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Six Clauses Essential to Business Contracts

Commercial agreements are almost always put in writing. A well-written contract captures the essence of deal and as well as making clear the parties’ rights, responsibilities and expectations. It can also provide for dealing with contingencies and resolving disagreements.

However, a contract should be tailored to the particular matter and circumstances so that it effectively protects the parties’ interests. Off-the-shelf templates for agreements usually fall short in this regard. If you’re in the drafting stage of a contract, you should be very careful about selecting optimal provisions for your needs.

Here are six essential terms that should be in every commercial contract:

  • Liability/indemnity — This clause should specify each contracting party’s rights and remedies if there is a breach of contract. It should also spell out each party’s responsibilities for claims by or against third parties in disputes related to the contract.
  • Confidentiality — Parties to a contract may learn a great deal about one another’s operations and business practices, some of which may be confidential in nature. A confidentiality clause bars a party from revealing sensitive information, thereby protecting each party’s intellectual property or other intangible assets.
  • Changes and amendments — The parties may need or want to change the contract while it is in effect. There should be a clause specifying the procedures for any such modifications. It should recite how changes or amendments will or will not affect other terms and conditions in the agreement. This helps maintain certainty and accountability.
  • Termination/force majeure — It is best to agree in advance on how the arrangement will be terminated or canceled under different scenarios, so as to avoid litigation wherever possible. Force majeure clauses allow for canceling an agreement based on exceptional circumstances that could not have been foreseen when the contract was signed. The Covid-19 pandemic, for example, was an event that triggered force majeure clauses in many contracts.
  • Contract disputes — Disputes among contracting parties will occur no matter how carefully the contract is written. It is best to prescribe a procedure for dealing with disputes efficiently as they arise. The clause should specify a form of alternative dispute resolution (ADR), such as arbitration or mediation. If a dispute must be litigated, the parties should agree in advance on where the case will be tried and which state’s laws will apply.
  • Exhibits and other appended documents Complex contracts often require the parties to acknowledge and refer to a wide variety of outside documents (e.g., lists, drawings, diagrams and specifications). There should be a clause that identifies all documents appended to the final draft as attachments or exhibits and that explicitly makes those documents part of the agreement, thereby preventing ambiguity and limiting grounds for dispute.

Clay Parker, Esq. in Orlando assists businesses throughout central Florida in commercial contract matters, from drafting to negotiation to enforcement. Feel free to contact us online or call us at 407-216-2504 for a consultation.

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