Everything You Need to Know About Contract Clauses

Subjects of discussion like contracts and contract clauses may appear to be boring, and quite honestly, they mostly are. But contracts are important, which means we may have to go through those moments of boredom once in a while. Most of the important steps taken in our lives will involve signing some type of contract or the other. Getting a new job, acquiring, or selling real estate property, renting an apartment, or even buying a new car, will require going through a written contract and agreeing to its terms. Although we have lawyers and business representatives to help with going through these contracts, it will do a lot of good if we had considerable knowledge ourselves.

Clauses

A contract is simply a legally binding agreement between parties. It could either be written or verbal. When a contract is written, it consists of different provisions or clauses, outlining the obligations of the parties, and other terms of the agreement. Generally, there are three major types of contract clauses. Every written contract doesn’t need to contain all three clauses; however, some contracts are quite complex and do contain all categories. Each category has its unique use, which we will briefly explore in this article.

Enforcement Clauses

When parties enter into a contract, they are expected to follow the agreement. Either a purchase agreement or a contract of service, each party is expected to follow the agreement to the letter. Enforcement Clauses exist when either party fails to go by the provisions of the contract. An enforcement clause simply answers the “what do we do next?” question.

State Laws

One use of enforcement clauses is in determining the applicable laws. When the parties to a contract reside in different states, and enforcement clause may be included in the contract to show the law of which state should be applied in resolving the dispute.

Alternative Dispute Resolution

An arbitration/mediation clause is also an example of an enforcement clause. It is mostly used by companies or in high-scale contracts. What an arbitration/mediation clause signifies is that the parties will settle any resulting dispute by Arbitration or Mediation (depending on the clause), and not by going to court.

Execution Clauses

This is likely the most common clause found in contracts. It spells out the obligations and duties expected of each party. Execution clauses basically answer the question that says “what are you expected to do”. Sometimes, it goes further to outline specifics on how the parties are supposed to play their part, which must also be followed. An example of execution clauses is the “time of performance clause”, which states the time within which an obligation must be fulfilled.

The force majeure clause in a contract is also related to its execution. The French term “force majeure” literally translates to superior force, referring to events that happen beyond the control of a party. After contractual obligations have been set, events like natural disasters, pandemics, terrorism, and war are likely to be out of the parties’ control and may prevent either party from performing their end of the bargain. The force majeure clause in a contract outlines what should be done in these cases, and how obligations should resume afterward.

Interpretation Clauses

The third and final category of contract clauses is the interpretation clause category. As we mentioned earlier, contracts can be quite complex, and can as a result contain certain ambiguous or seemingly contradictory language. Interpretation clauses cover the legal principles that should be used to interpret the language in these kinds of contracts.

A merger clause is a prominent example in these situations. Merger clauses are included in contracts to state that the terms of that particular contract are the final terms that should be focused on by the parties and that they take precedence over any contrary terms in previous agreements by the same parties.

Conclusion

You may be wondering why you never see the names of these clauses as segment headers, in contracts you have previously signed. This is because the clauses are mostly identified based on what they do, rather than being labeled within the contract. Therefore, you may not see a section called Execution Clause in your contract, but it exists nonetheless. If you feel like identifying these categories in recognizing your obligations may be too complex, the services of a lawyer will help speed things up. Just make sure that your lawyer keeps you properly informed all the way.

If you want, you can also read about: 5 Pieces of Legal Advice Every Lawyer Wants You to Know!