A contract clause is a specific provision or section within a written contract. Each clause in a contract addresses a specific aspect related to the overall subject matter of the agreement. Contract clauses are aimed at clearly defining the duties, rights and privileges that each party has under the contract terms. Clauses can be located in various places in the contract, but most of the time they appear towards the end of the document.
Contract clauses can take many forms and can cover nearly aspect of business and commercial interests. A common example is a non-disclosure clause in an employment contract, where the employer agrees not to disclose any confidential information belonging to the company. Contract clauses are enforceable along with the rest of the contract under state and federal laws.
The use of various clauses all depends on the needs of the parties. Some clauses appear more frequently in contracts than other ones. There are “boilerplate” clauses that may appear as a standard part of some business contracts. Or, the parties may create specific clauses that are tailor-made for each contract with a client.
Some common contract clauses include:
- Choice of Law / Forum Clause: In these types of clauses, the parties agree that the contract terms will only be interpreted according to the laws of a specific state. Also, they may agree that litigation will only occur in a specified jurisdiction. These are only enforceable if they don’t conflict with general requirements of law.
- Statute of Limitations Clause: These state the time frame in which a lawsuit can be filed after a breach of contract or other violation. Again, such clauses can’t violate already existing laws and filing requirements.
- Time of Performance Clause: These indicate the time frame in which the contract duties can or can’t be performed. Some contracts state that “time is of the essence”, meaning that a breach of contract suit can be filed if the duties aren’t performed in a reasonable amount of time.
- Merger Clause: A merger or integration clause states that the current written contract overrides any previous oral or written agreements.
- Indemnification Clause: These agreements indemnify (release from liability) the other party in the event that losses or expenses are incurred. These should be used with caution, as they could limit the ability to recover damages for losses
- Non-Waiver Clause: These protect parties who excuse the other party for non-performance of contract terms. For example, suppose one party only makes payments every other month when the contract requires monthly payments. If the non-breaching party accepts the payments but doesn’t file a lawsuit, the non-waiver clause allows them to recover the missing payments. In other words, the party doesn’t “waive” their full contract rights by accepting non-complying action from the other party.
- Severability Clause: This ensures that the remainder of the contract is enforceable even if one part of the contract is determined to be invalid. Without such a clause, it’s possible for the entire contract to be invalidated by the court if only one provision is found to be invalid. Also called a savings clause.
- Arbitration Clause: States that any legal disputes are to be resolved through arbitration rather than litigation.
- Liquidated Damages Clause: Allows the non-breaching party to recover damages in the event that actual damages are difficult to calculate. However, the amount of liquidated damages needs to be reasonable in light of the circumstances.
- Attorney Fees Clause: These state that the losing party shall reimburse the other party for attorney’s fees (and sometimes other court fees and costs).
Getting a particular clause enforced depends largely on the laws in each region. Generally speaking, parties can form clauses are they need them, but they need to comply with existing contract laws and regulations.
Many of more common clauses in a contract are frequently used, but they require the assistance of a lawyer during the drafting and reviewing stages. If you have any legal needs regarding contract clauses, you should contact a qualified contract lawyer in your area. Your attorney can help you create and negotiate the clauses, and can represent you in court if you need assistance with a lawsuit.