Contracts are used in virtually every industry, and many of the contract clauses that are used are applicable across sectors. In fact, there are certain contract clauses that are likely to make an appearance in just about any contract that is drafted. Commercial contracts, in particular, tend to contain a standard set of terms and conditions. Here are six key clauses found in commercial contracts:
When two or more firms enter into a contract, there will no doubt be a significant exchange of information in order for both sides to perform their contractually stipulated obligations. In light of the need to furnish certain information about each side’s financial and business practices, it is imperative for the contract to contain a strongly worded confidentiality clause. This clause should preclude both sides from divulging any and all information that is shared during the course of the transaction. Of course, this is particularly important when there is valuable intellectual property at stake.
The phrase force majeure literally translates as a “greater force.” This clause should always be included in commercial contracts, as it can protect parties from circumstances that arise that are beyond anyone’s control. For example, in the event of a natural catastrophe, such as an earthquake or hurricane, a shipment schedule may be unavoidably disrupted. In general, the definition of force majeure is rather broad, with many contracts including wording about things like terrorist attacks and even acts of God. This clause is important to include to ensure that any failure to perform due to such an unforeseeable disruption is not considered a breach.
In business, things often do not occur as planned, and thus parties must be able to cut and run as necessary. For contracts, this usually involves the inclusion of a termination clause. This section of the contract must clearly lay out the circumstances under which one or both parties may terminate the contract, irrespective of the time left under the agreement. For example, if one of the parties is acquired by another entity, the other party to the contract may reserve the right to terminate the agreement.
These days, cross-border transactions are fairly routine, both in the domestic and international sense. When the parties to a contract are located in more than one state, or perhaps more than one country, it may not be clear which state’s laws govern the arrangement. Therefore, commercial contracts should always specify the state that will have jurisdiction over the agreement, so that it is perfectly clear which laws are applicable.
Even the most well-drafted contracts are susceptible to conflict. As a result, it is of the utmost importance to clarify the parties’ plans for dispute resolution in the event that an issue arises. In many contracts, it is now common practice for firms to include an arbitration clause, requiring the parties to submit to arbitration prior to or in lieu of seeking a remedy via litigation. This is generally a faster, cheaper way to solve contract-related problems, although some contracts still allow for traditional legal recourse.
In light of the frequency of contract breaches and in an effort to deter them, it is also standard practice for commercial contracts to contain clauses related to damages. In general, liquidated damages will be included, which is usually a predetermined amount that will be owed if one side fails to perform. Of course, a court may award other types of damages beyond that amount depending on the nature and impact of the breach.