Contractual terms are important and this becomes obvious whenever you define a contract.
What is a contract?
A contract is basically a legally binding agreement.
The question is what exactly have you agreed to? In purchasing and supplies the agreement will for the most part depend on stakeholders’ needs, which is why you need to understand your stakeholders’ needs.
What you are agreeing to in the contract will become the terms of the contract. This also means you need to be good at negotiating such terms.
Contractual terms defined
In simple terms, what contractual terms refer to are duties and obligations of the parties in the contract, for instance delivery dates, mode of payment, quality desired etc.
In sale of goods contract for instance, it is implied that unless otherwise stated the seller shall be responsible for delivery. Or that incase of sale by sample, the bulk shall correspond to the sample.
Do all terms carry a similar weight?
The answer is no. Contractual terms do not carry the same weight.
Example
Let’s assume you want to buy a laptop. What are some of the things you want the laptop to have? So things like processor speed, screen size, storage size, color of the laptop, the brand etc. of these factor which one do you not care much about? Let’s take color for instance, what if the supplier brings you a black laptop instead of a silver one, would you take it? If the answer is no then color was an important term to you. If the answer is yes then color was not much of a big deal to you.
Classification of contractual terms
Contract terms can be expressed, meaning the ones that the parties have specifically talked about or written down, or implied terms. Implied terms are the kind of terms which even if you don’t talk about the law will assume that you have agreed to unless otherwise started, for example in employment contract it is implied that the worker is going to be paid.
Whether implied or expressed the terms can be further classified as:
- Conditions
- Warranties
- Innominate terms
Conditions and how they work
A condition is a strong term in a contract. Remember the example of buying the laptop? If your answer was no to the silver laptop then it means that color was a condition and by not providing one with the color you desired, the seller has breached a condition and therefore you will not take the laptop and in effect elect to consider the contract terminated by a breach.
Conditions can be divided into two;
- Condition precedent
- Condition subsequent
A condition precedent is a condition that must be met before the contract can even proceed. For instance, payment before delivery or an action to take place subject to approval of the local authority.
A condition subsequent is a condition that if something happens then the contract is over. For example, in real estate a failure to pay rent is a condition subsequent in the sense that it breaches the lease agreement and the tenant has to vacate the premise bringing the contract to an end.
Warranties and how they work
A warranty in a contract is a weak term and breaching it will mean making some amend but not terminating the contract.
Think of buying a car, in this deal there is a warranty that the car works. But what if the car doesn’t work? The warranty will give you, the owner, the right to have the dealer fix the car under certain condition such as length of time stated or cause of damage.
Notice they fix the car and not give you a new car. In our earlier example of the laptop, if you never cared about the color of the laptop then color becomes a warranty, basically a weak term
Regarding innominate terms
Innominate terms are the kind of terms that we may not know if they are condition or warranties. They are basically in between the two. And they only become one or the other depending on how the parties react to their breach.
Conclusion
Contractual terms are duties and obligations of the parties in the contract. In a contract, terms can be expressed or they can be implied. Either way it is important to know if a term is a condition or a warranty because terms do not carry the same weight. The terms that are in between conditions and warranties are called innominate terms.
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