Business Contracts Provisions

Copyright (c) 2009 Jeffrey Matsen

Obviously, all contracts should be prepared and reviewed by competent legal counsel. However, there are a number of fairly standard contract provisions that are in most contracts but may not be familiar to non-lawyers. The following discussion will help you better understand the impact and importance of these provisions.

Attorney's Fees

Most contracts will have a clause related to attorney's fees. Under most circumstances, even a successful plaintiff will not be able to recover their attorney's fees unless the contract so provides. It is even less likely for one defending a lawsuit to recover their attorney's fees from the plaintiff, without the proper attorney's fees clause. Therefore, look for a provision that provides that reasonable attorney's fees AND court costs (which can be sizable) be awarded to the 'prevailing party.'

Applicable Law

Many contracts will have a provision stating that the terms of the contract will be governed by and constructed in accordance with the laws of a particular State. You should ensure that the state in which you live is selected as the applicable state, to ensure ease of interpretation, to be able to hire legal counsel close to you, and to minimize uncertainty.

Jurisdiction/Venue

Many people may not understand the difference between Jurisdiction and Venue. Jurisdiction refers to the authority a court has to hear the matter. Jurisdiction involves both the rights the specific court has to rule on the dispute (what type of claim it is) and the ability of the court to enforce a judgment against the defendant. For example, a typical jurisdiction clause may say "Any action to enforce this agreement shall be filed in the Superior Court of California."

Venue clauses relate to the proper geographical location of the court of jurisdiction. A typical venue clause may read "Any litigation arising out of this Agreement shall be filed in the appropriate Court of jurisdiction in Orange County, California." However, the choice of venue must be appropriate under the law. In a contract action, venue is appropriate where the contract was entered into, where one of the defendants resides, or where the contract is to be performed.

Notices

All contracts should have a provision which instructs each party how to provide written notice of a condition or breach to the other party. This provision should include a space for the address and contact information for each party, be it an e-mail address or fax number. It should also include the proper manner of delivery, be it First Class Mail, fax, or overnight service. The inclusion of this provision ensures that all parties can be confident that they can contact the other party quickly and efficiently, if needed, and that no party can attempt to dodge service of any notices.

Entire Agreement/Merger Clause

Inserting a clause stating that the terms of the contract represent the entire agreement between the parties is an important consideration. It will help ensure that neither party will be able to argue that there was a separate, side-agreement or that any other representations were made that cannot be easily proven.

Counterparts

This provision is important if both parties do not sign at the same time. Inserting this provision allows both parties to sign separate copies of the agreement and treat each copy as an original and binding copy.

Mediation/Arbitration

Due to the high cost and time periods involved in arbitration, many contracts now have mandatory mediation or arbitration clauses. Mediation involves presenting your case to a neutral mediator, often a retired judge or attorney with experience in the field, and attempting to come to a mutual agreement of resolution. Arbitration, on the other hand, often involves the neutral third party acting as a judge and declaring a ruling on which party should prevail. Parties to a contract may agree to binding arbitration, meaning that the ruling of the arbitrator is final and can be enforced in court. A good rule of thumb is to agree to this provision if you feel that you may be sued, but do not agree to or insert it if you feel that you may sue in the future.

Liquidated Damages

A liquidated damages clause allows a party to recover a specified amount in the event of a breach of contract by the other party. By law, the amount must be reasonable. Under certain types of contracts, liquidated damages clauses are only allowed where the true amount of damage that would be sustained is indeterminate.