Although language concerning how a contract, such as an LLC Operating Agreement, can be amended is frequently buried toward the end of the agreement, often in so-called “boilerplate,” it should be carefully considered, or surprises can ensue. For example, I-10, Ltd. was a Colorado limited partnership engaged in real estate development with a general partner and multiple limited partners, including Fox. The partnership agreement provided that the general partner could call for additional capital contributions, and that each limited partner would contribute its pro rata share, not to exceed 400% of the initial capital contribution. Fox made an initial capital contribution of $85,000. The partnership agreement also stated that the agreement generally could be amended with the general partner's approval and a majority vote of the limited partners. Fox agreed to an increase in the ceiling to 600%, but objected to an 800% increase. The other limited partners approved the increase and the general partner made a call for additional capital contributions such that the aggregate additional capital constituted 800% of the initial contribution. Fox sued.

In Fox v. I-10, Ltd., 957 P.2d 1018 (1998), the Colorado Supreme Court held that Fox willingly entered a partnership agreement that allowed the majority to amend the additional capital contribution provisions. The agreement carve-outs requiring Fox's consent to only certain, nonapplicable, amendments indicated that the parties had specifically agreed on terms, and cut against Fox. Step 1 having occurred, step 2 could occur, and Fox was liable for up to 800% additional capital contributions. Not having made the contribution, Fox could be penalized. Live by the contract, die by the contract. One can assume that the limited partnership needed the additional funds for its stated purposes, and that there was no violation of the good faith and fair dealing covenant. If the call were made to, for example, create a diminishment in Fox's interest, and not for a business purpose, Fox could presumably have asserted a bad faith claim. He did not.

The moral to the story—read and think about the amendment provisions of any contract, particularly including multi-party contracts such as LLC operating agreements. A failure to do so, and to negotiate acceptable terms (or to accept the agreement with eyes wide open to underlying risk), can lead to expensive surprises and, at least in Fox's case to protracted litigation.