Addendum vs. Exhibit: Everything You Need to Know
Addendum vs exhibit distinction is fundamental for drafting proper legal contracts. Both serve a different purpose and make contracts more effective.3 min read
Addendum vs exhibit distinction is fundamental for drafting proper legal contracts. Both documents serve a different purpose and make contracts more effective and suitable for your specific business needs.
What Are Exhibits?
Not a part of the definitive agreement, exhibits serve as samples of the final versions of the documents to be signed in the future. They can come in the form of notices, separate agreements, or instruments needed to satisfy the terms of the final agreement. Discussed and finalized ahead of time to prevent disputes during the execution, exhibits are then attached to the definitive agreement.
There are two distinct categories of exhibits:
- Boilerplate documents: This type of exhibits undergoes minimal or no negotiation at all and is typically what the other party signs as it is. Such exhibits are common for employment agreements and take the form of the employer's standard nondisclosure agreement, proprietary rights agreement, tax forms, benefits forms, and other.
- Stand-alone, ancillary agreements: This type of exhibits is fully negotiable by the parties. Often utilized during the sale of a business, such exhibits come as stockholders' agreements, counsel opinions, landlord estoppels, and other documents.
In a contract sense, an exhibit is a document with an identifying mark, such as a number or a letter, and it is a part of the contract. These documents could be called:
However, the use of the term must be consistent throughout the contract. A schedule is an important part of the contract terms, and thus, must be properly referenced in the main contract.
Reasons That Necessitate the Inclusion of Schedules
There are five main reasons a contract might need the addition of schedules:
- The complexity of the transaction. This situation requires separate schedules to allow for a more comprehensive coverage of all the terms.
- The main transaction consists of several distinct subtransactions. In this case, schedules help to cover each smaller transaction separately.
- The transaction involves different disciplines and various types of contributions. Multiple schedules are needed to take care of each aspect of the transaction.
- Separation of facts from obligations. Ideally, all the informative aspects, specifications, and technical data must be placed in the schedule.
- Certain documents require periodical renewal. All updateable documents should be attached in the schedules to allow for the ease of renewal.
Multilevel Schedule Structure
Sometimes, the complexity of a transaction dictates the need for sub-agreements, which will also contain schedules. The most typical document structure does not exceed three levels and follows the rules below:
- Embedding schedules into schedules. To avoid confusion, it is best to use a different name for embedded schedules. For example, refer to the attachments to the main contract as schedules, and refer to the attachments to those schedules as annexes or exhibits.
- Division of schedules in parts. To avoid overload of schedules, divide schedules into several parts.
- Numbering. Identify schedules with numbers or letters. Ideally, your company will adopt a unified numbering style for contract drafting purposes. For numbers, you may use numerals, Roman numbers, or capital letters. Alternatively, you may number schedules with numbers of the sections in which they are first mentioned. When referred in definitions, schedules are numbered according to sequential appearance. List all your schedules underneath the table of content for easy reference.
- Closing documents. It is common in various transaction types to format the closing documents as the last schedule, containing the powers of attorney, copies of the executed deeds of transfer, resignation letters, and other.
Though using a cover sheet for each schedule is the best practice, it is standard to place the content right underneath the schedule title. Use different headers and footers for each schedule. Add tab pages for large transactions with extensive documentation.
What Are Addendums?
An addendum is an addition to the already-existing document. If an addendum lists changes to the agreement before the due date, it does not require mutual agreement of the parties. If an addendum describes additions to the agreement before signing, it must be mutually agreed upon.
Also referred to as supplements, addendums are not a part of the definitive agreement, though a definitive agreement could refer to addendums. Often, addendums are preferred over amendments, which make changes to the original contract and are more complicated to draft.
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