Agreement Terms Explained
Understanding the terms of agreement is the bread and butter for any litigator. Simply put, terms of agreement are the "what’s what" of the contractual universe. When you’re negotiating a deal, you discuss it until you can agree on the terms. When you’re in the midst of a dispute with the other party, you litigate around the terms. And when you get a judgment against that guy for breaching the terms, the court awards it to you. Easy enough. But have you stopped to think about what those terms really are and why they’re so important?
The American Heritage Dictionary defines the term as a "a word or expression having the same meaning as another word or expression; a definition." The definition of "agreement" is, "a coming together or concurrence in opinion or design, a settlement of controversy by mutual consent." In the law suit context, it’s much simpler—an agreement is a contract. In the business world, a term is a provision of a contract; a defined procedure; a provision for payment.
Therefore, if we were to translate the term "term of agreement," we would say that it’s a provision of the contract that both parties agree on when they enter into the contract. When parties sign contracts, these terms are discussed, negotiated and agreed upon quite frequently until both sides are satisfied with the contract and it’s signed. However, contracts vary . Most are made up of terms that define what should be done to fulfill the deal (termed "affirmative obligations"). Some define provisions for one party to be compensated for not being able to fulfill an obligation for any reason (termed "liquidated damages")—still others contain standard provisions that outline how to proceed with a dispute (also termed "liquidated damages," just kidding) or how to go about terminating an agreement.
And that’s where the fun happens. Because, anytime someone doesn’t fulfill their end of the bargain—you’re going to be wrestling over a term of the agreement. But, as with most wrestling matches, there are some ground rules. Some of those rules are common sense, like, if you don’t understand what a term means, ask for clarification before you sign. Others are a bit more esoteric. Are the terms actually enforceable— i.e. did you even spell it out to begin with? What about the infamous "implied covenant of good faith and fair dealing" —that vague and ever-expanding term that has morphed from an absolute suggested obligation to one that can be twisted like a pretzel to fit lots of different provisions in at least seven different jurisdictions (or was that eight…).
So, now that you understand what we mean when we say "a term of agreement," you should understand why those terms of agreement are so important.
Important Components of Terms of Agreement
The terms of an agreement typically include several essential components. First are the parties involved: the offeror (the party that is making the proposal) and the offeree (the party that is receiving the proposal). These two parties are bound together through mutual consideration, which means that they each agree to provide the other with something of value—whether that is a product or service or an amount of money. The proposed offer must be accepted by the offeree, whereupon the parties assume certain responsibilities and have certain rights towards one another. These rights and responsibilities become part of the contract. It is critical that the terms and conditions of agreement are transparent and unambiguous. If there is any room for reasonable misinterpretation of any of the terms, it will become difficult to hold either party to the agreement and to enforce the contract.
A contract does not necessarily have to be in writing. Verbal contracts can be enforceable, but oral contracts may be difficult to prove or enforce if the agreement is called into question. Contracts may also be specific to a seller, buyer, manufacture, distributor, vendor or provider. They are often provided as part of the terms and conditions of a website to which a user subscribes. Contracts are often associated with liability waivers, modification recommendations, releases from liability, production and services agreements and more.
Agreement Types & their Terms
Types of agreements vary widely, and so too do the terms in those agreements. The most common type of agreement is a service agreement. Service agreements are contracts to provide work or services to a client. They generally include terms that define the scope of work, describe deliverables, spell out timelines for completion of work and provide for price and payment terms. Regarding price and payment terms, service agreements set out how and when the parties will pay one another. A service agreement will also specify the jurisdiction and venue for any disputes that arise between the parties. It is in this context that it is important to have the proper wording in your contract.
A non-disclosure agreement (NDA) is a contract between two or more parties to, simply put, not disclose proprietary information that each of the parties has agreed to keep confidential. Confidential information can include trade secrets, proprietary information, and even information owned by a party to the agreement that is not considered a trade secret. NDAs can also be mutual or non-mutual. That means that even though one party might be providing information considered confidential, the recipient of that confidential information may not be providing the same level of confidential information to the other party. When entering into a non-disclosure agreement, depending on the type of information you are concerned with keeping confidential, you may want to specify what information you deem confidential, how the agreement is to be terminated and what the consequences are following termination, including whether any confidential information needs to be returned upon termination.
Crafting Successful Terms of Agreements
The most successful and accepted Terms of Agreement have important Provisions that are typically referred to as boilerplate clauses. However, these boilerplate provisions are common in a lot of legal documents for purposes of consistency or based on accepted practices, and therefore, may not be considered in the voiding of a Terms of Agreement. For the most part, these are the same clauses that are found in various legal documents.
The following are some best practices tips for drafting Terms of Agreements:
Be sure to overall include all material Terms in the Agreement.
Make sure the Terms are easily readable and simple to understand.
If a person can’t understand large portions of the Terms, it could be unenforceable.
The Terms should be written as a single document, and not in a piecemeal fashion.
The Terms should specify a single and clear choice of venue, governing law, arbitration, and forum .
The Terms should require a person to opt in by accepting the Terms and allow for an easy way to opt out. This ensures that there is mutual consent in agreeing to the Terms.
There should be consideration between the parties.
The Terms should highlight requirements, expectations, rights, and responsibilities in a prominent manner. There should also be a "Terms of Use" at the bottom that links directly to the Terms of Agreement.
Among other clauses, the Terms should include at least a Limitation of Liability and Disclaimer clauses so as to limit as well as keep the Terms fairly flexible in the event of a dispute.
Note: As of 2013, there is new case law regarding the unconscionability of Terms of Use and the development of Mandatory Arbitration Clauses for "High Rollers" at casinos. These provisions are no longer recyclable, and will have to be specific to your business.
Breaking Terms of Agreement: Consequences
The breach of terms can lead to litigation, which can be a time-consuming and expensive process. For the employer, it can lead to lost productivity and employees in the workplace becoming aware of the disciplinary action being taken against an employee or their department. An employer may commence litigation against a former employee for breaching the terms and conditions of his or her employment. If the employment contract has prohibited the employee from disclosing its commercially sensitive information, the employer may seek injunctive relief and an interim injunction against the employee in order to prevent him or her from breaching that term further. The Trial Judge has the discretion to award the employer either damages or an injunction. This is not an interchangeable relationship: whereas an award of damages attempts to rectify the loss suffered by the employer due to a wrongful act of the employee, an injunction attempts to prevent the employee from committing a further wrongful act. Any loss of profit incurred by a company is recoverable as damages for breach of contract. The AAFC can file a court application for injunctions if a contract of employment is breached, for example, by a former employee acting in competition. Recently, the AAFC obtained an injunction in the Federal Circuit Court for a breach of a restrictive covenant preventing a former employee from soliciting the employees, clients and members of an organisation formed by former workers of the AAFC. The Court held that loss of client and goodwill would inevitably result caused by and effect of a breach of an employment restriction. Statutory penalties may also be imposed for breach of contract. In addition, a party may commence proceedings for breach of Fair Work Act 2009. It may be possible for the aggrieved employee to lodge a General Protections Dispute alleging that the termination was unlawful because the employee exercised his or her rights under the contract for employment.
Amending the Agreement Terms
If either party needs to change part of the terms of agreement, they must do so in writing and then get all parties to the original contract to sign off on the change. Verbal changes are non-existent when it comes to modifying a signed contract. Changes made informally will not be enforceable by law. All parties must formally agree upon any changes and they must be made in writing. In some jobs, the agreed upon contract may even have consequences for certain changes, such as an additional job that will be billed at a different time .
When time is of the essence and there is an immediate need for modification, one party may have to pay for a change before getting the consent of the other party. For example, if the contractor needs to order special materials to complete the job, he may have to buy them before the client gets back to him with consent for the change. If this is the case, the contract should state that the client will pay for the materials used and for the amount of time the work takes to do.