Changes in Contracts
November 9, 2020
Once parties agree to a contract, consider what happens ultimately down the road, whether they close or make changes in the contract. One type of change in the contract can be a breach of contract, breach meaning break or tear. For instance, if one of the parties does not perform according to the original agreement. If one of the parties backs out, what is the other party’s remedy?
One thing that the party can do is file for a specific performance lawsuit, which is a court action to force completion.
So, if a buyer refuses to close, the seller might be able to sue the buyer to complete the deal as was originally agreed to. A second item available to either party is to resend the agreement. Resending the agreement means both parties go back to square one, pretending it never happened. This is the situation where if a buyer backs out, for example, the seller can say, let's just resend the agreement. We'll both sign off and pretend this never happened, and the seller will then sell to a different buyer.
The second change in a contract would be an assignment of an agreement, assign meaning transfer. So, if a buyer has a signed contract to buy a piece of property, can that buyer transfer his or her rights to another buyer and let someone else close on the agreement and close on the transaction? Yes, this is allowed unless there's a clause in the original contract that forbids the assignment. Otherwise, contracts are freely assignable or transferrable to other parties.
A third change is called a Novation, which means new. A new contract takes place of an old contract. That would be a situation where a borrower goes into refinancing a loan from a 5% interest rate down to a 3% interest rate. We call this a refinance. A refinance is a type of novation because a new loan contract takes the place of the old loan contract.
The fourth way is called an addendum or an amendment. What happens when a seller and buyer cannot close on time and we need to extend the closing date by one week. Then both parties would need to sign an addendum, addend means to add, or an amendment, amend means change. In some way, the addendum or amendment will change or modify the original agreement.
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