Introduction to Contract Concepts

Understanding Contract Concepts

• There are seven essential contract concepts: representations, warranties, covenants, rights, conditions, discretionary authority, and declarations.
• These concepts form the foundation of every contract and are used to express the parties' business deal.

Defining Contract Concepts

• A representation is a statement of a past or present fact, made as of a moment in time to induce a party to act.
• A warranty is a promise to indemnify the other party for any damages suffered if the statement in the representation is false.
• A covenant is a promise to do or not to do something, creating a duty to perform.
• A right is the flipside of a covenant, entitling a party to the other party's performance.
• A condition is a state of facts that must exist before a party is obligated to perform.
• Discretionary authority gives a party a choice or permission to act, sometimes subject to the satisfaction of a condition.
• A declaration is a fact as to which both parties agree, often a definition or a policy for the management of the contract, and may be subject to the satisfaction of a condition.

Translating the Business Deal into Contract Concepts

• Each contract concept serves a different business purpose and has different legal consequences.
• The analytical skill of determining which contract concept best reflects the business deal is called the translation skill.
• This skill requires drafters to look at each specific agreement of the business deal and translate it into contract concepts.
• The analytical skill of deal lawyers differs from that of litigators, as deal lawyers start from the business deal and use contract concepts to draft contract provisions, whereas litigators work backward from the law to a static set of facts.