The essence of a contract is the mutual understanding reached by two parties who hold adverse positions against each other. In most contractual situations, one party will have a stronger position than the other. For example, a large corporation that offers goods for sale may be able to insist on contract terms that are highly favorable to the corporation while restricting the rights of individual buyers. The corporation may offer a standard form sales contract with nonnegotiable terms-take it or leave it-to the buyer.
The Party who Drafts the Contract
The balance of power between contracting parties usually tips in favor of the party who drafts the written contract. Even if the essential contract terms have already been negotiated and agreed by both parties, the drafting party will typically include provisions that are more skewed to his or her favor. To illustrate, a seller who drafts a sales contract may provide trade terms by which the risk of loss passes to the buyer at the first possible moment of the transfer.
The Party Familiar with Written Contract
In cross-border transactions, the balance of power may tip toward the party who is most familiar with written contracts and whose country has a more highly developed system of contract enforcement. This party may insist on terms that are common in his or her domestic contracts, and the other party, with less or no understanding of those terms, may simply acquiesce. As an example, a clause that is commonly inserted into contracts in the United States is, "Time is of the essence." If such a clause is included, failure to perform the contract within the time allowed is considered a material breach of the contract, entitling the other party to claim damages or other remedies. In cultures that place more emphasis on continuing business relationships, this clause has little meaning because contract terms are commonly renegotiated to allow for a party's difficulties in performing the contract-the ongoing relationship is more important than the one-time deal.
Enforcement of One-sided Contracts
In the context of enforcement, the balance of power can work against the stronger party in a contract negotiation. Courts and arbitrators often refuse to enforce terms that unreasonably burden one party or that are otherwise unconscionable. Furthermore, contract provisions are typically given a strict interpretation against the party who drafted the terms, since that party had the opportunity to draft a clear and definite contract.
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