When entering into a business agreement or contract, it is common to include a “subject to contract” clause. This clause means that the agreement is not final until all the terms and conditions of the contract have been agreed upon and signed by both parties.
Here is an example of how the “subject to contract” clause could be used in a business agreement:
“ABC company agrees to purchase 100 units of XYZ product from DEF company at a price of $10 per unit, subject to contract. The terms and conditions of this agreement will be finalized upon the signing of a formal contract by both parties.”
Essentially, the “subject to contract” clause provides a way for both parties to begin working towards an agreement, while also allowing for further negotiations and changes before committing to a final contract.
It’s important to note that while a “subject to contract” agreement is not legally binding until a formal contract is signed, it still requires a certain level of good faith and obligation to act in accordance with the agreement. For example, if one party fails to negotiate in good faith or breaches the agreement while the contract is being finalized, they could still be liable for damages.
Using a “subject to contract” clause can be helpful in situations where both parties need to move forward with business transactions, but may need more time to finalize the details and terms of the agreement. It allows for flexibility and ensures that both parties are fully committed to the terms of the contract before it is finalized.
In summary, a “subject to contract” clause in a business agreement is a useful tool for allowing both parties to begin working towards an agreement. It provides flexibility and allows for further negotiations and changes before committing to a final contract. However, it is not legally binding until a formal contract is signed, and both parties still need to act in good faith and honor the agreement during the negotiation process.