Prior understandings: Overview, definition, and example
What are prior understandings?
Prior understandings refer to the informal agreements or mutual understandings that were made before entering into a formal contract. These are discussions or actions between parties that may influence the final agreement but are not formally included or written in the contract itself. While prior understandings are not legally binding like a contract, they can provide context for interpreting the terms of the formal agreement.
For example, before signing a contract to purchase a product, a buyer and seller might have discussed, informally, that the product would be delivered within a certain timeframe. If the timeframe isn’t explicitly included in the contract, those prior understandings may still help explain the expectations of both parties.
Why are prior understandings important?
Prior understandings are important because they can influence the interpretation of a contract in case of disputes. While these informal discussions aren’t usually legally enforceable, they help clarify the intentions of the parties involved. If the contract language is vague or unclear, prior understandings can serve as context to determine how the terms were meant to be applied.
In business relationships, understanding and acknowledging prior discussions helps set clear expectations, ensuring that both parties are on the same page before the formal contract is signed.
Understanding prior understandings through an example
Imagine two businesses negotiating a supplier agreement. They agree informally that one party will provide certain materials and the other will handle the shipping, but these points aren’t written into the formal contract. Later, if a dispute arises about responsibilities, the court might look at these prior understandings to help clarify the original intent, even though they weren't included in the signed document.
In another case, if a company is buying goods from a vendor and there was a previous verbal understanding that the vendor would provide a warranty, but it’s not listed in the contract, that prior understanding could influence the resolution of a dispute.
An example of a prior understandings clause
Here’s how a clause related to prior understandings might appear in a contract:
“The parties acknowledge that prior discussions or understandings that are not expressly included in this Agreement shall not form part of the Agreement unless expressly stated.”
Conclusion
Prior understandings provide context for interpreting the terms of a contract and can influence how disputes are resolved. While not legally binding, they help set expectations and clarify the intent behind the formal contract. It's important to make sure any critical understandings are included in the final written agreement to avoid confusion and potential issues down the line.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.