The Amendment clause stipulates the conditions for changing the terms of an agreement. The clause typically requires a written document signed by both parties. In some circumstances, like End User License Agreements, the clause will allow
Before the Effective Time. Before the Effective Time, this agreement may be amended by either the Parent Board of Directors or Company Board of Directors.
After the Effective Time. After the Effective Time, this agreement may only be amended by the Parent Board of Directors or Company Board of Directors with the prior written approval by the Company Shareholders, if such approval is required by the [APPLICABLE STATUTE].
Method of Amendment. This agreement can be amended only by a written instrument signed on behalf of both parties.
Amendment. This agreement may be amended only by written consent of the Company and Stockhoolders of at least [66%] of the outstanding shares of Common Stock. Any consent will only be effective in the specific instance and purpose for which it was given and shall not constitute continuing consent.
Conditional Right to Amend. Subject to paragraph [EFFECT ON BENEFITS], [PARTY A] may amend this plan without notice to or consent of any Participant.
Consent Required for Amendment Adversely Effecting Benefits. If [PARTY A]'s amendment would adversely affect any Participant's vested benefits, [PARTY A] may not make that amendment without the written consent of the relevant Participants.
Power of Board to Amend. The Board may amend or repeal any of these bylaws or adopt new bylaws for the Corporation at any regular or special Board meeting, except that the Board may not change what constitutes a quorum at a shareholders' meeting, or amend or alter bylaws that expressly cannot be amended or repealed by the Board.
Power of Shareholders to Amend. The Corporation's shareholders may amend or repeal any of these bylaws or adopt new bylaws for the Corporation at any annual or special shareholders meeting.
Laundry List Approach
The amendment clause sometimes contains a laundry list of words such as: "amended, changed, modified, supplemented, rescinded, terminated or discharged." Tina Stark writes: "Case law seems not to distinguish among the terms amend, change or modify….However, there is a view that the omission of the word 'rescind' would permit the parties to rescind their agreement. Similar arguments could be made for supplemented, terminated and discharged." Page 528, Negotiating and Drafting Contract Boilerplate, Tina Stark.
Enforceability of Unilateral Amendment Clauses
Unilateral amendment clauses may be enforceable upon notice and continuing performance by the parties. For example, if you receive notice of changed terms of your credit card agreement, and you continue using the card, you will be bound by the changes. However, such clauses are "illusory" and not enforceable where the amendment purports to apply to events arising prior to the date of the amendment.
(a) Enforceable with Notice.
In Re Halliburton Company and Brown & Root Energy Services, the Texas Supreme Court held that the arbitration agreement at issue was not illusory because, although the employer "explicitly reserved the right to unilaterally modify or discontinue the dispute resolution program," a ten-day notice provision and another provision which stated any amendment could only apply prospectively functioned as a "savings clause" which prevented the employer from avoiding its contractual obligation to arbitrate. In Re Halliburton Company and Brown & Root Energy Services.
(b) Unenforceable without Notice.
In Carey v. 24 Hour Fitness, USA, Inc., (5th Cir. Jan. 25, 2012) (http://caselaw.findlaw.com/us-5th-circuit/1592311.html), the United States Court of Appeals for the Fifth Circuit found an arbitration agreement to be illusory because one party to the agreement retained the unilateral right to modify or terminate the arbitration provision at any time. The Fifth Circuit stated:
"Carey argues that the arbitration clause in the Handbook is illusory because the Change-in-Terms Clause would allow 24 Hour Fitness to unilaterally avoid its promise to arbitrate by modifying the Handbook. The Acknowledgment gives 24 Hour Fitness the "right to revise, delete, and add to the employee handbook" in which the arbitration provision is located. As in Morrison, there is no "Halliburton type savings clause" in the Acknowledgment that limits 24 Hour Fitness's ability to make retroactive modifications to the arbitration provision. If a 24 Hour Fitness employee sought to invoke arbitration with the company pursuant to the agreement, nothing would prevent 24 Hour Fitness from changing the agreement and making those changes applicable to that pending dispute if it determined that arbitration was no longer in its interest. In effect, the agreement allows 24 Hour Fitness to hold its employees to the promise to arbitrate while reserving its own escape hatch." (links added).
(c) Is Posting on a Web Site Sufficient Notice
Douglas v. US District Court ex rel Talk America No. 06-75424 (9th Cir. July 18, 2007). Ninth Circuit struck down an AOL contract term permitting unilateral amendment that lacked any notice requirement. The court stated: "Parties to a contract have no obligation to check the terms on a periodic basis to learn whether they have been changed by the other side."
In Roling v. E*Trade, the plaintiffs contested an alleged unilateral imposition of an account maintenance fee for imposed on customers that do not make at least one quarterly trade. The brokerage agreement amendment clause read:
"E*TRADE Securities may modify the fee structure at any time by posting a modified structure on its Web site."
The agreement also required customers to check the website for changes. In denying E*Trade motion for summary judgment, Judge Patel said: "plaintiffs allege that E*Trade's unilateral ability to change contract terms, without notice and the requirement that they periodically check the terms of the contract is problematic. Although magic words are not used, the allegations are sufficient to allege a claim for unenforceability." Another Ruling Challenging 'Check the Website for Amendments' Contract Provisions–Roling v. E*Trade (http://blog.ericgoldman.org/archives/2010/11/another_ruling.htm)
(d) Additional References
See also: They Can Do What!? Limitations on the Use of Change-of-Terms Clauses (http://scholarship.law.wm.edu/cgi/viewcontent.cgi?article=1300&context=facpubs)