The importance of definitions in a contract

The importance of definitions in a contract

When entering into any agreement it is critical that all parties to the agreement are on the same page. However, it is possible for different parties to read the same agreement but to have various interpretations of its meaning. How do we avoid this? Definitions!

Definitions are typically the part of the agreement that people glance over and skip so they can get to the important clauses. This is a common mistake and one which can entirely change your contract.

Functions of a definitions clause

  • Defines words that can be interpreted in more than one way;
  • Limits the scope of a definition to exclude meanings which are ordinarily included;
  • Broadens the scope of a definition to include meanings which are ordinarily excluded;
  • Makes provision where no specific definition exists i.e. a grouping of people, products and/or services under one term;
  • Can be used to explain a term/person/service in more detail rather than having to explain it in each instance that the word is used.

Tips

Helpful Tips

Your definitions should:

  • Have a purpose
  • Be consistent
  • Be clear and unambiguous
  • Add value to the agreement
  • Survive the scrutiny of interpretation by the courts

It is easier to agree on a meaning during drafting than to agree on an interpretation during conflict

Be careful

Look out for these common mistakes:

1
Terms which are defined specifically to limit your rights
2
That the definition correlates with the meaning intended in the context of the document
3
Important terms which are not defined, to leave room for different interpretations
4
Standard definitions which have not been adapted to your specific needs (eg. business days, usually means Mon – Fri; perhaps your business operates on the weekend)
5
Legal terms which have not been explained and/or that you may not understand
6
Something that appears only in the definitions clause and isn’t used elsewhere in the agreement

How can we help?

Let us assist you in the drafting and interpretation of your agreements
to ensure that there are no surprises or hidden meanings
and/or that your intentions are clearly communicated.

Contact us at info@bizarmour.co.za

010 140 6251

Disclaimer
The information shared on this article/blog/vlog should be read and understood within the current legal framework of South Africa. It is meant purely for educational discussion and does not amount to legal advice. For specific legal advice, please consult a legal practitioner prior to application.

Posted in Contractual.