As a small business owner, you may have signed many contracts to keep your business afloat, such as contracts for the supply of goods or services. Once you and the other person or business (the other party’) has signed a contract, you are legally bound by the agreement. You may find the other party may want to change a contract soon after the agreement comes into effect. However, they are not allowed to change the terms of the contract without your knowledge or consent. This article will explain how the other party must obtain your consent or notify you if they want to change a contract.  

Why Do You Need Notice or Consent?

When entering a contract, you and the other party have agreed to the terms based on the information or situation at the time. Once the contract comes into effect, however, the other party may seek changes that better reflects their business needs. Therefore, you may find that the other party may wish to change the contract by:

  • adding a clause;
  • deleting a clause, or
  • drafting a new contract to replace the old one.

Any proposed changes to a contract can be seen as a new contract. Therefore, if you are to accept any changes to the contract, both you and the other party will have to satisfy the elements that make a contract:

  • offer and acceptance: The other party must make a clear offer (such as providing you with a draft of the proposed change to a clause) and you must show you accept the change, by either signing or agreeing to the change verbally;
  • consideration: There must be an exchange of value, such as the exchange of money; and 
  • intention to create legal relations: Both of you should indicate if you will bind yourself to the new changes, such as signing a new contract with the proposed changes included.

If the other party changes the contract without notifying you or getting your permission, they have not obtained your acceptance. You will not have formed a legally binding agreement with them, so those changes will not be enforceable. 

However, if you do agree to their changes, you and the other party will have formed a legally binding contract. 

How Can Someone Notify You?

If the other party wishes to change the contract, they can either:

  • change the contract on their own and notify you of the change which you then accept; or
  • ask you if they can change the contract.

The first scenario frequently occurs for any changes to terms and conditions in online businesses. 

For example, if you use a payment processing tool such as PayPal for your business, PayPal may change its terms and conditions. PayPal then provides notice of the change. If you continue to use their service, you agree to the changes to the terms and conditions.  

However, the situation is quite different if the other party wants to change the meaning or performance of an important term in the contract. 

For example, you enter into a contract where you supply baked goods to another business. The original contract states that the business must pay within five days after receiving an invoice from you. However, the business wants to change the timeframe to 14 days

You will want the business to seek your permission for changing the timeframe to 14 days. Otherwise, you may inadvertently struggle with cashflow if you expected payments within five days. 

How Should I Manage Changes?

You should consider including an ‘amendment clause’ in your original contract to manage any proposed changes raised by the other party. 

Example amendment clause: This document may only be amended by a written instrument executed by all parties.

 

Your amendment clause can help outline a clear process for you or the other party to change the contract. 

For example, you may want the other party to propose changes to the contract by striking out any proposed deleted text or inserting new changes in red line. You can then review, negotiate or agree to the changes. Make sure you outline how you will agree to any changes, such as via email or through another written agreement.

You can require the other party to ask for any changes to the contract even if you do not have a written amendment clause or if you have an oral contract. For oral contracts, you will discuss and agree to any proposed changes verbally.

However, verbally agreeing to changes comes with risks. If there is a contractual dispute, you or the other party may struggle to prove whether you had agreed to any changes to the contract. Therefore, you should consider agreeing to any changes in writing.

Key Takeaways

A contract cannot be changed without your knowledge or consent. You will not be bound by any proposed changes unless you have accepted or given consideration to the changes. An amendment clause in the original contract will help you manage any proposed changes. If you have any questions, get in touch with LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.
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