You have read it, the part at the end of a contract that sounds like the lawyer threw in the kitchen sink. Is it really necessary? I mean, you could save almost a whole page by taking that part of the contract out. Does it matter?
This is often called the Miscellaneous Section of a contract. It includes the contract clauses that do not necessarily fit in the body of the contract, but that need to be included to make sure everything is clear. So, what are these clauses all about? Below is a list of seven of the most common clauses you should consider including in your contract more often than not:
Notices are an important part of contracts. If a contract is ever changed or altered, or any notice is required under the contract, this section will outline how, when, and to whom any notices regarding a contract should be delivered. This paragraph can be as simple or as complex as you want it to be. You can make it as simple as requiring that all notices to be in writing and deliver to the person signing the contract (by mail or email, your choice, but be specific), or it can be more complex and require certain requirements and persons to whom deliveries should be made. This protects you on the enforcement of the contract. If notices are delivered outside of the way they are required, they may not be considered valid.
Allow your notices to be electronically delivered (via email) if that is how you typically communicate with the other side. That way, you do not have to think about how you will make notices under the contract.
You want this contract to be binding for the life of the contract right? A lot can happen that is not anticipated in a contract (e.g. death of an individual or the sale, merger or consolidation of a business), this paragraph helps you out in those events. The paragraph states that the agreement is also binding on any successors, assignees, legal representatives or other parties that may succeed to the rights or obligations of the agreement. This will help you out if your client’s business is purchased or the individual you are working with dies. There will still be an obligation to pay you or transfer any intellectual property that is only yours as a result of the contract.
There is a lot of question about whether or not this paragraph is necessary. Some argue contracts must be binding for the life of the agreement. In my experience, however, the issue with small businesses is the close relationship between the owners and the company can create a number of issues if this is not clearly defined. One of the other important items, especially in small business, is making sure your contract survives a merger or acquisition. You want to make sure the value of your business is retained. This goes to the value of your contracts.
Construction and Forum Selection
This is one of the paragraphs most often ignored in contracts. It is also one of the clauses that can really hurt you if you are not paying attention in your contract review. This paragraph states which State’s law will be used to interpret the contract. It may also state the court where a law suit must be filed. It can even state the county where any claim can be brought. There is a lot of law that goes into determining where a claim can be brought. The best way to circumvent all of these possible options is to say where the claim can be brought. This is important on several levels.
First, if you are dealing with a business located outside of your home state, you want your home state to be where any case happens.
Second, a lawyer in your home state is going to be familiar with the laws of your home state. If you have a lawyer you will use if it becomes necessary, ask them what court they prefer. If they have a preference include it. It could help a lot. Especially if it is a court close to them. This could save you a lot of money in paying your lawyer to travel. It can also help eliminate frivolous lawsuits. The other side will only bring a suit if it is serious because of the expense of going to another state and hiring a local lawyer. This can help you make decisions about lawsuits easier, because the case would be local, and they may be more willing to deal with you if you bring a suit because of the expense of trying to litigate the suit in a state far away from them.
Even if you are working with businesses within your state, there may be issues in a particular jurisdiction in your state or you may be more comfortable with a particular jurisdiction. Limiting the county where a case can be brought is effective in keeping you from traveling all over the state to defend lawsuits on your contracts.
Of course you hope this never comes into play, but it also matters in collection actions. You want to make sure collecting is as easy as possible. A court your lawyer knows well, will help with this.
This is one of those paragraphs included by lawyers because litigation is all about parsing words. This paragraph basically says that pronouns are intended to be about the person it is clear they are about. That means if you use “she” and it should be “it” (for a company), the contract will not be invalidated because of a misuse of a pronoun in a form document. This is a protective measure. It is not necessary if you carefully draft your contracts. This is a clause where you could make an argument, if there is a mistake, that it is simply a drafting mistake and the information surrounding the use of the pronoun makes it clear who the pronoun refers to.
Use pronouns sparingly. They can create confusion. It helps, where possible, to use a noun instead of a pronoun. This is one of the places your contract may read differently than other writing.
If you are careful, you can remove this clause. This has developed from lawyers being to hasty with their contract drafting and not checking their templates.
This paragraph is called an “integration clause”. If you want to exclude all other documents (emails, quotes, etc.) from a contract, you need to make sure that you have a paragraph that says the contract is the entire agreement between the parties. It should state that anything else should be in writing, or it is not valid. That makes your contract, and only the contract, the agreement between the parties. There should not be any other references to outside documents or verbal statements (unless your contract is not clear). If you want something referenced in your contract, make the reference in the appropriate place in the contract and attach it as an exhibit. Make your contract thorough and include what is necessary. Do not simply incorporate all of the documents leading up to your agreement, this is what creates ambiguities.
This is almost an unnecessary provision in a contract, but not so much that it is worth the gamble of eliminating it. Contracts are designed to be read as a whole. A long time ago, if a provision in a contract was held to be invalid, it would invalidate the entire contract. That means, if you have a sentence or paragraph in your contract and it is invalid at the time of drafting or becomes invalid before you need to enforce the contract, you run the risk of your entire contract being held invalid by the court. The severability clause is one that states that any provision held to be invalid for any reason shall be effectively removed from the contract without impairing the enforceability of the rest of the contract. Again, this is common practice now, but it is such a short provision to leave it out and risk an argument that the entire contract is invalid because of a stray sentence in your contract.
Alternative Dispute Resolution
If you want to use mediation, arbitration, or any other required form of settling your contract, you need to require it in your contract. Beyond that, if you are going to, in any way, restrict someone from filing a lawsuit to enforce a contract, they have to acknowledge that they are waiving their right to a lawsuit. Typically this is bolded and written in all capital letters to convey the importance of the provision.
Arbitration and mediation are something you do not want to simply throw into your contract. You want to have a reason for it. These methods of settling contract disputes do not always save your business money. It is, however, especially helpful to have methods outside of the court if you have any kind of specialized contract. If you are in an industry that is on the cutting edge of technology or that requires a heightened level of understanding, you may want mediation or arbitration because you may have more control over the decision-makers in your case.
Make sure you exclude collection of fees from any alternative dispute resolution clause. If you choose to have alternative dispute resolution for contractual issues, those should not include the collection of fees. It is very difficult to simply collect fees through alternative dispute resolution. It may make collection cost prohibitive.
The Last Paragraph
Before your signature block , you want to have a line that says when the parties are signing if you want the contract to be dated the same date as your introductory paragraph. Perhaps with something like:
This agreement is signed on the date stated in the introductory paragraph.
Boilerplate is not always bad. These types of provisions will likely fit every contract you put together.That means it is a good idea to build a miscellaneous section you like and use it in your contracts. Do not reinvent the wheel every time you put together a contract.
It is also a good idea to understand what all of these provisions mean, so you are not blindsided by having to bring a lawsuit all the way across the country because you neglected to read the boilerplate sections of your contract.
This is true in drafting and in reviewing contracts.