Defining Terms of Agreement
Terms of Agreement are an essential part of a legal contract. They set forth legal rights, obligations, terms, and benefits that both parties must adhere to during the entirety of the agreement. Terms of Agreement are in place to protect both parties and cover a number of issues, including payment schedules, quality of work, dispute resolution, and the scope of the work being performed. Any transaction, relationship, or undertaking can be agreed upon with Terms of Agreement. In addition to a written contract, parties can agree to Terms of Agreement verbally. Although verbal Terms of Agreement are not officially recorded, typically, any Terms of Agreement will be enforceable as long as the court is able to determine the terms, the language is clear, and the parties are identified. A verbal contract is also referred to as an ‘implied’ contract.
Types of Terms of Agreement include: General Terms, Payment Terms, Deliverable Terms, Scope of Work Terms, Duration Terms, and Terms of Termination. General Terms clarify all of the following: the location, governing jurisdiction, chosen law, dispute resolution process, and the legal parties involved in the contract . Payment Terms clarify the payment method, paces of payment, price, interest rate, deposit, down payment, late payments, and the payment schedule. Deliverable Terms clarify what is due by the dates specified within the contract. An example of a Deliverable Term is "a monthly report due on the first day of each month." Scope of Work Terms clarify the tasks to be performed under the contract as well as the party responsible for completing specific tasks. For example, a Scope of Work Term may require the contractor to remove trees from a property and the consumer to then pay the contractor. Duration Terms clarify the duration of the contract, such as the length and start and end dates. An example of a Duration Term is "15 years from January 1, 2020, to January 1, 2035." Terms of Termination clarify when the Terms of Agreement are void and the reasons for termination. Terms of Termination examples include: criminal activity; fire or flood; breach of contract; bankruptcy, insolvency, or dissolution; death or incapacity; and failure to make timely or full payment.
Standard Components of Terms of Agreement
Common elements of terms of agreement generally include:
Parties: The names or identities of the parties to the agreement
Scope. This refers to the services to be provided or the items to be delivered under the agreement.
Conditions. Terms regarding payment, delivery, guarantees and warranties, completion, an acceptable standard of performance, inspection, and testing.
Confidentiality. A clause that requires the receiving party to safeguard the disclosing party’s confidential information, limits the use of that information, and sets out the conditions that permit the receiving party to disclose the confidential information (for example, to its employees and third parties on a need-to-know basis).
Termination conditions. Conditions under which either or both parties may terminate the terms of agreement and the consequences of termination.
Disputes. How disputes will be resolved, including the dispute resolution mechanism (litigation, arbitration, or mediation), where litigation will happen, the governing law, jurisdiction, and the venue.
Terms of Agreement Examples
To illustrate the variety of terms of agreement, consider the following examples:
Employment Contract: A classical example of a term of agreement is the employment contract, which defines an employer-employee relationship. Typical terms found in such contracts include:
- The period of employment
- The hours of work
- Salary, wages and bonuses
- Insurance, pension and 401(k) plans
- Restrictive covenants, such as non-compete, non-solicit and confidentiality clauses
- Termination conditions
- Jury-duty and other leaves
- At-will employment
- Conditions concerning confidentiality and privacy
- A dispute-resolution clause, such as arbitration
Service Contract: A less traditional example is a term of agreement that governs the terms of service or service users, such as a web-based application that provides social-networking services. Typical terms include:
- User rights regarding the service, such as who may use it, who owns shared content, terms of use for related tools (e.g., blogging tools), etc.
- Conditions that must be satisfied for the user to have any rights at all (e.g., age requirements, prohibition of fraudulent use)
- "No warranty" or indemnification clauses
- Clause for dispute resolution
Lease Contract: A more traditional example is a term of agreement found in a lease contract. Many of the terms found in a residential (or business) lease are essentially the same as a term of agreement that governs a service contract concerning privacy. They include terms, such as:
- The subject-matter of the lease and description of the premises and common areas
- The duration of the lease, provisions for renewal/termination and penalties for premature termination
- Rent, utility and maintenance obligations, subleasing and parking rules
- Terms for returning the rental property in the same condition it was received
- Provisions concerning entry, repairs, quiet enjoyment and security
- Indemnifications, no warranty and limitation of liability
How to Write Terms of Agreement
A terms of agreement is a contract governing the relationship between two or more parties who wish to protect their legal interests. Therefore, a terms of agreement provision is a very important component of any contract.
First and foremost, a terms of agreement should be written in language that all the parties can understand. One section should flow logically to the next. Additionally, the document should contain sections detailing the relationship of the parties, the exact parameters for use of the service being agreed to, specific restrictions, and the termination of the agreement .
Every single terms of agreement needs to be tailored to the exact business relationship each party is agreeing to, so generic terms of agreement are not effective. For example, one e-commerce site may sell products to its users, while another is simply a rendezvous point for sellers and buyers for physical goods, and the terms of agreement for the two cases must be different. Finally, the precise terms in a terms of agreement must be compliant with the law to protect the parties involved.
The Legal Side of Agreement Terms
When two parties, a "Buyer" and a "Seller," enter into an agreement for the purchase and sale of a real property parcel or otherwise, one question that immediately arises is whether or not, as between them, an enforceable agreement has been written. For the practitioner, this is a question that seems to arise on a relatively regular basis, and sometimes, the circumstances are such that an agreement clearly rises and falls on the application of certain evidentiary facts as to whether a jury might be persuaded that, in fact, a party intended to have a binding agreement from the outset.
There is, always, the possibility, that there are defendants – generally more experienced real estate developers, brokers, and/or agents – working on behalf of the Party that would prefer to not see the party it represents held to a binding contract, and these lawyers will often try to do all they can to weaken those terms or provisions that would keep the Party they represent stuck to a contract, even if the clear intention is to have an enforceable agreement.
What then follows is a discussion of the relationship between the party seeking to uphold the agreement and the party that seeks to disavow it, and how the law treats the parties in order to encourage, when possible, that the agreement be held to be legally enforceable – assuming, of course, that the content of the terms themselves would require such an outcome.
In short, the legal implications of a term of agreement like the one referenced immediately above are frequently seen by buyers and sellers as an open and shut inquiry when, in fact, some circumstances require either a "choose your own adventure" model (with the lawyer helping to re-place the client’s "pieces" and arguments at each decision branch) or, perhaps, a gamble-for-gamble’s-sake on the unlikely chance that the terms at issue are more in the nature of a "what happens now?" proposition than a "what do we think it will be like later, arguments-in-a-courtroom-in-front-of-a-jury?" proposition.
Reviewing Terms of Agreement
Reading terms of agreement effectively takes attention to detail and logic, looking beyond the literal meaning of the words to examine the agreement in its totality. Here are several things to keep in mind when reviewing or writing a term of agreement: The provision immediately precedes or follows one that describes the obligations, rights, or limitations of one or more of the parties. Check to see if any information is being deflected onto the user as a whole that should be addressed as a risk for your business. For example, the agreement may state "you may not use this service if you are located in a country that prohibits its use." While the term "you" is defined elsewhere as the user, the location of the service is not. This provision may actually be defining something that you – providing the service – have some control over. For example, a social media company may collect and sell the posting habits of its users. It does so in a way that allows it to escape regulatory obligations in many jurisdictions. It states, "in some countries it is not an offense to record someone else’s metadata without their consent. In those countries we will still endeavor to provide service that respect your privacy." Asking questions is the best strategy. If you don’t understand what "all means all" refers to, ask . If you feel a clause is placing risk on you rather than the party that has the leverage to dictate the terms, ask. If a contract is important enough to merit a lawyer’s review, then the entire contract should be reviewed. This includes the page numbers and cell entries in tables and in any columns labeled "notes" or "additional information." Where addresses are identified, make sure they are current and have been correctly transposed from government records or other references. Most lawyers already know the state agency number prefixes by heart, and the last two characters of three-digit zip codes. When you read or draft too fast, your eyes may skip a reference or word that should be included. For this reason, read with intention and take note of non-standard items that may require further scrutiny. Think of what the provision meant the day you signed the agreement. Is there anything you were told or assumed based on these provisions that should be included or excluded when deciding whether to sign the agreement or to enforce it? If so, get them added as an amendment or restatement. Take the time to clarify the meaning of the provision with a discussion or add a definition section or schedule that describes it and add it to the exhibit or attach the document that describes it.
