00:06
Adam Stofsky
Something else I see a lot in contract is sort of like the term of the contract. This is kind of confusing because a contract term is an item in the contract and then term seems to have put the duration. What is a, what is a term in a contract?
00:24
David Tollen
Yet term is confusing in some sort of subtle ways. It is the period during which the parties are promising to perform the contract. That's really what we tend to mean by terms by term. And it generates confusion on two fronts. One is people confuse it with the duration of all the terms and conditions of the contract, and it's different. And I'll explain what I mean. And also people confuse term and termination. So the first point, we sort of imagine that when the term of a contract comes to an end, the contract disappears. But for most contracts, that's actually not what the writers, the parties, mean by term. What they mean is at the end of that term, that period, the parties are going to stop performing. I've provided the service, you've paid me for it's over. But that doesn't mean the contract disappears. Maybe there's clauses in that contract about what happens if we find out a year later you did something wrong.
01:25
David Tollen
What happens if a third party sues me over something you did? What happens if there's a dispute much later? All of those, the clauses that govern all that generally survive the term. So it's confusing the way we put it in contracts. We say the term is over, but it really isn't. The contract isn't over. So that's confusion area number one. And then confusion area number two. People misunderstand what term versus termination. The term comes to an end, you agree in advance on how long the term is, and at the end it's over. Termination means you cut it short, possibly in the middle, like someone breached and you terminate again. The whole contract's not gone. Those clauses I mentioned survive, but the obligations to perform are over and possibly, hopefully not, the lawsuit might be about to begin.
02:22
Adam Stofsky
So maybe a simple example here is like employment contract. So I'm going to hire someone for a year and we say, I'm going to hire you for a year, we're going to pay you X dollars and you're going to do X services for my company. And then the company employee signed the contract and it has a one year term. And then some things might survive that one year term. Like maybe confidentiality, right? So they promise I'm not going to divulge any trade secrets, and maybe that lasts forever. Term means just a year. Some things last beyond that year. But then if maybe I divulge trade secrets or this employee does, if they are fired early, then that is a termination of the contract before the term runs out. Did I get all that?
03:07
David Tollen
Yeah, that's right. And that clause about confidentiality in that employment agreement. It's probably listed as something that specifically survives termination or the end of the term, or maybe the employer didn't pay all the benefits necessary and those obligations are going to survive the end of the term. The other thing about that sort of one year concept, if the contract is well written, it'll provide some kind of mechanism for that term to get extended. Maybe we don't want to automatically fire you at the end of a year, so we have a clause that says you've got this gig for a year, but if we automatically renews for another six months every time that year comes to an end, unless somebody decides not to, something like that, it's called a renewal term.
03:59
Adam Stofsky
Okay. Wow. Lots of concepts around just the idea of term.
