6 Clauses Typically Found in Commercial Contracts

Louis Balla
Louis Balla
Louis is the Co-Founder of Anapact and partner at Nuage, a top rated ERP consulting firm based in Venice Beach, California.
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If you run a business, you’ve likely needed the services of a vendor or supplier to help you provide the best product possible to your target audience, which often involves a commercial contract. This document is a legally binding agreement between two or more parties that outlines what all parties must do so the contract stays valid and the repercussions if anyone fails to adhere to the agreed terms and conditions.

Commercial contracts are typically in the form of written documents, but verbal agreements are commonplace in certain situations. They’re used in just about every industry, so it’s essential to familiarize yourself with them. Commercial contracts tend to have the same clauses throughout, and understanding these can help improve your efforts to comply. Here are six clauses typically found in commercial contracts to help you pursue contract best practices:

1. Confidentiality

Every commercial contract comes with a clause of confidentiality. It usually contains the exchange of sensitive information so both parties can perform their contractual obligations according to the other’s preferences. Since there is a need to supply such information, especially about financial and business aspects, the contract must include a strongly worded confidentiality clause. The clause must prohibit both sides from revealing any information shared during the transaction, especially when valuable intellectual property is involved.

2. Termination Triggers

Sometimes, despite your best intentions, things don’t happen as planned. That’s why both parties must have a sound exit plan when necessary, which comes in a termination clause in contracts. This clause must elaborate on the circumstances under which either party may legally terminate the contract without any repercussions, regardless of the time left under it. 

3. Force Majeure

This phrase translates to “greater force,” often about circumstances beyond anyone’s control, like natural disasters. For example, if an earthquake or hurricane has disrupted the logistics and significantly delayed a shipment schedule, it should not be considered a breach of contract. 

However, defining force majeure can be rather broad, as contracts include different aspects such as acts of God or terrorist attacks. It is crucial to word this clause carefully to ensure that any inability to perform because of an unforeseeable disruption is not regarded as a contract violation.

4. Damages

Many contracts include a clause related to damage to control contract breaches and prevent them from happening altogether. Liquidated damage clauses are usually included, a predetermined amount that one party must owe if they fail to perform their contractually obligated duties. A court may also grant other kinds of damages beyond the amount, although this depends on the breach’s impact and nature.

5. Jurisdiction

Due to the remote workplace taking over most businesses worldwide, cross-border transactions are becoming increasingly common. If the parties involved in a contract belong to more than one state or country, it can be challenging to understand which place’s laws concern the arrangement. For this reason, it is crucial to have the commercial contract specify the site that will have jurisdiction over the agreement, so both parties will clearly understand which laws are applicable.

6. Dispute Resolution

Even the most precisely crafted contracts can sometimes have the parties run into conflict. That is why it is crucial to include a clause on dispute resolution so that there is a concrete plan either party can pursue should an issue arise. Some firms add an arbitration clause, obliging the parties to submit to arbitration before seeking a remedy through litigation. It is a faster and more affordable way of solving contract-related problems.

Conclusion

Contracts can be tricky to navigate without a standard set of clauses, which include these six stipulations. By familiarizing yourself with these clauses, you’ll have an easier time drafting sound contracts and managing them with contract cycle management.

Anapact makes it easier to stay on top of your contracts with our automated contract management system, designed especially for small and mid-sized businesses. Use our solution to reduce risk, ensure compliance, and make the most of your contract documents. Try our demo today!

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- About the Author

Louis Balla
Louis Balla
Louis is the Co-Founder of Anapact and partner at Nuage, a top rated ERP consulting firm based in Venice Beach, California.