions to the contract.
Once the contracting parties execute the addendum to the contract, then the terms of the original contract along with the addendum will become legally binding on the parties.
For a contract addendum to take legal effect, all parties to the original contract must agree on the addendum terms.
For example, a company may have purchased software licenses for 10 users.
At some point in the future, the client wishes to purchase a complimentary software product from the same vendor.
This addition to the original contract can be done through an addendum.
In business, an addendum to a contract is generally in writing.
However, just like any other contract, the parties can modify the contract orally or through implied consent (just like any other contract).
Keep reading as I will further break down the meaning of an addendum to a contract and tell you how it works.
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When To Use An Addendum To Contract
Typically, a contract addendum is used to add something to an original contract.
You can remember this by simply looking at the word “addendum” where it starts with “add”.
For example, a manufacturing company may have entered into an agreement with a distributor relating to the distribution of certain products.
However, after the contract was signed, the parties realized that they did not specify the governing law in the contract.
The parties can enter into an addendum to add the missing governing law clause.
In business, addendums are used quite often and are generally easily concluded by the parties who wish to add certain rights or obligations to their contract.
However, it’s important that you do your homework to make sure that your original contract is as complete as possible.
It’s possible that if you forget to include something, the other party may refuse to add it using an addendum.
Also, contract addendums can create unintended loopholes or interpretation challenges in your contract, so you’ll need to be careful.
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Elements of Addendum To Contract
For an addendum to a contract to be valid, you must observe certain key elements.
In essence, a contract addendum will be valid and legally binding when:
- The parties are in an initial contract
- The same parties agree to modify or add new provisions to their contract
- The parties execute the addendum
The formation of the addendum to a contract will follow the standard contract law rules that must be observed for a contract to be formed.
In other words, there must be an offer, acceptance, legal capacity, legality of the object, and consideration.
Depending on the nature of the contract, in some cases, the addendum will need to be in writing.
For example, certain types of contracts must be in writing in some jurisdictions, such as certain deeds or trust agreements.
If the law required the original contract to be written, the addendum must also be formed in writing.
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Addendum To Contract Rules
For a contract addendum to be legally binding and enforceable, it must comply with the contract addendum rules.
In some cases, the original contract can state that the parties are not authorized to add any contractual provisions to the agreement unless it’s mutually agreed in writing.
In other cases, the original contract can authorize a party to create an addendum by sending an addendum notice to the other party which the other party will be deemed to have accepted if it does not object within a certain delay.
Not only must the addendum to a contract respect the specific rules agreed by the parties in the original contract, but it must also respect the applicable laws.
For example, in the United States, some contracts may be governed by the Uniform Commercial Code.
In such cases, the contract addendum can be formed simply with the parties’ mutual assent, even in the absence of consideration.
In other cases, if the law mandatorily requires the contract to be done in writing, such as in some real estate conveyance contracts, the addendum must also be done in writing.
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How To Write A Contract Addendum
Writing an addendum to a contract is quite simple.
Here are the main provisions that you should include in your addendum:
- Identification of the parties
- Contract date
- Reference to the original contract
- Addendum effective date
- Provisions that are being added to the original contract
- Signature block
- Notary block, as needed
- Signature date
It’s also a good practice to number your addendum.
For example, if you agree to the first contract addendum, you’ll use #1 as your addendum number.
The second addendum will bear #2 as a reference, and so on.
Another piece of advice is to make it clear in the addendum that you are “adding” provisions to the original contract.
You want to avoid any confusion where a party believed that a provision of the original contract was being “replaced” via the addendum.
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Contract Addendum vs Contract Amendment
What is the difference between a contract addendum and a contract amendment?
Although many people use the terms contract addendum and contract amendment interchangeably, they must be nuanced.
A contract addendum is a type of agreement where the parties are looking to add something new to their contract without altering the terms of their original contract.
Once the addendum is signed, the addendum becomes a part of the original contract.
On the other hand, a contract amendment is when the contracting parties are looking to make changes to their existing contract.
Typically, an amendment is used to clarify terms, correct errors, or improve the original contract.
You may consider that an addendum is a form of an amendment, and that’s true.
However, the general practice is that a contract addendum is used to add something to the contract without changing the original agreement and an amendment is to make changes to the original agreement.
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So there you have it folks!
What does an addendum to a contract mean?
In a nutshell, an addendum to a contract is a legally binding agreement where the parties to an original contract add something new to it.
A contract addendum needs to be signed because in most cases, the parties are contractually prohibited from amending or adding provisions to their contract without the consent of the other.
As a result, the contract addendum serves as a legal means to add something to an agreement in compliance with the rules outlined in the original contract.
In businesses, contract addendums are quite common and are routinely executed.
However, it’s important that you make sure that your original contract is as complete as possible to avoid any contentious discussions relating to a potential addendum.
Now that you know the meaning of a contract addendum and how it works, good luck with your research!
I hope you enjoyed this article on Addendum To Contract! Be sure to check out more articles on my blog. Enjoy!
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