Updated November 12, 2020:

A contract clause is a very important component of a contract. It specifies certain aspects of the contract that can ultimately make or break the agreement.

What is a Clause?

A legal document is typically broken into many different numbered sections so that it is easier to read through. All of these different sections are referred to as clauses. A clause is used in a contract, will, deed, settlement agreement, and other legal documents.

It is easier to find and refer to pertinent information when it is broken into clauses. A clause with regard to grammar is a group of words that consist of a subject and a verb. Legally, it is a part of a document.

What Is a Contract Clause?

A contract clause is a provision or section in a contract. All clauses in a contract will address a certain element of the contract matter. They are meant to define the rights, duties, and privileges held by each party as noted in the terms of the contract.

Clauses can be found in any part of a contract, but they are most often found in the back of the document. A contract clause can cover almost any part of a business interest and take any form. One of the most common clauses is a non-disclosure clause in an employment agreement. In this, the employee will promise not to divulge any confidential information about the company.

Contract clauses will be enforceable with the rest of the contract in the eyes of the law.

What Are Some Common Clauses in a Contract?

Clauses are used in a variety of ways to benefit the party’s needs. You may notice more clauses in some contracts and fewer in others.

A boilerplate clause could appear as a typical part of a business contract. You can also create your own clauses that are made specifically for your client.

The most common contract clauses include the following:

·      Choice of Law: The parties to the contract will agree that the terms will be interpreted only according to the laws of a certain state. They can also agree that any litigation be held in a specific jurisdiction. The language is not always enforceable, but these clauses can be upheld in more sophisticated contracts. When you go into a contract, you have to assume the provision will be enforceable. You have to consider how it could affect the cost of litigation if it were to happen.

·      Statute of Limitations: This clause will provide a timeframe in which a lawsuit may be filed for a violation such as breach of contract. It will change the statute of limitations that is applied to the information in the contract. Some states do not always enforce reductions in the statute of limitations, but you always have to assume that a clause reducing the statute of limitations is enforceable. A court could find the clause to not be valid, so you will need to work with your attorney within your own jurisdiction to find out if the limits are valid.

·      Time of Performance Clause: This clause will indicate a timeframe in which the duties of the contract cannot be performed. A breach of contract lawsuit can be formed if some contracts are not completed in a timely manner. This is a common clause found in construction contracts since that work needs to be completed quickly.

·      Merger Clause: This clause says that the current contract will override a verbal or oral contract made previously. The point of this clause is to keep the parties to the contract from trying to claim the contract is not indicative of the entire agreement at a later date. It can be impossible to enforce a promise that is not written.

·      Indemnification Clause: This clause releases the other party from liability if losses or expenses occur. This clause should be used cautiously since it can put limits on the ability to get damages for losses. This type of clause will require that one party indemnify the other party if certain expenses occur. You have to be safe when entering into this type of clause. It can make changes to your financial matters should any type of breach occur.

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