Basic Important Terms to Include in a Contract
Curington Law, LLC serves as outside counsel to businesses in Chicago and other cities. We assist businesses with a wide variety of legal needs ranging from business formation and litigation to questions about intellectual property and business transactions.
We prefer to work with our clients proactively, when drafting contracts, to protect them from future disputes. Even so, we can try to correct any flaws in a contract after the fact, if a client has agreed terms without an attorney to review.
Below are some important terms, clauses, and provisions that should not be overlooked when contracting with another party:
1. Terms on Completion, Renewal, and Termination
The beginning and end of a business relationship should prompt questions to contemplate including:
What exactly are both parties agreeing to do, and in what time frame?
What happens if the parties want to keep doing business together after this first contract is finished? Can it be extended or renewed, or must a new agreement be negotiated?
What happens if circumstances change, and both parties want to end their business relationship early? Should this be treated as a breach? Or is there a way for the parties to amicably part ways?
2. Default Clause
One of the most important clauses in any contract is the default clause. This clause establishes an agreement between the parties regarding the specific events that they consider to be breaches of the contract terms. Some common examples include:
Failure to make a payment owed;
Failure to perform a term of the agreement;
Filing a bankruptcy petition;
Subleasing without the landlord’s prior written consent; and
Failure to deliver goods at a specified time.
Although default clauses cannot anticipate every possible “worst-case scenario,” depending on the industry, there are often default terms that cover the most common problems that occur in those types of transactions.
Curington Law, LLC advises our clients by drafting agreements that protect them in the event things go wrong and that consider many potential scenarios in the future.
3. Remedies Clauses
The remedies clause covers the options that are available to the non-breaching party in the event of a default. Depending on the nature of the transaction, the remedies can vary widely.
Some common remedies include:
Termination of the contract;
Specific performance (i.e., the breaching party must fully perform their side of the agreement);
Option to cure the breach (i.e., the non-breaching party can give the breaching party the opportunity to fix their breach, without any affect to the terms or force of the contract) and
Alternative dispute resolution, such as mediation or arbitration.
A strong remedies clause can be vital in maintaining an amicable business relationship.
4. Integration Clause
The integration clause, commonly referred to as a “merger clause” or “entire agreement clause,” indicates that the final and complete agreement between the parties is memorialized in the contract and it supersedes any other agreements, whether oral or written, that are not in the terms of the contract. This clause is meant to prevent one party from later claiming that what the parties actually agreed to was different from what was written in the contract.
5. Severability Clause
A severability clause assists in protecting the parties in the event of litigation related to the terms of the contract. Importantly, this clause ensures that if any portion of the contract is found to be invalid, unenforceable or unlawful, by a court of law, only that invalid section may be stricken from the contract, keeping the rest of the agreement in tact. A severability clause prevents having to redraft a new agreement should one section or clause be found invalid.
6. Choice of Law/Governing Law Clause
In a choice of law and governing law clause, the parties agree that a specific state’s laws will be used to interpret the contract, even if they live in a different state. There are certain provisions within contracts that are interpreted differently depending on the state law that applies, however, contract law is quite consistent in all states.
Similarly, the laws that determine who can file lawsuits, when they can be filed, and under what bodies of law they may be argued, are quite different across the states. For example, the statute of limitations for filing a breach of contract lawsuit in New York is six years, where in Illinois, it is ten years.
For more information on contract law, contact Curington Law, LLC at 312.803.1755 or online.