Commonly Overlooked Contract Clauses

As part of our practice, we draft and review contracts for businesses in many different industries. Despite the differences in industries, there are many common types of contract provisions. It is a good idea to review your contracts to make sure that you understand every aspect of what you are agreeing to.

For instance, a common clause in any business-related contract is a Choice of Law provision. What is a Choice of Law provision? A Choice of Law provision is an agreement between the parties as to which laws will apply in the event of a dispute. While it may seem like “boilerplate” contract language, and therefore not essential to the agreement, this clause can actually be very significant. As upper management and business owners are aware, sometimes laws differ between states. The laws of one state may be more favorable to one side of the contract than the laws in another state. Further, Choice of Law provisions are also usually accompanied by an agreement as to the forum where any potential dispute would be resolved. This is also a very important clause. If you are a Massachusetts business doing business with a company in California, such a forum selection clause could require you to engage in litigation in California in the event of a dispute. Such far reaching litigation would potentially have an impact on your ability to pursue relief and/or defend the action.

   

Another common contract provision that follows the Choice of Law provision is the legal concept of “damages”. Generally speaking, if one party breaches the contract, the other side will be entitled to “damages” in order to compensate it for its loss. The legal theory behind damages is to make the non-breaching party whole by compensating them for their loss. However, sometimes the loss can be difficult to calculate. Therefore, some contracts contain what is called a “liquidated damages” provision. This is usually common in the construction industry. What are liquidated damages? Essentially, liquidated damages constitute an agreement that the parties have agreed as to what the “damages” will be in the event of a breach. You therefore want to be aware of this potential clause in a contract. Generally speaking, a “liquidated damages” provision is not enforceable if it is intended to be a penalty for breaching the contract, as opposed to being intended to make the non-breaching party whole. If you are relying on a liquidated damages provision, it is a good idea to consult with counsel to obtain an opinion as to whether or not such a provision is enforceable.

There are other standard contract clauses including attorneys fees, possible alternative dispute resolution, interest rates, default provisions, notice provisions, and more that can also be crucially important. We will discuss these more in coming blogs.

If you have any questions regarding commercial contract related issues, please do not hesitate to contact the attorneys at The Royal Law Firm, LLP.