The Essentials of a Contract – Part 4: A Common Understanding of Contract Terms

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Understanding… Expectations…  Agreement… Common Understanding…   These are all terms that help explain the concept of the topic of this month’s blog post. To clarify, a meeting of the minds ensures a common understanding of contract terms and creates an aligned experience for all parties involved.

As we have already discussed, there are five essential parts that create a strong, supportive, and valid contract for your business. Those components include:

  1. Competent Parties
  2. Proper Subject Matter
  3. Valid Consideration
  4. A meeting of the minds
  5. Mutual Obligations

So far, we have ensured that the parties entering into an agreement have satisfied the legal requirements that deem them competent, we have clearly documented the contract subject matter, and we have identified the necessary valid considerations. This is a lot of language, and it is all key to establishing a solid foundation for your effective and enforceable contract.

But, how does a common understanding differ from contract subject matter?

The subject matter or scope that is called out in a contract defines the products or services being offered. This is the “what” of your agreement, and lets all parties know what will be delivered when, and how it will be provided. However, all words are open to interpretation. We each may have a different way of defining a word, and it is entirely possible that our definitions will differ.

For Example:
A car manufacturer, a newspaper editor, a corporate attorney, and a software developer are at a party. (Sounds like the start of a bad joke, right??) They have a conversation about product development, and how to get to market. Although their process and challenges may be similar, they will each be defining products very differently. The car manufacturer is thinking about cars, the editor’s product consists of news articles, the corporate attorney may be referring to a Joint Venture business partnership, and the software developer might be considering the app he is building. Without a clear and common definition of the product, the risk of misunderstanding is really high.

This is where a “Meeting of the Minds” comes in. As you are building your contract, you should define and agree to the details, scope, and considerations. Do the parties align on what is being delivered? Is there mutual assent?  The meeting is the point in time at which there is an acknowledgment of comprehension and acceptance of the contract terms, and is typically denoted by signatures. This common understanding of the contract terms creates an aligned experience for all parties involved.

Remember… obligations are put in place once you sign on the dotted line!

Do you have concerns or questions about whether your document is a legally binding contract? Be sure that you speak to an experienced legal professional. The team at the Law Office of Adriana E. Baudry LLC is available to guide you through the process and make sure your agreement is clear, effective, and enforceable.

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a mutual obligations clause is essential