Updated October 5,2020:

Important Clauses in a Contract

Important clauses in a contract include such attributes as termination clauses and confidentiality provisions. Agreements are invoked in nearly all industries, and many of the agreement clauses are used across most sectors. In fact, there are various agreement clauses likely to make appearances in nearly every contract draft.

Commercial agreements, most notably, have a certain set of standards and conditions. Also, various clauses in an agreement will protect your business from miscommunication and lawsuits, providing legal safeguards that your business may not otherwise receive. You may also come across contract clauses that you review and notice the same subjecta repeated, but are worded in a different manner. Such subject matter within the provisions are important, but the precise wording does not matter.

It is important to consider adding such clauses in all agreements that your business agrees to, although you may think certain clauses are not necessary. You must determine what risks are present within the contract that could pose a risk to your business. In addition, you must reduce or remove such risks by using the clauses.

The successful management and negotiation of agreements calls for the prioritization of certain subject matter. With many contracts to look over and other job duties to perform by in-house counsel and business counterparts, the strategic value of an agreement tends to determine the amount of attention it will receive.

Given this fact, lawyers and counterparts usually do not have the time to look deeply into every aspect of a contract that’s being negotiated. Rather, they focus most of their resources on noteworthy items, such as:

  • Obligations of all parties
  • Ownership
  • Termination rights
  • Confidentiality
  • Limitation/indemnification of liability.

Vital Provisions

They could only have time for cursory reviews of other agreement terms that are seen in many contracts, otherwise called “legal boilerplate” provisions. An agreement clause is a certain section or provision within an agreement. The clauses within an agreement deal with certain aspects pertaining to the overarching subject of the contract. Agreement clauses are designed to clearly define the privileges, rights, and duties that all parties have under the terms of the contract.

The clauses can be found in parts of an agreement, and they usually appear at the end of the documents. Agreement clauses may take any form and may cover nearly every part of commercial and business interests.

  • Example: You have a non-disclosure clause that’s contained in an employment agreement, where the employee must not reveal confidential information that belongs to the business. Agreement clauses are enforceable, including the remaining contract under federal and state laws.

Agreement Terminology

Be aware of the following terminology you will come across in an agreement:

  • Confidentiality: When two or more companies agree in a contract, there will be plenty of information exchanged by all sides to perform their contractual duties. In light of a need to furnish certain information about each business and financial practices, it is important for an agreement to have strong words pertaining to confidentiality.
  • Force Majeure: This phrase means “greater force.” It must always be added to commercial agreements, as it protects parties from events that take place beyond any party’s control. For instance, in case of a natural disaster, such as a hurricane or earthquake, a shipment schedule may be disrupted. Moreover, the definition for force majeure tends to be broad, with many agreements adding wording about instances, such as acts of God or terrorist attacks. The clause is vital because it ensures that failure to perform duties due to unforeseeable circumstances would not be considered a violation.

Also, neither party could be held liable for delays in performance or failures of any part of the contract regarding events that include floods, war, or any other emergency circumstance. The parties that are affected must notify others in writing within 10 days after the start of such causes that would affect his or her obligation or performance. With that, if a party’s performance gets delayed for a time surpassing 30 days from the date other parties receive the notice under the paragraph, the non-affected parties have the right, without liabilities to other parties, to end the agreement.

  • Termination Triggers: Things often do not go as planned, which is why you should have a provision that allows parties to dissolve the agreement if a business arrangement or unforeseen circumstance arises.

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