Almost all contracts contain standard provisions which are frequently ignored by the parties and attorneys.
Editor’s note: This is part seven of the continuing series on contract law for small business owners. Here are parts one through six: Small Business Contracts Part I: A Different Perspective, Contracts Part II: Laying the Groundwork, Contracts Part III: The Role of Legalese in Contract Drafting, Supplier Contracts- What Small Business Owners Need to Know, Contracts Part V: 7 Unique Features of Distribution Contracts, Part six: The Four Keys of Small Business Contract Arbitration.
Most provisions in a contract reflect specific terms of the transaction to which the parties have agreed. Contracts Part VIII: Boiler Plate Provisions
But, there is often included a set of standard “boiler plate” provisions that a reader would find in most contracts. These boiler plate provisions are more often than not ignored by counsel and the parties, themselves.
Their purpose is sometimes obscure but they, nevertheless, can serve an important function in mitigating, if not eliminating, a series of common risks, which, if ignored, can lead to costly disputes.
These are six most common components or provisons of contracts:
1. Severability Provisions
The purpose behind a Severability Provision is to address the circumstance where a court or tribunal has found a contract to be, in part, unenforceable.
This provision clarifies that should a provision of an agreement be found invalid or unenforceable that the remaining provisions of the agreement shall, nevertheless, continue to be valid and enforceable. Most often this provision, by party agreement, also provides that the court or tribunal be empowered to limit an offending provision in such a fashion as to avoid it invalidity.
2. Assignment Clauses
These provisions clarify that the obligations and duties assumed by the parties under their agreement cannot be assigned to third parties that are strangers to the transaction.
But these provisions should be considered with some care, especially in situations where there is a prospect that one party, or the other, may be merging with another company or selling a substantial portion of its assets to a third party, or desires to have the contract undertaken by a parent company, subsidiary or affiliate.
As such, in drafting provisions intended to restrict assignments, one should not ignore possible changes in corporate relationships that may require one.
3. Integration Provisions
All contracts, generally, contain “integration clauses”, which provide that the agreement entered into by the parties constitutes the “entire agreement” between them with respect to the matters addressed and supersedes all previous agreements entered into by the parties.
This provision precludes the prospect of one or the other party attempting to vary the terms of their agreement by referencing previous agreements which may have contained different, but comparable terms.
Integration provisions are rarely litigated, but should, nevertheless, not be taken for granted since it may not always be the case that the parties actually intend prior agreements to be superseded.
For example, in one case, a caterer had entered into an agreement with a landlord concerning the use of facilities for certain specified events.
In a subsequent contract concluded by the same parties, the catering price term had been altered, which created a dispute as to whether events scheduled under the terms of the first contract, but which took place after the second contract came into force, were governed by the new price term.
In the latter scenario, the earlier agreement should have been carved out as an exception to the second agreement’s integration clause.
Next- Contract components/provisions 4 through 6 and takeaway