A contract is a legally binding agreement between two groups. A written contract consists of detailed conditions or clauses. Clauses describe the rights and responsibilities each party has under the arrangement.
Clauses generally fall into three categories:
- Enforcement clauses,
- Interpretation clauses, and
- Execution clauses.
A clause can be located in various arrangements, but they are generally found around the back. Clauses can take various shapes and cover almost any part of the corporation or company. One commonly used clause is a non-disclosure clause within an employment agreement. This clause provides that workers will not reveal any trade secrets that belong to the company.
A contract clause is enforceable under state and federal law.
“Boilerplate” is a term used to refer to standardized language found in contracts. Most boilerplate conditions will not have any shared characteristics with other conditions. They are oftentimes found within identifications labeled “standard,” “general,” or “miscellaneous.”
What are Enforcement Clauses?
Enforcement clauses relate to how each party’s obligations or duties under the agreement are executed. If a party fails to abide by one or more agreement terms, an enforcement clause expresses the outcomes. Enforcement clauses include:
- A Choice of Law/Choice of Forum Clause: This clause provides what state’s contract law applies if a party files for breach of contract. Parties may live in other states with various contract regulations; having this provision authorizes both parties to know what rules will be used to settle the disagreement. Another connected enforcement clause is a choice of forum clause. This clause expresses what jurisdiction (i.e., state, county) any litigation must take place in.
- A Mediation/Arbitration Clause: This clause may express that the parties go through mediation or arbitration before either can file a suit in the event of a disagreement. The clause may say that the parties must resolve the conflict under arbitration. Clauses that require arbitration may be delinquent to a state’s public policy; as such, a court may find that they are invalid.
- A Statute of Limitations Clause: This clause expresses the amount of time a party has to file a suit in the event of a breach. Each state has its statute of limitations for breach of contract lawsuits. In New York, for example, the statute of limitations is six years. Numerous states authorize parties to a contract to agree to a shorter period than the statute. Such clauses break state law in other states, and courts will not implement them.
Common Contract Clauses
Using clauses of other types will be dependent on what the parties to the agreement require. Some clauses can emerge in an agreement more frequently than others. Boilerplate clauses can occur as a norm in contracts. Parties also can make topic-specific clauses that occur in agreements with certain clients.
Choice of Law Clause
Parties to this clause will decide that the terms of the contract are only analyzed according to the laws of specific states. They can also decide that any litigation only happens in particular jurisdictions. These clauses can only be implemented if they are not in confrontation with the provisions of the law. These conditions may not always be enforceable, especially concerning customer agreements.
Nevertheless, they will generally be supported for any agreement between a company and a sophisticated party. You should always presume that the provision in a contract will be executed. It would be wise to consider how it could impact a disagreement, such as litigation expenses and obligations.
Statute of Limitation Clause
This clause will express the time frame in which suits can ensue if there is a breach of the agreement. This type of clause will modify the statute of limitations that apply to any litigation connected to the agreement. In some cases, particularly with customer dealings, public policy rationales will deter states from implementing any statute of limitation reductions. It should always be supposed that, when joining an agreement, clauses lessening the statute of limitations will be proper and will begin litigation during the contractual term. It is conceivable that the court could find the clause invalid, so you must confer with your lawyer before you presume that there is no cause of action based on the agreement.
Time of Performance Clause
This clause will summarize the timeframe in which any obligations of the agreement can or cannot be fulfilled. It is generally seen in agreements related to construction. Construction jobs need to be resolved fast so that the company or homeowner can quickly proceed along with little interruption. When timing is important, you need to be sure that you can finish your assignment within the timeframe in the agreement.
Some other arrangements might not expressly state that the timing is of the essence. When this terminology is in a contract, you need to ask why that is so. In some circumstances, parties to the contract will compromise to complete the job in a reasonable amount of time but not deliver a guaranteed deadline. This is used when some unidentified variables are correlated to the job, and the completion date can’t be specified.
What are Execution Clauses?
Execution clauses preside over how a party conducts its part of the agreement. Illustrations of execution clauses include:
- A “Time of Performance Clause”: This clause denotes the time frame in which a party must complete its contractual duties. Some agreements provide a specific time frame, such as two weeks. Others use the term “time is of the essence” to define the time frame. A party may sue under this clause for losses incurred by the wait. Usually, however, a court will not punish a party for failure to precisely follow the clause, provided that the party made a fair, good-faith effort to do so.
- A “Non-Waiver Clause”: If a contract calls for performance on a string of occasions (such as a contract calling for monthly installment charges), it is conceivable that a party will not perform on one of those occasions by, for instance, forgetting a monthly payment. The other party, to maintain its privileges to file a lawsuit in the event of an added outbreak of non-performance, may insist on having a non-waiver clause. This clause states that waiving performance in one instance does not stop the non-breaching party from demanding regular performance.
- A “Force Majeure” Clause: The word “force majeure” is a French expression that translates to “superior force.” A force majeure clause sets forth situations under which a party is not obligated to perform under the agreement due to events beyond its control. Such events include natural disasters, terrorism, pandemics, and war.
What are Interpretation Clauses?
Interpretation clauses cover what legal principles will be used to analyze an ambiguous contract that contains contradictory language. Interpretation clauses include:
- A “Merger Clause” provides that the existing agreement terms are the final, agreed-upon terms and that these terms take priority over contrary terms in earlier contracts.
- To bypass obscurity as to how the contract should be executed, parties may decide to include “course of dealing,” “course of performance,” or “trade usage” clauses. A “course of dealing” clause says that, in the event of a conflict over an indefinite term, the court may examine the course of earlier dealings between the parties to determine what the obscurity “means.”
Do I Need the Help of a Lawyer Over Contract Clauses?
If you seek to add or modify a clause to a contract or understand what a clause means, you should contact a contract attorney near you. An experienced contract lawyer can assist you with preparing, negotiating, and understanding contract clauses.