Contractual Term: What You Should Know

A contractual term is the backbone of any contract and establishes the obligations of the parties in an agreement. They can often seem like a foreign language to a non-attorney, full of legal verbiage inserted by a lawyer to cause confusion. In fact, contractual terms serve as the basis for protecting the rights of the parties to a contract and commit the parties to a course of action. They establish the rules by which businesses and their employees, vendors, landlords and/or tenants and customers interact. Therefore, it is important that you, either as an entrepreneur or small business owner, understand to the best degree possible, any terminology that you do not understand.

Two Types of Contractual Terms

Contracts are important in the everyday operation of a business, which is why it’s always prudent to consult an attorney before entering into any agreement. The standard definition of a contractual term is “any provision forming part of a contract.” Contractual terms are not always stated expressly, and while implied terms may not have a bearing on the intent of the contract, they can be as important as those that are expressly stated. The breach of any contractual term, whether expressed or implied, can give rise to an aggrieved party seeking recourse. Let’s examine the difference between implied and expressed contractual terms.

Implied Terms

These are the terms in a contract that are generally accepted to be understood by both parties, yet not implicitly mentioned in an agreement. There are several reasons a term may be considered implied:

  • There is nothing unusual in the obvious intentions of the parties conducting business.
  • Reasonable expectation exists between the parties that dealings will proceed in a customary manner as established through previous dealings.
  • It is obvious that the term would be included in a contract based on a reasonable person’s understanding of what constitutes an agreement.
  • It has become a feature of contracts based on years of precedence and common law.

Implied terms may be established by statute or by the courts. Examples of statutory terms are rights established by law for minimum wage and work hours, rate of taxation and responsibility for the payment of taxes, and general protections required in a workplace. Terms established by courts may exist when it is assumed that they were meant to be included in a contract, but are not present.

Implied terms established by statute are irrevocable, regardless of the desires or intentions of the parties to an agreement. Terms established by a court can be overruled by an expressed term. In both cases, these implied terms are considered a part of every contract.

Expressed Terms

Expressed terms are those that have specifically been included in a contract and agreed upon by both parties, either orally or in writing. They are standard in valid contracts, and, in fact, are the essence of any agreement between two or more parties to a sale, real estate transaction, or agreement to provide service.

The simplest way to think of an expressed term in a contract is that one party has made an offer and the other party has accepted it. It is legally binding. An expressed term can often be identified by the words “If…then”. “If” one party fulfills an obligation as contained in the agreement, “then” the other party to the agreement must fulfill their obligation.

A contract may have as many expressed terms as the parties believe are necessary.

A good example is the expressed terms that may be found in a contract between two parties for the purchase of goods. The parties have agreed on the transfer of goods in exchange for payment. That’s one expressed term. They have agreed on a price. That’s another one. They agree on the date of deliver and payment. That’s yet another.

Confusion Surrounding Representations

There are often misunderstandings as to whether a representation constitutes a condition in a contract. Throughout the negotiation process, discussions may have taken place that are considered to be “representations,” or statements of fact, that are made with the sole purpose of getting a person to sign a contract.

The major difference between the two is that failure to deliver on a representation can only result in liability for misrepresentation, not breach of contract. The responsibility for determining whether damages can be awarded for misrepresentation rests with the aggrieved party. Among the burdens of proof they must establish are that they relied on a statement as a term of the contract, the importance of the statement, and whether they believed the representation was true.

Contracts can be as simple as a handshake, or as complex as a voluminous document with a large number of terms and conditions that are interdependent. In both cases, it’s important to remain focused on the ultimate value of the transaction to the parties.

To learn more about contractual terms, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.