Types Of Contract Clauses: Everything You Need to Know
There are many different types of contract clauses.3 min read
Types of Contract Clauses
There are many different types of contract clauses.
A statute of limitations clause defines the time frame, applied by law or agreed to by the parties, within which a claim must be filed to be valid.
A time limitation clause, like a statute of limitations clause, sets the time frame within which a claim must be made if a specific action or event occurs.
A time of performance clause designates the time frame within which performance must occur. If performance does not occur within that time then the non-performing party has breached the contract. If no specific time is designated, performance must occur within a reasonable amount of time.
Along with the time of performance clause, a force majeure clause applies to performance. A force majeure clause outlines what happens if a party is unable to fulfill their part of the contract because of an unforeseen circumstance, or “acts of God.” These events, such as natural disasters, are beyond the parties’ control.
A forum, or choice of law, clause designates the jurisdiction, usually a specific state’s laws, under which a contract’s terms will be interpreted in the event of a dispute. Parties can also include a specific jurisdiction in which litigation must occur. This type of clause must comply with other requirements of contract law.
A merger clause declares that the written contract is the final and complete agreement between the parties. This clause overrides and/or consolidates all prior oral or written agreements into the final written document.
Other names for a merger clause:
- Entire agreement clause
- Whole agreement clause
- Integration clause
A severability clause, or savings clause, provides that even if one or more provisions of the agreement are declared unenforceable the whole/remainder of the contract is still enforceable. The unenforceable provisions will be removed from the contract. Without a severability clause, it is possible that a court will invalidate the entire contract even if only one provision is found to be invalid.
A termination clause delineates the circumstances under which the contract may be terminated.
An assignment clause transfers all, or particular, rights from the assignor to the assignee. It assigns the assignee with any obligations connected to the right(s).
A confidentiality clause, or nondisclosure clause, guarantees that particular information if a private commercial secret and therefore guarantees that it will not be disclosed without permission. This clause can also guarantee the opposite: allowing particular data to be distributed to whomever the party would like. You can also meet in the middle and specify particular individuals or companies that the information can be given to.
A consideration clause lays out what a party must do, or not do, in order to enter into an agreement. This action or inaction is called consideration. Consideration is usually payment. Without consideration, there is no contract.
A liquidated damages clause designates the amount of money that the non-breaching party may collect from the breaching party as compensation for a specific breach. A liquidated damages clause must be reasonable or a court will not enforce it.
If a non-waiver clause is included in a contract, then the party who included it does not waive their full contract rights, even if they accept non-compliant performance from the other party. In a landlord-tenant situation, if the landlord accepts rent payments every other month for the first six months and does not file a claim, the non-waiver clause allows the landlord to recover the missing rent even though the landlord has accepted non-performance of contract terms for a long period of time.
An arbitration clause requires legal disputes to be resolved through an arbitration process.
An attorney’s fees clause requires the losing party to pay for the winning party’s attorney’s fees. Sometimes this clause will include other litigation costs as well.
An indemnification, or indemnity, clause states that one party promises to reimburse, pay for, the other party’s costs for specific types of damages, claims, or losses that may occur. If a manufacturer sells a client technology with an indemnity clause included in the contract and the client is then sued by a different company for copyright, the manufacturer has to cover the client’s costs of the lawsuit.
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