Common Contract Provisions Everyone Should Know

lawyer reviewing contract provisions with client

There are some common contract provisions that are, or should be, included in most written agreements. The language used in these provisions can vary in meaningful ways and depending on the way the provisions are drafted, they can have a significant impact on the contracting parties’ rights, risks, and remedies. There is no one-size-fits-all contract form. Each business and contractual relationship is different and the contracts for it should be specially tailored to meet the parties’ needs and wants.

Here, we address some of the most common contract provisions, which can be a helpful starting point for your discussions with the experienced business law attorneys at Rosenbaum & Taylor, P.C. about your individual needs:

Arbitration

Normally, if the contract contains any arbitration provision, the parties have agreed to resolve any disputes under the contract through arbitration proceedings, not in a lawsuit. An arbitration provision generally also sets out how the arbitrator or arbitrators will be selected, as well as where the arbitration will be held, and what rules will apply in the arbitration process. Read our article on arbitration, mediation, litigation, and negotiation here.

Assignment

An assignment provision usually limits the ability of a party to a contract to sell, or otherwise transfer, his/her contract rights to a third party. This can help prevent a party from ending up in a business relationship with someone it did not choose to be in a business relationship with.

Attorneys’ Fees and Costs

In the provision that addresses attorneys’ fees and costs, the parties to a contract can agree which party, if any, will be legally responsible for attorneys’ fees and court costs in the event that a dispute under the contract is brought to court. The provision can discourage lawsuits, and can even discourage breaches of the contract, by giving each party a legal right to recover the attorneys’ fees and the court costs that they have paid to enforce the terms of the agreement.

Choice of Law

The choice of law provision addresses which state’s, or even country’s, laws will be applied to a legal dispute arising under the contract or agreement. Each state has its own contract laws. While the laws are often very similar to each other, they can differ in significant ways that will impact how the contract is interpreted by the courts, should there be a dispute. The laws of one state may produce a better outcome for a contracting party than the laws of another. While choice of law is limited in certain ways, the choice of law provision can still be a useful tool to protect a party’s interests and limit its risk.

Confidentiality

This guarantees that the parties to the contract will not disclose certain information related to the contract, or the business of the parties. Issues related to employment and non-disclosure agreements are a larger topic for another time, but there are different rules specific to such agreements.

Counterparts

A counterparts provision provides that the parties to the contract can execute (sign) separate copies of the same agreement and that all signers do not need to be together, in one place, at the same time, to sign the contract.

Damages Limitations

A damages limitation provision describes what money, or other damages, can be recovered in a lawsuit arising out of the contract and what damages cannot be recovered.

Escrow

The escrow provision requires a party to place certain contract payments, or other funds, into a special bank account and requires that that party not access those funds until certain conditions are met.

Force Majeure

Force majeure is defined as unforeseeable circumstances that prevent someone from fulfilling a contractual obligation. Often, contracts contain a force majeure provision and list potential circumstances, such as acts of God, war, terrorism, etc., that permit a party to terminate a particular agreement. Ultimately, when there is a dispute, the courts will resolve the issue as to whether something is, indeed, a forgivable, unforeseen circumstance that warrants the dissolution of a contract without penalty. This provision has been the focus of many contract disputes and discussions in recent years, due to the COVID-19 pandemic.

Forum Selection

A forum selection provision controls where any lawsuit arising out of the contract is to be filed. The forum selection provision can prevent a party from having to travel long distances, perhaps even to another country, for a lawsuit related to an issue in the contract, or the contractual relationship.

Indemnification

Indemnification is a large topic for another time, but we do want to identify here why indemnification provisions in contracts are so critical. Broadly, indemnification provisions address responsibility for third-party claims, liabilities, or judgments. The indemnification provision in a contract can impact the cost of performance under the contract because, in many instances, the indemnification provision can require a contracting party to secure additional insurance, which is an additional expense. The language used in the provision is critical and key to the enforcement of the provision, should that become necessary.

Jury Trial Waiver

The parties agree to give up their right to a jury trial (if there is a lawsuit arising out of the contract) and agree to have the case heard and decided only by a judge.

Merger

A merger clause, which may also be called an integration clause, is a provision which reads that the written contract in which it appears is the entire, final agreement between the parties. If something is not in the final written version of the contract, then it is not part of the contract. Merger provisions are important because they prevent a party to the contract from claiming that something that may have been discussed, but ultimately rejected, during the contract negotiation, is, in fact, part of the contract. Without a merger clause, disputing such a claim can be difficult, can require examination of every communication that came before the contract signing, and can be a long and expensive process leading to lawsuits.

Notice

A notice provision describes how each party must provide notice to the other in the event it wants to exercise certain rights under the contract.

Relationships

This provision generally reads that no party to the contract can claim a legal relationship to another party that is not set forth in the contract. For example, one party cannot claim that there was a legal partnership formed, or that there was an employer-employee relationship formed if that was not intended by the parties at the time they entered into the contract and made part of the final written agreement.

Severability

A severability provision protects the validity of a contract by permitting a court to sever, or remove, an invalid, or unenforceable, provision in a contract and keep the rest of the agreement valid.

Waiver

A waiver provision allows the parties to a contract to waive, or give up, or not exercise, the right to sue for breach of a particular contract provision without giving up the right to sue for a future breach of that same provision.

Warranties

A warranty provision contains promises made by either, or both parties to a contract, regarding various contract obligations, including, for example, the appropriateness of a particular product for a particular use.

Contact Rosenbaum & Taylor, P.C. for All of Your Business Contract Needs

As a legally binding document, the language used in any contract has a real impact on the legal rights and obligations of the parties to that contract. It is critical to work with an experienced business attorney who can draft, or negotiate, the contract so as to cover, as best as it can, all possible scenarios, ensuring that your rights and interests are protected in the final written agreement. An experienced business attorney can explain your contracts to you so that you know the import of each provision and what is required under the agreement. Anticipating the issues that may arise in a contractual relationship takes not only a lot of creativity but a lot of experience.

The top business law attorneys at Rosenbaum & Taylor, P.C. have a passion for working with businesses to draft, negotiate and update their contracts. Reach out to us at 914-326-2260 today to discuss your needs.

 

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