What Are the Terms of a Contract: Everything to Know

What are the terms of a contract? Generally, they protect all parties’ interests by detailing all deadlines and compensation. These details include a variety of terms that specifically lay out payment terms, amount of money, and other rights of one or both parties. Some terms are fairly standard, or boilerplate, but others are specific to the particular parties and/or contract.

The necessary elements of a valid contract are:

  1. Offer
  2. Acceptance
  3. Valuable consideration, mutuality of obligation, and, in many cases, a writing
  4. All parties must have legal capacity to contract
    1. 18 years or older
    2. Mentally competent
  5. Lawful subject matter
  6. Mutuality of Agreement

These are the requirements of a contract.

List of Possible Contract Terms

Not all of the following provisions will be included in every contract, as all contracts are different, but most contracts commonly use these provisions:

  1. Identity of the parties.
    1. Are they individuals or businesses.
      1. If a party is a business, what type of business? (partnership, corporation, etc.)
      2. If a party is a business, also include the name, title, and authority of the person signing on behalf of the business.
  2. Addresses of the parties.
  3. Purpose(s) of the contract.
  4. Duties of the parties.
    1. A business contract details specific duties to be performed by each party.
    2. Sometimes duties are what a party should not do.
  5. Rights of each party.
    1. Including the right to sue or not to sue.
  6. Important dates.
    1. Common dates can include completion date, start and end dates of employment, payments due dates, etc.
  7. Prices or other important amounts.
  8. Quantities.
  9. Payment terms.
    1. Amount and means of payment.
      1. If payment is required upon the completion of a project or made in increments over the course of the project.
    2. Payment due dates.
  10. Taxes.
    1. Interest.
  11. Late fees.
  12. Warranties.
  13. Disclaimers.
  14. Limitations on liability.
  15. Liquidated damages in the event of breach.
  16. Confidentiality clause.
    1. In a contract, the parties may agree to not share any information due to the confidential nature of it.
  17. Indemnification clause.
  18. Arbitration clause.
  19. Forum clause or choice of law clause.
  20. Venue clause.
  21. Merger clause.
  22. Severability of individual provisions clause.
  23. Signatures of authorized signatories for each party.
  24. Notarization.

Contract Interpretation

In determining the terms of the contract, a court must establish what the parties intended. This is usually evidenced by what the parties wrote or said. Statements made during the course of negotiations can be determined as terms, but they may be determined as representations if they are found to be a statement of fact made by one party which induces the other to enter into the contract. A plaintiff's remedy depends on whether the statement is classified as a representation or a term.

Breach of a term entitles the non-breaching party to damages as well as denial of the contract if the breach was severe enough to substantially deprive the non-breaching party of the benefit of the bargain under the contract.

However, even if a statement is not classified as a term of the contract, it is possible that it may be enforced as a collateral contract.

Courts will consider the following factors in determining whether a statement is a term or a representation:

  1. Timing.
    1. The lapse of time between making the statement and including the statement in the contract.
      1. If this amount of time is short, the statement is more likely to be a term rather than a representation.
  2. Importance of the Statement to finalizing the contract.
  3. Whether it was included in the writing (aka contract).
    1. If the statement was not incorporated in the written contract, this suggests that the parties did not intend the statement to be a contractual term.
  4. Special knowledge or skills of a party.

Types of Business Contracts

There are several common types of business contracts:

  1. Sales-related contracts
    1. ex: bill of sale or warranty
  2. Employment contracts
    1. ex: consulting agreements and non-compete clauses
  3. Leases
  4. Joint venture agreements

There are many more in addition to this short list.

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