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A back letter is a type of legally binding document that is sometimes used to augment the terms and provisions found in some types of principal agreement. Sometimes referred to as a secondary or supplemental agreement, the back letter details rights and responsibilities that were not included in the principal agreement for some reason. When properly drafted and enacted, the letter becomes part of the overall contractual commitment that exists between the two parties and works in tandem with the primary contract to govern their business relationship.
There are a number or reasons why a back letter may be advantageous as a subsidiary agreement to a contract that is already in force. During the course of the working relationship, a buyer may want to lock in pricing on goods or services that were not offered in the original agreement. Changes in trade laws may also call for the buyer and seller to address some specific issue that is not covered adequately in the principal contract. A back letter may simply address some concern that neither party was aware of at the time the primary agreement was drafted and, rather than amending the existing contract, this format may be used to create a policy relevant to that concern.
One of the more common examples of a back letter is the letter of indemnity. This type of document usually provides a clear outline of what type of reparations one party will make to the other in the event that the terms of the principal agreement are not met. For example, if the buyer fails to purchase goods and services that amount to the minimum amount of volume identified in the main agreement as necessary to secure discounted pricing, the letter of indemnity may allow the seller to bill the buyer for the difference between what was actually purchased and the purchase amount covenanted in the contract.
Typically, a back letter is not used to reverse or change any of the provisions in the main or principal agreement. In most cases, the terms and provisions in the letter will address issues that were not specified in that contract for some reason. As a simple resource that allows buyers and sellers to refine their relationships to their mutual benefit, the letter offers a quick and easy solution to dealing with anything that is not covered in the original contract without the need to rework that pre-existing agreement.
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