In Part 2 of our series on contracts, we began discussing frequently seen contract clauses. In this Part 3, we continue and wrap up for now our treatment of that topic.
Defining the Edges of the Contract
One common clause states that the Agreement is the entire agreement between the parties, so that any previous discussions or negotiations are not relevant. This is also referred to as the four corners of the contract. This clause will generally prevent your bringing in extrinsic evidence about other negotiations.
Because people have to communicate during a course of dealing, the notice clause will define what constitutes “notice” to the other party of an important communication—whether registered mail, personal service, or even email—as well as when notice is deemed to have been received.
A severability clause means that if one part of the contract is declared void by the court, the parties agree that the rest of the contract is still enforceable. In other words, the judge can cut off the bad clause like a bad spot on a potato, and keep the rest. Without this clause, your whole contract would be void.
Many contracts will define whether the contract is binding on the successors and assigns—for instance, someone who purchases or inherits the business.
A counterpart clause allows parties to sign separate copies of the contract and then exchange signature pages. The contract, when put together, creates an original (and more than one original).
Clauses for Disputes
An attorneys’ fees clause provides that a party can get attorney fees and costs if it prevails in a dispute that arises when the other party breaches the contract. These clauses are one of the few ways that you can make the other side pay your attorney fees in American litigation. They may or may not include pre-litigation disputes, and the contract may be drafted so that attorney fees and costs may or may not be available to both parties. This can be a point of negotiation.
A choice of law clause clarifies whose law controls if there is a dispute. Theoretically, you could pick law from anywhere—for instance, you could say that Ugandan law controls your contract in Colorado. Unless it was against public policy, the courts would uphold that. Parties generally try to pick law that is close and familiar, to make litigation easier. Or they may try to pick law that is “friendly”—for instance, Delaware law is popular for corporations, because it is well developed and favorable to businesses.
A choice of venue clause is a little different. Venue is where you litigate the lawsuit. So you might have picked Delaware law, but you still want to litigate in Colorado, because that is where one or both parties are. Often, the more powerful party to the contract will succeed in having its own venue in the contract. If you have agreed to a certain venue, you will have to go there if you want to litigate.
Who wants to litigate? Many contracts have a conflict resolution clause, that calls for mediation or mandatory arbitration. This can be a cheaper and quicker way of resolving disputes. Since courts will enforce these clauses, make sure you really can live with your dispute resolution provisions. And sometimes, arbitration can also be quite elaborate and expensive.
Modifying or Ending the Contract
Supposing you want to get out of the contract? Usually one clause will define what lets you terminate the contract, whether for cause such as bad service, or for insolvency, or for business convenience. It should be clear what type of notice is required and when, and how payment up to that point works.
Most contracts will have a clause saying that the contract can only be modified in writing. Under common law, contracts can be modified later, including verbally. This clause does not necessarily work, but people usually put it in anyway.
Some provisions are intended to be binding even after the contract is complete, such as choice of law or limitation of liability. A survival clause allows the provisions that should logically continue to stay in place.
Many contracts have a waiver clause, which states that even if you waived the right to enforce a term, or didn’t insist on strict compliance, it doesn’t mean that you are taking that position permanently.
While these clauses are often boring to read, they can be quite important if there is ever a dispute over the contract. Not all contracts need all these clauses, and there are other standard clauses that can be considered, especially for complex business contracts or specialized contracts. The point is to put thought into drafting the contract well.