Key Contract Clauses You Should Know

If you are drafting a commercial contract, these are the clauses that should feature.

Understanding Contracts

Love them or hate them, we deal with contracts all the time. Improving your understanding of contract clauses will stand you in good stead in business and your home life. Every time you walk into a shop and buy something or you purchase something on Amazon, you're agreeing to a contract.

In this article, we look at seven key contract clauses that you will find in most written commercial agreements.

The Parties

While it's clear that we need to know the names and addresses of the people actually signing the contract, there may be ambiguities if a corporation is one of those parties. If this is the case, a company registration number will need to be added and any more details to distinguish this corporation from, say, one of its subsidiaries.

Recitals

A good contract drafter will add 'recitals' as a heading to this part of the agreement. The recitals (also known as the preamble) sets the scene for the contract. It tells the story of why this contract is being formed and serves as an extension of the contract title.

Governing Law

It may be obvious which country's law you wish to use should things go wrong but it is the nature of supranational agreements that they will probably include parties from two different countries signing an agreement over something in a third country. The question then is which law should you follow? A governing law clause states that in black and white.

Termination

Just as with any relationship, the parties have high hopes that the contract is going to run smoothly but they might need a 'get-out clause' which is when the termination clause becomes important.

While the clause will mention the duration of the contract, it should also stipulate reasons for why it might end abruptly and how many days' notice are required.

Merger Clause

A merger clause is common in many contractual agreements and makes clear that the contract is the final form of the document and that any other agreements (or other written documentation) between the parties are to be ignored.

Should matters around the contract be brought to court, this clause prevents the court from considering evidence of previous documents that one party may argue should be considered. It would be incredibly confusing if judges had to go through even more hundreds of pages of documents!

Confidentiality

Confidentiality clauses prevent parties to a contract from disclosing certain information to third parties. They are necessary in commercial agreements but the question remains as to what information is considered confidential? The contract drafter needs to draft a clause that is detailed enough that it covers all possibilities. By drafting something too broad, they risk the court striking it out. By drafting something too narrow, they might not cover enough confidential information.

Indemnification

An indemnity clause in a commercial contract is a primary obligation on the part of one party to pay financial compensation for a loss incurred by another party. This might be used to absolve the person delivering the goods from any responsibility if the item is lost, for example.

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