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Identifying and understanding contract clauses

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When forming contracts, lawyers often use contract templates or forms which include certain boilerplate (=standard) language. Often, contracts written in English are divided into several different clauses, each with their own heading. Some of the most common clause types are listed below.

Types of contract clauses

When forming contracts, lawyers often use contract templates or forms which include certain boilerplate (=standard) language. Often, contracts written in English are divided into several different clauses, each with their own heading. Some of the most common clause types are listed below.

An assignment clause is a clause prohibiting or permitting a complete transfer of rights under the contract to another party.

A confidentiality clause is a clause in which certain information is labelled private and prohibited from being disclosed or distributed to anyone other than specifically identified individuals or organisations.

A consideration clause is a clause setting forth that which a party undertakes to do (or not do), which induces the other party to enter into the agreement. Consideration clauses typically set forth the terms of payment and/or the price of the contract.

An entire agreement clause states that the written terms of the agreement represents the whole agreement and that any prior or oral agreements have been consolidated into the written document. An entire agreement clause is sometimes referred to as a whole agreement clause, a merger clause (in the US) or an integration clause.

A force majeure clause is designed to protect against failures to perform contractual obligations causes by unavoidable events beyond a party’s control, such as natural disasters (referred to in some contracts as “Acts of God”) or wars.

An indemnification clause is a provision in a contract in which one party agrees to be financially responsible for specified types of damages, claims, or losses. In such clauses, one party promises to reimburse (or “hold harmless”) the other party in the event any such claims are brought.

A liquidated damages clause lists the amount pre-determined by the parties as the penalty for breach (ie the amount the breaching party will have to pay the non-breaching party).

A severability clause provides that, in the event one or more provisions of the agreement are declared unenforceable, the rest of the agreement remains in force.

A termination clause sets forth when, and under which circumstances, the contract may be terminated (=ended).

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