Contract Provisions: Everything You Need to Know

Contract provisions refer to the requirements of a contract. They are the terms and clauses that constitute a contract. For example, a purchasing contract may contain provisions for delivery, payment, and remedies for breach of the contract. 3 min read

Contract provisions refer to the requirements of a contract. They are the terms and clauses that constitute a contract. For example, a purchasing contract may contain provisions for delivery, payment, and remedies for breach of the contract.

What Is a Contract?

A contract is a legally binding agreement made between two or more parties. It can be in writing or in oral form and can contain a single provision or thousands of them. For example, if A orally agrees to pay B $10 for a book, this agreement constitutes a contract.

Each provision of a contract is a contractual obligation; failure to comply with any of the provisions results in the breach of the contract.

Substantive Provisions

Substantive provisions identify the parties to a contract and establish their rights and obligations. All contracts have substantive provisions. For instance, a loan agreement specifies the names of the debtor and the creditor and requires the creditor to give money to the debtor in return for interest.

Boilerplate Provisions

Most contracts contain several boilerplate provisions. These are the standard terms used in a certain category of contracts.

Boilerplate provisions are usually grouped together at the end of the contract under “Miscellaneous,” “General,” or some other similar subheading. However, they hardly have anything in common between them.

Despite being standard and dumped at the end, boilerplate provisions may vary with the contract and can be as significant as the substantive provisions. They impact the manner of dispute resolution and contract enforcement.

The importance of a boilerplate provision often becomes conspicuous by its absence. For example, if there is no provision for paying attorneys' fees by the non-prevailing party and a dispute arises, the parties may find it difficult to retain a lawyer to take up the case.

Examples of Boilerplate Provisions

• Attorney's Fees: This provision requires the non-prevailing party to pay the attorney's fees and other legal expenses in the case of a legal dispute.
• Arbitration: This provides for resolution of a dispute through third-party arbitration instead of a lawsuit.
• Choice of Law: This provision assigns the state whose law would apply for interpretation of the contract.
• Choice of Jurisdiction: This limits the legal jurisdiction to a specific state or place where the parties can file a lawsuit.
• Waiver: This clause usually states that the parties can forego their right to sue for the breach of a provision without losing the right to any future claim with respect to the same provision.
• Severability: This clause states that if a certain provision of the contract becomes invalid or is struck down by a court, the remaining contract, after severing the invalid provision, will remain intact and binding.
• Integration: This clause states that the written contract is the final agreement between the parties, and it replaces any prior agreement.
• Attachments: This includes any attachments or exhibits as an integral part of the contract.
• Notice: This provision sets out the manner in which notice should be given in certain situations, say, for instance, to terminate the contract.
• Relationships: This prevents the parties from asserting a business relationship between them.
• Assignment: This provision prevents the parties from assigning or subcontracting their rights to a third party.
• Force Majeure: This provides for suspension of the contract if its performance becomes impossible due to natural disasters like floods, earthquakes, and hurricanes.
• Headings: This states that the headings don't hold any special significance in the contract.
• Escrow: This allows you to keep payments and confidential information in an escrow account.
• Waiver of Jury Trial: Under this provision, the parties agree to waive their right to a jury trial when there is a lawsuit pertaining to the contract.
• Damage Limitations: This clause places an upper limit on the amount of damages or specifies the type of damages a court may award in the case of a dispute.
• Warranties: Here, the parties promise to fulfill their contractual obligations under the contract.
• Indemnity: In this provision, one of the parties agrees to bear the expenses of certain disputes made by third parties.
• Confidentiality: This prevents the parties from sharing confidential information with others.
• Announcements: This clause spells out the procedure for making public disclosures about the contract — for example, about a joint venture or a merger.
• Counterparts: This clause allows the parties to sign agreement copies without requiring all the parties to be present at the same place and time for such execution.

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