Contracts

What is in a contract?

By October 12, 2019 December 16th, 2019 No Comments

For more information about different types of contracts, and the different parts of contracts, please see the various articles throughout the ALAS Legal Database. As a general overview, many contracts will cover or include the following elements:

The Parties
In order for a contract to exist, it should be clear who the agreement is between. So it should be possible to identify the parties to a contract.

The Term
Many contracts will include details about when or how long they will apply (e.g. “I will provide this service on this date” or “I will give you this for a year”). Some contracts may continue for an indefinite period, and will last until the parties agree to ‘terminate’ (i.e. stop) the agreement. Either way, the length of a contract is known as its ‘term’.

Subject of Agreement
A contract should indicate what it covers, i.e. what good(s) and/or service(s) is/are being provided, and what value is being given in exchange. This exchange of good/service for value is the ‘subject’ of the agreement, and is the core of the contract between the parties.

Territory
Some contracts will specify that they apply throughout the entire world, or the universe. Other contracts will specify that they only apply in a certain location, such as a province, state, or country. This may mean that the service is only being provided in that territory, or that the owner of the good/service may be providing the same good/service to other parties in different territories. Paying attention to where a contract does (and does not) apply will help you understand the scope of the rights being conveyed by the agreement.

Payment
Most contracts will provide for some form of payment by one or more parties to the other party(ies). This payment is generally in exchange for the good(s) and/or service(s) being provided by the party(ies) receiving the payment. There are many different forms of payment, such as ‘lump sums’ (a one-time payment of a specific amount) or royalties (payment of a percentage of some amount). The contract should specify the form of payment (if any), and how and when it will be made.

Representations and Warranties
These are promises that a party to a contract makes to the other party(ies) to the contract. Sometimes these promises include that a party is who they say they are, or that they do not have any outstanding legal claims against them. Sometimes these promises will be fundamental to the value being exchanged between the parties. In some contracts, all the parties will make promises to each other, but in other contracts only one party will need to make these kinds of promises. Different contracts call for different types of promises.

Indemnity
An indemnity is a promise by one party to reimburse (or defend) another party for certain costs in certain circumstances. For example, if party A is granting party B permission to do something, and then party B gets accused by a third party of doing that thing without party C’s permission, then party A might agree to reimburse or defend party B from party C’s accusations. Some contracts will include indemnities between the parties to cover what happens if anything goes wrong.

Disputes
Many contracts will specify how the parties should resolve any disagreements they may have during the term of the contract. For example, sometimes the agreement may specify that the parties have to work together to try to resolve the disagreement before turning to a court. Or the parties may agree to go to a neutral third party (such as an arbitrator or a mediator) to resolve or facilitate the resolution of any disputes.

Termination
Many contracts will include specific language to address how the parties may end the agreement. For example, if Party A and Party B form a contract for Party A to provide a service to Party B, and then Party B later decides it no longer needs the service, then Party B may wish to have a contractual right to terminate the contract with Party A.

Alternatively, if Party B ‘breaches’ the contract (i.e. they fail to meet any obligations or promises that are part of the agreement) then Party A may want to have the right to end the agreement and stop providing the service to Party B.

Some contracts will specify the process or timeframe for terminating the agreement (e.g. before Party B can terminate the contract they have to give Party A with at least one month advance notice, and that termination must be signaled in writing). How a contract may be terminated can be very detailed and may take many different forms, so you may wish to look through the ALAS Legal Database for more information.