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Unpacking contract clauses: What they are and why they matter

On Behalf of | May 8, 2023 | Contract Disputes

A contract clause is a specific section of a contract that addresses a particular aspect of the agreement.

Clauses provide clarity and certainty to the contracting parties and prevent disputes and misunderstandings. In short, they help remove ambiguity and confusion from the contract.

Common types of contract clauses

There are many types of clauses, each serving a unique purpose in defining the rights and obligations of the parties to a contract. Below are some common clauses used in everyday contracts and their uses.

  • A termination clause specifies the circumstances under which either party can terminate the contract, such as a breach of the terms or a failure to perform as agreed.
  • An indemnification clause protects the parties from financial losses by requiring one party to compensate the other for damages incurred due to the contract breach.
  • An arbitration clause outlines the dispute resolution process between the parties through arbitration rather than litigation.
  • Force Majeure clauses release the parties to a contract from contractual obligations in the event of unforeseeable catastrophic circumstances beyond their control, such as natural disasters or war.
  • A non-compete clause prevents a conflict of interest by restricting one party from engaging in activities that compete with the other party’s business during or after the contract.
  • A confidentiality clause prohibits the disclosure of confidential information a party becomes privy to when bound by the contract.
  • A payment clause outlines the payment terms for goods or services provided under the contract, including the amount, due date and payment method.

The list goes on and on, as contract clauses have endless possibilities. You can include other clauses not mentioned above in a contract to suit your needs.

The bottom line

Contract clauses can have far-reaching implications for the parties involved, and understanding them is key to protecting your business interests. Therefore, it’s essential to carefully examine each clause before signing a contract and seek legal advice if necessary. It’s better to be safe than sorry.