Assumption: Definition, Example and Related Terms
What is an Assumption ?
An assumption, in the context of commercial contracts, is a belief or statement accepted as true or as sure to happen, without proof. It's like a starting point in a contract that everyone agrees upon before they start discussing the details. When two businesses want to work together, they usually have a lot of assumptions. These could be about how the other business works, what the market conditions will be like, or what kind of results they expect from the partnership.
Scenario Description A software development company and a client enter into a contract for a custom software project. The company assumes that the client's requirements won't drastically change during the development process. However, if the client does change their requirements significantly, this could lead to a longer development time, increased costs, and potential disputes. As such, the contract might include a clause that allows the company to renegotiate the terms if the client's requirements change. Two companies enter into a contract for the supply of raw materials. The buyer assumes that the supplier will be able to provide a consistent supply of materials at a particular price. If, however, the supplier is unable to meet this obligation due to factors beyond their control, like a sudden surge in demand or a natural disaster, the buyer could face production delays and financial losses. To safeguard against this risk, the contract might include a clause that allows for price adjustments or alternative supply arrangements in such situations.