Key Takeaways

  • Contract terms and conditions define the rights, responsibilities, and obligations of each party in a legally binding agreement.
  • They help prevent misunderstandings and provide legal recourse in case of disputes or breaches.
  • Essential clauses often include payment terms, limitations of liability, governing law, confidentiality, and termination provisions.
  • Contract terms and conditions are not legally required but are vital for protecting business interests and ensuring clarity.
  • Standard terms differ from special conditions, which are tailored to the specific transaction or business relationship.
  • Businesses should carefully draft and review terms and conditions with legal guidance to ensure enforceability.

What are Terms and Conditions of a Contract

What are the terms and conditions of a contract is a common question among parties entering into a contract. When dealing with contracts, both parties should fully understand all elements of a contract.

Purpose of Contract Terms and Conditions

Contract terms and conditions serve as the rulebook for a professional relationship, whether between businesses, individuals, or a mix of both. Their primary purpose is to clearly define the scope of the agreement, outline mutual obligations, and establish expectations. By specifying what each party is required—or prohibited—to do, terms and conditions reduce the risk of disputes and provide a framework for resolving them if they arise.

Some key functions include:

  • Defining deliverables and performance standards
  • Clarifying deadlines and milestones
  • Specifying payment methods, amounts, and due dates
  • Outlining remedies for breach of contract
  • Limiting liability in case of loss or damages

They are particularly critical in service-based arrangements, digital platforms, licensing agreements, and international contracts, where jurisdictional differences can impact how contracts are interpreted.

Elements of a Contract

The contract itself must include the following:

  1. Offer
  2. Acceptance
  3. Consideration
  4. Parties who have the legal capacity
  5. Lawful subject matter
  6. Mutual agreement among both parties
  7. Mutual understanding of the obligation

When it comes to the key three elements that make up the beginning stages of the contract, you’ll need to ensure that there is an offer, acceptance, and consideration. First, an offer must be made by one party to another party. Next, the party receiving the offer must accept it. Then, there must be consideration exchanged between the parties. This could be a monetary amount or a simple promise to act under the contract.

When it comes to the legal capacity of a party, keep in mind that those under the age of 18 or those who are mentally incompetent don’t have the legal capacity required to enter into a contract.

While all contracts are unique, there are certain terms that are commonly used in all contracts, particularly business contracts. These are generally referred to as the terms and conditions of a contract.

Common Types of Contract Terms

Contract terms typically fall into several categories, each serving a distinct legal or operational purpose:

  1. Express Terms – Clearly written or verbally agreed-upon clauses, such as payment terms or service obligations.
  2. Implied Terms – Terms not explicitly stated but assumed based on the nature of the contract or governing laws (e.g., reasonable care in service contracts).
  3. Conditions – Fundamental terms that, if breached, may allow the injured party to terminate the contract.
  4. Warranties – Minor terms where a breach typically leads only to a claim for damages, not contract termination.
  5. Innominate Terms – Terms where the remedy depends on the seriousness of the breach.

Recognizing the category into which a term falls helps determine the consequences of breaching it and how courts may enforce it.

Terms and Conditions: An Overview

Such terms and conditions will identify the rights and responsibilities of both parties. This can include general and special conditions. A general condition is one that is common and included in most contracts. Special conditions are those that are specific to that contract, i.e., payment, price variation, penalties, etc.

Be mindful that when someone refers to the terms and conditions, he is not referring to the overall contract. Instead, he is referring to certain legal terms within the contract or some type of non-negotiable contract document. When someone is referring to an actual contract, he isn’t referring to such terms and conditions identified therein. He is instead referring to the overall contract or legal relationship between the parties entering into the legally binding agreement.

When thinking of what types of contracts you’d find terms and conditions in, you can think of any type of contract, as all contracts should have terms and conditions. For example, it could be a contract for the sale of the property, a warranty, an employment contract, a consulting agreement, a lease contract, a joint venture, etc.

Key Clauses to Include in Contract Terms and Conditions

To ensure a contract is comprehensive and enforceable, several essential clauses should be included in the terms and conditions:

  • Payment Terms: Specify amounts, schedules, penalties for late payments, and acceptable payment methods.
  • Intellectual Property Rights: Clarify ownership and usage rights for any intellectual property created or exchanged.
  • Confidentiality: Define what information must be kept confidential and the duration of this obligation.
  • Termination Clause: Outline conditions under which either party may end the contract, including notice periods.
  • Limitation of Liability: Cap the financial exposure of each party in the event of a dispute or loss.
  • Governing Law and Jurisdiction: Establish which state or country’s laws apply and where disputes will be resolved.
  • Force Majeure: Protects both parties from obligations in the event of unforeseeable circumstances, such as natural disasters or pandemics.
  • Dispute Resolution: Detail whether disputes will be resolved through arbitration, mediation, or litigation.

Well-drafted terms reduce the likelihood of litigation and provide a clear course of action when conflicts occur.

Are Terms and Conditions Required?

While they aren’t required or legally mandatory, terms and conditions are incredibly beneficial for both parties. It essentially gives you the right to terminate the contract if the other party fails to abide by such terms and conditions. An example of when they would be very helpful is if you operate a SaaS application. If users abuse your website or mobile application, then you can terminate their account. Specifically, you’ll include a termination clause in the terms and conditions that inform users of such termination if they abuse the service in any way.

Furthermore, let’s assume that you own and operate a social media site, similar to that of Facebook, Instagram, or LinkedIn. You’ll undoubtedly want to have a lengthy list of terms and conditions to advise users that if they abuse any term or condition identified in the contract, then their account can and will be terminated. This could include posting illegal or fraudulent material, or material that constitutes copyright infringement. Furthermore, if a user’s account name violates a trademark, then the account name will be denied. While it can be rather difficult to find out if any users are abusing the terms and conditions, such businesses generally have their own department dedicated to reviewing such material on a daily basis to ensure that users are not engaging in illegal or fraudulent activity.

If you own a business that sells products or services, you can cancel certain orders if the product price is incorrect. In order to do this, you’ll need a provision within the terms and conditions section of the contract informing users that certain orders, at the sole discretion of your business, can be canceled if the product(s) that are ordered are incorrectly priced due to manual errors.

Enforceability and Legal Considerations

While contract terms and conditions are not legally mandated, they are enforceable if properly structured. For enforceability, the terms must be:

  • Clear and unambiguous: Vague or overly broad clauses may not be upheld by courts.
  • Consented to by both parties: Each party must explicitly agree to the terms, whether through signature or affirmative action like checking a box online.
  • Compliant with applicable laws: Terms must not contradict federal or state laws, such as consumer protection regulations or employment laws.
  • Not unconscionable or one-sided: Courts may strike down unfair clauses that heavily favor one party.

In digital agreements (e.g., SaaS, e-commerce), courts are more likely to uphold terms if users actively consent, such as via a “clickwrap” method, rather than passive presentation (“browsewrap”).

It’s best practice to consult with a qualified attorney to ensure the terms are tailored to your specific situation and legally enforceable. UpCounsel offers access to experienced lawyers who can help with drafting or reviewing contract terms and conditions.

Frequently Asked Questions

  1. What is the difference between terms and conditions and a contract?
    The contract is the overall legal agreement, while the terms and conditions are specific provisions within the contract that outline each party’s responsibilities.
  2. Are contract terms and conditions legally binding?
    Yes, they are enforceable if they meet legal standards such as clarity, mutual consent, and compliance with applicable laws.
  3. Can terms and conditions be verbal?
    While possible, verbal terms are harder to prove and enforce. Written terms are strongly recommended for clarity and legal protection.
  4. What happens if a party breaches the terms and conditions?
    Depending on the severity of the breach, the non-breaching party may be entitled to terminate the contract, seek damages, or enforce specific performance.
  5. Should I include a dispute resolution clause?
    Yes. A dispute resolution clause can help avoid costly litigation by specifying arbitration or mediation processes to resolve disagreements.

If you need help learning about the terms and conditions of a contract, 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.