Contracts are critical legal documents for business owners which are intended to create binding obligations on the relevant parties. You may encounter the phrase ‘subject to contract’ in emails, letters, or draft documents when negotiating contracts. These words are typically used to highlight that discussions or agreements are not intended to be legally binding. However, using this language requires careful thought to ensure it serves its intended purpose, and businesses should understand the specific risks that can arise from using this terminology. This article explores how subject-to-contract is intended to work in practice and key considerations for business owners who come across this terminology.<\/p>\n\n\n\n
Businesses often use the phrase subject to contract to confirm that they do not intend to create a binding agreement<\/a> until they execute a formal contract<\/a>. By applying this wording to discussions and exchanges of correspondence, both parties acknowledge that no contractual obligations arise from their negotiations. It highlights that parties do not wish the discussions to have legal effect nor to form a contract.<\/p>\n\n\n\n Businesses often mark correspondence or documents as subject to contract during negotiations to show that neither party intends to become legally bound until they agree on all terms and sign a formal agreement. Without this safeguard, businesses may risk unintentionally becoming bound by the provisions they discuss during the negotiation stages.<\/p>\n\n\n\n The term “subject to contract” helps businesses manage expectations and maintain flexibility during commercial negotiations<\/a>. Companies might use this phrase as a heading or label in certain documentation. For example, draft commercial agreements, to clarify that the parties are still negotiating and have not yet reached a binding contract.<\/p>\n\n\n\n Using “subject to contract” can help avoid the presumption that a legally binding agreement has been entered into. Does this wording work for its intended purposes? To determine this, it is essential to examine the specific language and context. A business can strengthen its position by prominently stating its intent (such as by labelling an entire document “subject to contract” to prevent any uncertainty about the parties’ intention).\u00a0<\/p>\n\n\n\n It is essential to know that although this terminology can create a presumption that no binding agreement exists, the courts may decide that one does exist if the parties’ conduct clearly shows their intention to be bound, for example, if they start performing the relevant contractual terms.<\/p>\n<\/div>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\nWhat Should Your Business Know About Using This Terminology?<\/h2>\n\n\n\n