What clauses make up a commercial contract?

 

So what goes into a commercial contract? Whilst the detail in each contract will vary, there are a number of key clauses that are always included. These can be express terms, which are written into the contract, or implied terms, which are not included in the contract but are implied by the law, industry standards or past practice and are equally binding.

Implied terms must be considered as carefully as express terms.

Below is an explanation of the key express clauses
you can expect to find in any commercial contract.

Parties to the contract

The parties to the contract must be accurately identified by name and address. If a party is a company, it must be identified by its name and not
the name of a representative, for example a director
or the company secretary.

This is because the representative may become
legally bound to fulfil the obligations of the contract instead of the company.

Definitions

A commercial contract

The definitions section of a commercial contract is an important tool that allows the parties to obtain uniformity and clear understanding throughout the rest of the contract. It contains a list of key terms used throughout the contract and states what both parties have agreed the term should mean.

The definition section means the key terms do not have to be explained every time they are used in the contract. For example, terms commonly found in the definitions section include ‘parties’, ‘affiliates’ and ‘business day’.

Getting these definitions clear at the start is vital.

Obligations of the supplier and customer

This section contains all the details of the purpose of the contract. For example, X will provide Y with 300 hours of consultancy work on the Z project. Y will pay X for this service.

Obviously this section will vary greatly depending on the nature of the agreement between the parties and the service or supplies that the supplier is providing. Careful consideration and documentation of the details of the agreement in this section will help to ensure a successful business relationship and the satisfactory completion of the contract.

Term and termination

The term of a contract is from when it starts to when it finishes. The start of the contract could be the date it is signed or a date in the future that depends on a certain event happening. Likewise, the end of the contract could be a calendar date or an event, such as the completion of a project.

The termination clause is important as it will outline how either party can terminate the contract before it was due to end. The clause will contain a procedure that must be followed and indicate what circumstances will allow for early termination of the contract. For example, early termination could occur if the customer is not satisfied with the quality of goods provided by the supplier.

Fees and payment

This clause will detail which party is responsible for any fees that may be payable as a result of the contract, for example solicitors’ fees. It will also detail how and when the supplier is to be paid by the customer. The clause will set out the price of the goods or services that must be paid for. If the price is not fixed, the clause will explain how it is to be calculated. It will usually say the invoice must be paid after a certain number of days.

Confidentiality

Commonly found in employment contracts, confidentiality clauses are also necessary for some commercial contracts. In order to protect their commercially sensitive information, one party will make sure there is a confidentiality clause in the contract stating the other party is not allowed to disclose or use confidential information (‘confidential information’ will be defined in the definitions section).

The confidentiality clause is especially important when two parties are forming a temporary partnership.

Intellectual property

The intellectual property clause will state which party will own any intellectual property created

IP clauses

throughout the term of the contract and how that property may be used.

Intellectual property is very valuable to commercial bodies and therefore needs to be expressly protected within the contract. An intellectual property clause will stipulate that the intellectual property may not be used by one party once the contract has come to an end.

Restrictive covenants and non-solicitation

These clauses aim to protect the customer from losses in the event that the supplier uses the knowledge gained from working with the customer for their own benefit in future commercial arrangements.

More specifically, a restrictive covenant stops the supplier from working for a competitor during the contract and for a specific period of time following termination. This prevents valuable commercial knowledge and skills being immediately transferred to a rival company. These clauses are suitable for arrangements where the supplier gains a very intimate understanding of the customer’s business, and they are also very common in employment contracts.

A non-solicitation clause also prevents the supplier from inducing the customer’s employees, customers or suppliers to switch to his or her organisation. Again, these are common with an arrangement involving a very close working arrangement.  

Liability

A liability clause is particularly important for a supplier of goods or services. It will state whether their liability under the contract can be limited, and if so, by how much. If no limit to their liability is imposed, it could leave them open to expensive claims for damages.

Liability cannot be fully excluded or limited, and therefore in order to be effective this clause needs to be carefully drafted to ensure it is still within the law.

General

There are a number of general clauses included in most commercial contracts that are also known as ‘boilerplate clauses’. These clauses are often included as standard in commercial contracts but that does not mean they should not be carefully read and, if necessary, they should be altered before the contract is signed.

One boilerplate clause to take note of is assignment. Assignment occurs when one party hands over its obligations to a third party. It is a way of getting out of the contract. Ideally, once assignment has occurred, the party would have no further obligations under the contract.

However, the clause must be read carefully as in some circumstances the original party may still be liable for their obligations under the contract. For example, if the third party failed to perform them.

Another boilerplate clause of importance is notice. The notice clause will set out any notice periods under the contract. For example, the notice period a party must give if they wish to terminate the contract. In addition, a commercial contract will also have a clause stating the jurisdiction of the contract and the one that will be used to resolve any conflict arising between the two parties.

Summary of contracts and clauses

Commercial contracts are complicated legal documents. Before signing one it is vitally important to ensure what you are signing matches the agreement you believe you have made with the other party. Hiring an experienced commercial solicitor to review the contract prior to signing will ensure you do not have any unwelcome surprises further down the line.

In addition, a commercial solicitor can draft a contract on your behalf. They will ensure all the terms have been considered and carefully detailed in the contract so that the agreement between you and the other party is properly documented. A well-drafted contract helps to ensure that there is minimal confusion between the parties and is also important should a future dispute between the parties arise.

Do you need to draft a contract, or need someone to look over one you need to sign? Call us and we will be able to put you in contact with a specialist local commercial solicitor perfect for your needs. Our number is 0800 1777 162, or use the web-form above.

Call
0800 1777 162
or fill in the form
Our trained advisor contacts you
Your chosen specialist solicitor calls you
Quick enquiry form
Area of law:
Name:
Town/City:
Email:
Phone:
What our clients say about us
"This was the first time I've been to court, which was a nerve-racking experience for me. However, I felt very prepared, I understood my case and representation - this was down to you."
Gavin, criminal motoring, Oct 15
"Your service, and the prompt call back from your recommended firm was very good. I would not hesitate to call again or recommend your service."
Ian, employment law, Truro, July 15
"The firm were excellent, could not have been better! They are exactly what I need right now."
Linda, criminal defence, Thames Ditton, Jul 15
"Your contact and service was immediate and utmost professional, 10/10."
TF, conveyancing, Dudley, Jun 15
"I appreciate the service that you provide. I found you to be courteous, efficient and reassuring at a time when my confidence in justice is completely negative."
Patrick, litigation, Pontypridd, Jun 15
"I cannot tell you how much I appreciate the speed of which you came back to me in. If anyone else can benefit from your help like I have done, it would make my day."
Gail M, family law, Potters Bar, Jun 15
"Your assistance was extremely helpful. Particularly to someone who in 40 years of business has never experienced this sort of issue."
TD, commercial litigation, Galashiels, Apr 15
"It is difficult to express the value Contact Law has to someone like me who had very little understanding of the law and how to proceed forward with my case. Thank you for the service you provided."
AE, defamation law, Worthing, Apr 15
"Thank you for the efficient service I received. I was contacted by your solicitor on the same day as my request. Your quick response to my situation made me feel secure."
AN, employment law, London, Apr 15
"Your service was excellent, very fast and informative. I never got the impression of being pressurised at all. The solicitor you recommended was also excellent – very knowledgeable and supportive."
JHD, Motoring law, Liverpool, Apr 15
Contact Law supports the endeavours of STAE and commends all the work they are undertaking to assist in the plight of the Asian Elephant

 

We use cookies on the Contact Law site to help us improve it.

If you would like to allow our cookies, please click 'Continue' or carry on browsing. For more information on cookies and how to change your settings, click 'More info'.