Contracts can be complex and difficult to navigate for any business. But the reality is that you can’t get away from having a contract in a business. How to draft a solid contract? What to include in a contract? these are the important questions one considers when writing a business contract. But the technical language of contracts, different terminologies and the legal jargon running into lengthy pages makes the contract drafting and negotiating process even more challenging. Therefore, it is vital for every business to have a standard form of contract that includes all the essential terms of a contract that can be used as a base for every business transaction.
A standard form of contract includes the most common legal terms and conditions you need to protect your rights in a business transaction such as jurisdiction, governing law etc. These common terms and conditions are popularly known as ‘boilerplate terms’.
The boilerplate terms are a standard set of clauses that appear at the end of every contract. They can be modified to be in favour of one party over the other.
If you have a standard form of contract including all the important boilerplate terms, then that can become your go-to document whenever you wish to enter in a contract with another party. It will expedite the contract negotiation process, protect your rights in every transaction and ensure there are no loopholes in the contract.
The most important boilerplate terms in a contract are:
The boilerplate terms are often overlooked because they are boring to read and complex to understand. It’s much easier to focus on the operative terms of the contract such as the scope of service, payment terms, late fee charges, responsibilities of both parties etc. However, it is important to review the boilerplate terms as they can have a significant impact on your business.
Are you drafting a contract? Confused what to include in the contract? Or worrying if you're missing any important clause in your contract? Here is a list of all the important clause with a sample template that will ensure your contract/agreement is without any loopholes:
An indemnity clause is an important provision in a contract because it transfers the risk of loss, damage or liability from one party to another party. It enables you to require the other party to pay for the damages suffered by a third party. Therefore, when negotiating a contract, you must understand who is responsible for the loss or damage suffered by a third party? For instance, who will bear the damages in case of third party claims for IP infringement?
Indemnity is one of the most negotiated provisions in business contracts. The clause must outline:
The limitation of liability clause limits the amount of damages one party has to pay to the other party for breach of contract. It enables you to not only put a maximum cap on the damages that can be recovered but also exclude liability for certain events and consequences.
The terms of this clause must be carefully drafted and negotiated due to its significant impact on the business. It must outline:
It is inevitable that significant confidential information will be exchanged between you and the other parties during business operations. Therefore, you must contractually bind the other parties with confidentiality obligations to facilitate a platform for the exchange of such confidential information without fear of unauthorized use/disclosure. The Confidentiality clause prevents any unauthorized disclosure of confidential information to a third party and restricts the use of disclosed information only for the purpose agreed to by the parties in the contract. Simply put, it protects the information exchanged between you and the other party during a business transaction from unauthorized use/disclosure.
Now, you have two ways to protect your confidential information i.e. execute non-disclosure agreement or include a confidentiality clause along with other terms and conditions in the contract. The latter choice is preferable when the disclosure of confidential information is not significant. For instance, if you are selling a product to a customer then the exchange of confidential information is minimal and a confidentiality clause in your ‘contract for sale’ would suffice.
A confidentiality clause identifies:
A well-drafted dispute resolution clause sets out the mechanism for resolution of disputes between the parties to a contract. Generally, this clause tends to get less focus compared to the commercial terms of the contract such payments, the scope of service etc. However, it is vital to give due consideration to the process for resolving disputes between you and the other party even though it may seem unforeseeable in the early stages of contract negotiation.
There are several options for dispute resolution such as litigation, negotiation, mediation or arbitration. Each option has advantages and disadvantages. You can choose the option that meets your business requirements.
Litigation means going to court for resolution, however, it is expensive, time-consuming and more public in nature. Negotiation and mediation are less contentious processes. Arbitration is a more popular choice being private, fast and an informal process to settle contractual disputes. It enables the parties to stipulate the number of arbitrators; arbitration procedure; the format of the award, the duration of trial etc. Unlike the traditional process of litigation, arbitration gives the parties more flexibility and control over the dispute resolution process.
The Notice clause lays out the mechanism for giving and serving notices by one party to the other.
A notice clause provides:
The governing clause reflects the parties’ agreement on which law will govern the contract in case of dispute
Generally, people maintain consistency between the governing law and jurisdiction clause i.e. if the parties, choose to submit disputes in Indian courts then they opt for the application of Indian laws to adjudicate the dispute. However, you can also choose any governing law based on the location of the parties or the type of transaction involved.
The governing law is used to interpret the terms of the agreement by the court. It must be expressly stated in the contract to avoid any issues later that may delay the litigation proceeding.
The jurisdiction clause indicates which court will have the jurisdiction to resolve disputes arising from or connected to the contract. It must be expressly written in the contract. In absence of a jurisdiction clause, the court will decide it for you and that will incur additional cost and also delay the litigation proceeding.
Generally, the jurisdiction clause can be:
A provision for an amendment is an essential element in every contract. It enables the parties to modify the contract whether by way of addition or deletion of the terms and conditions. However, such changes can be subjected to the consent of the other party to ensure they are mutually agreed upon.
How do you write an Amendment clause?
The clause sets out the process for making a valid amendment to a contract. Generally, it requires that the proposed changes must be in writing and signed by both parties. This ensures that neither party can modify the terms of a contract without the consent of the other party.
An assignment clause states whether you are allowed to transfer your set of contractual rights and obligations to a third party.
The contracts generally provide for the assignment of contracts with the consent of the other party. In this case, the contract must state:
In the event assignment is not permitted, you can include a ‘non-assignment’ clause to prevent both parties from assigning the agreement in any circumstance whatsoever.
The force majeure clause exempts a party from performing their contractual obligations due to reasons beyond their control such as natural disasters, flood and such other acts of God. The provision may provide for an exhaustive or non-exhaustive list of events that qualify to be a force majeure event.
Typically, a force majeure clause stipulates:
What happens when part of the agreement becomes invalid or unenforceable? With the severability clause in the contract, if part of the agreement becomes invalid then the rest of the agreement remains unaffected and continues to valid. It ensures that the terms of the agreement are treated as independent of each other and the invalid provision can be severed from the rest of the agreement.
How do you write a Severability Clause?
The clause must reflect the intention of the parties as to whether the contract is severable or not. Further, it should clearly state what will happen if any clause of the contract is found to be invalid i.e. whether the remaining part of the contract will continue to be enforceable or not.
Litigation can be a long and expensive affair for dispute resolution. In fact, many times the cost of pursuing litigation might exceed the amount of damages that can be recovered. Therefore, a provision for attorney fee becomes essential when negotiating a contract. It gives the right to recover reasonable costs and attorney fees that you a party incur in enforcing the contract.
Simply put, the clause provides for the losing side to pay attorneys’ fees and all costs incurred by the winning side to pursue the legal dispute. The cost can include filing fees, court fees, the fee for serving summons etc.
Also, the attorney fee clause may be unilateral or mutual. If unilateral, it will allow only one party to recover the attorney fees regardless of the party winning the dispute. However, a reciprocal provision allows the winning party to recover the attorney fees from the losing party.
Warranty is an assurance or a promise given by one party to another regarding the condition of a product. It also provides for the remedies available in case of breach of the warranty such as repair or replacement of the goods.
The warranty clause states the responsibility for repair, replacement or refund in case of breach of warranty. It should be carefully drafted and reviewed since it can incur liability for the party in breach. If you are giving warranty for your products, then you must exclude your liability for damages caused by normal wear and tear or negligence of the other party; and reserve the right to investigate any claim for breach of warranty.
This clause allows the parties to end a contract for a specified reason such as breach of contract, force majeure, solvency etc.
How do you write a termination clause?
The termination clause has two essential parts:
Interpretation clause sets out the rules for interpreting all the clauses of the contract in the manner intended by the parties. Therefore, it deals with the general interpretation of the agreement.
In absence of an interpretation clause, the courts will interpret the contract based on the common-law principles and not in the manner intended by the parties to the contract.
In comparison to the other core clauses of the contract, the interpretation clause is mostly standard and similar in commercial contracts. Generally, the clause sets out the rules for construing the heading, references to statutory provisions or gender and such other different terminologies in the contract to avoid any ambiguity.
The announcement/publicity clause sets out rules on press release, announcements or communication with the media about the contract. It ensures control over public disclosure of any information relating to the contract.
The clause expressly prohibits the parties from making any public announcements relating to the contract without the consent of the other party. However, the prohibition can be unilateral or mutual in nature.
These clauses are fairly standard in contracts:
Please note that this is a general guide on the different types of leave that a leave policy must include. This does not constitute legal advice. As each business, may be different, you may want to speak to your local lawyer.
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