What is a Supplemental Agreement
A supplemental agreement is an addendum or appendix to a primary contract. Its purpose usually is to clarify, amend, or provide additional detail for provisions within the parent agreement.
Supplemental agreements are usually drafted and executed separately after the original contract is in place. Depending on the circumstances, a supplemental agreement can consist of a single Page that contains new or modified provisions or even multiple pages outlining additional details, such as timeline, payment, scope of work, or other contract clarifications. A supplemental agreement can incorporate language that indicates it only supplements the parent agreement. For example, one could use the following language in a supplemental agreement: ‘This supplemental agreement supplements the [Name of Parent Agreement] entered into between [Name 1] and [Name 2] on [Date] . "
Common purposes of a supplemental agreement include:
Clarifying provisions of the parent agreement
Addressing ambiguity
Providing additional details
Updating incorrect information
Extending the term of the parent contract
Oral agreements entered into verbally between contracting parties also can be supplemented in writing with a supplemental agreement.
In real estate transactions, supplemental agreements are used for a wide variety of reasons, including adding contingency clauses or financing conditions to the parent agreement. If a supplemental agreement modifies the price of the property, it should be executed by both parties. Any amendments that merely extend the closing date are often referred to as "amendments."
Common Use Cases for Supplemental Agreements
Most often, supplemental agreements are used to modify existing terms of a contract, normally as the principal means of effecting contractual changes. For example, when the conditions of the contract or scope of work require modification or extension, the parties can agree to an appropriate supplemental agreement to modify or extend the terms of their contract. The courts have long recognized that a change or modification in the parties’ agreement can be effected by a supplemental agreement or change order. Such agreements may be used to modify the following: The Supplemental Agreement process also can apply to a contract modification or extension of performance time. Changes out of the ordinary course of work can cause a contractor to be entitled to a time extension. Such things as late drawings and changes in the plans are specific examples of the types of events which may cause the owner to grant an extension of performance time. Since most owners are unwilling to grant time extensions after the actual period of performance has expired, the contracting parties may agree to an extension of time by a supplemental agreement.
Legal Considerations of Supplemental Agreements
A supplemental agreement is an extension of an initial agreement that adds to the existing terms in the document. It may detail changes to payments, acknowledgement of facts, a dispute resolution procedure, or other information.
Any party to a supplemental agreement need to be mindful of how the supplemental agreement is written and structured to be legally enforceable and binding.
To ensure that all agreements are enforceable in court, they should be in writing, agreed by both parties and include a reasonable time of execution. Unilateral agreements that do not involve a give-and-take dynamic are likely unenforceable.
Any supplemental terms added to a written contract – or used to change a pre-existing contract – should be accompanied with an offer, including all specific terms, time of delivery, mode of shipping and an offer of payment. Any pre-existing contracts must be referred to, if only in passing, and all parties must sign the new agreement and any pre-existing agreements. A supplemental agreement must not contradict any conditions specified in the contract it supplements.
Drafting Supplemental Agreements
The essential first step in the proper drafting of a supplemental agreement is to apply the four corner rule and "identify the original contract and show the intention and offer to modify that contract." did that under a different heading. If you have thrown elsewhere without having a full look, dont forget to see the Four Corners Rule before looking at this section. Appendixes should be referred to as Appendix A, Appendix B, etc., not Exhibit A, Exhibit B, etc. this will save confusion if the original document has been given that label. Once that is clear, the following sections should be included:
- The parties. Use the same parties that are contained in the original contract, along with all of the necessary references to business corporations and other legal forms. The names of the parties should be capitalized throughout the supplemental agreement. This will eliminate any issues with respect to how or whether they should be used elsewhere in the agreement.
- The reference to the original contract should be as specific as possible. Use the title of the agreement, the names of the parties to the original agreement, the date of the original agreement, etc. without becoming too lengthy or repetitive. For example: "This Supplemental Agreement is made and entered into between [Party A], a [jurisdiction] corporation with a principal place of business at [address] and [Party B], a [jurisdiction] corporation with a principal place of business at [address] and is dated as of [date]. This Supplemental Agreement is a supplement to that certain agreement between the parties dated _________ (the "Agreement") . "
- A statement as to the reason for the supplemental agreement. This is usually the most important part of the document as it will be interpreted and clarified by the courts when the intent of the parties is unclear.
- The terms of the supplemental agreement. This will generally include a description of the modifications, attachments and schedules, and other documentation that will be part of the supplemental agreement. The name of the person or persons who will prepare and sign the supplemental agreement should also be included.
- Any necessary definitions. These should only be used when they add clarity. As should always be the case, if in doubt, a definition should be included.
- The validity and binding effect of the supplemental agreement. This may seem obvious, but it should be clearly reassuring to all parties to the agreement that the chance of an improperly drafted document will be eliminated.
- The waiver of right to jury trial. This should be included in every professional services contract. An individual with liability exposure should not allow a conflict to be decided by a jury. All of the elements necessary to prove a jury case can be bought and paid for. It is much harder to determine the quality of a jury and the loyalty of its members.
- Other sections. There are many variations that might be used depending on the contract that the supplemental agreement supplements. This would likely include any additional sections that may be needed for the particulars of the contract.
Pros and Cons of Supplemental Agreements
When a supplemental agreement is used, oftentimes the parties have strategically evaluated their rights and obligations. It may well be that the supplemental agreement was intended to replace some portion of an existing agreement. Or, it may be that the supplemental obligation was only meant to modify a specific portion of the underlying agreement. However, it may also be that the supplemental agreement is intended to supplement the primary agreement in its entirety. In that case, you would be best off to interpret the supplemental agreement on its own to determine the scope of its effect.
The answers, of course, depend upon the type of supplemental agreement executed, the intent of the parties, and the state law governing the interpretation of the underlying agreement. For instance, in California, it is well settled that, as between two written contracts, an earlier one may be merged into a later one in the absence of express language reserving the earlier instruments, and all of the terms of the earlier agreement may become a part of the later one, which means that if you do not expressly reserve any of your rights in the superseding agreement, you will have no power or right to enforce the terms of the earlier agreement.
As with most business transactions, there are potential benefits and risks, each to be carefully considered. Among the potential benefits of a supplemental agreement are the following: While there are many potential advantages to executing a supplemental agreement, it is perhaps important to note just a few of the pitfalls that you might avoid by employing the help of counsel including: Parties entering into supplemental agreements should use care when doing so. The drafting of a supplemental agreement should be a conscious decision and undertaken accordingly.
Sample Clauses For Supplemental Agreements
Supplemental agreements often include clauses that are fundamental in defining the parties’ obligations and expectations. For example, the supplemental agreement may require the parties to cooperate in resolving issues associated with the original contract or provide acceptable replacement services and/or materials following any termination of the original contract. Supplemental agreements may also require the contractor to be responsible for coordinating its activities with the activities of other parties on the project. Some of the other clauses commonly found in supplemental agreements include the following:
Confidentiality Clause
The supplemental agreement may require the contractors to acknowledge that confidential information will be disclosed and to agree not to disclose such information. A typical clause may read as follows:
The Contractor acknowledges that certain information is, and will be, confidential to the Owner. The Contractor agrees to hold such information in confidence and not to disclose such information without the prior written consent of the Owner.
Amendment Term
The supplemental agreement may require any modifications to be accomplished by written amendments, signed by both parties, presumably making it clear that oral amendments are not effective . A common amendment term may read as follows:
No modification of this Agreement shall be of any force and effect unless in writing and signed by all parties hereto.
Dispute Resolution Procedure
The supplemental agreement may also contain dispute resolution provisions, what are often referred to as "sample" dispute resolution procedures, which may take the form of initial negotiations, followed by mediation and/or binding arbitration. Common mediation and arbitration clauses may read as follows:
If any dispute arises between the Owner and the Contractor under or with respect to this Agreement, the parties shall first endeavor to settle the dispute by mutual negotiations. If the parties are unable to resolve the dispute by negotiation, the parties will submit the dispute to mediation by the American Arbitration Association ("AAA") under the mediation rules of the AAA in effect at the time of the mediation.
In the event that the dispute is not resolved by mediation within sixty (60) days after the mediator is appointed (or such longer time period as the Owner and the Contractor shall agree), the controversy and claim shall be settled by binding arbitration by the American Arbitration Association in accordance with the Arbitration rules of the American Arbitration Association in effect at the time of the arbitration.