Tuesday, March 6, 2012

Rights, Duties and Representations

Many contract terms define rights and duties. What's the difference?

A duty is something that you must do. Duties are established by using the words "will" of "shall" and establish future obligations that must be met.

A duty establishes things like work or tasks that must be performed and the use of will or shall in the terms establishes that work or task as a duty to be performed .

A right is something thing that the person that has the right can decide whether or not they want to exercise that right. Rights are usually established using "may", There is no obligation on the party that has the right to exercise the right.

Rights are most frequently used in conjunction with an option a party may have under the contract or with remedies.

For example in a termination for cause provision the non-breaching party will have certain rights:
1. They can terminate the agreement and sue for damages.
2. They may leave the agreement in place and sue for damages.
3. They can decide to waive their rights and not do anything.

They are not obligated to terminate because termination is a right and not a duty

Some drafters may add language such as "buyer may, but shall not be obligated to," to make it clear that they are not required to exercise that right.

A representation is a statement of a fact at the time the contract is entered into.

Warranties may include representations that a specific fact at the time of signing or the contract is true. For example "Supplier warrants that the product complies with applicable laws" would a representation of the fact at the time of signing of the agreement.

Warranties can also create future duties. For example "Supplier warrants that the product shall comply with applicable laws at the time of delivery" would create a future duty to make modifications to the product as needed so that it complies with the applicable laws.

Remedies for the breach of a warranty are rights that the non-breaching party can determine what remedy should apply from a list of agreed remedies.

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