The courts generally respect the right of parties to have the freedom to contract to whatever terms they find agreeable. There are a few exceptions ingrained in California law, such as if the contract is illegal, the parties attempt to contract around a treaty’s requirements, or the parties use a choice-of-law clause with no reasonable basis. However, for the most part, the parties can include any clause they both find acceptable. If one of the parties does not like the terms, they can negotiate for other terms or not enter into the agreement. If you would like help creating a contract that protects your legal and financial interests, consider contacting the experienced business attorneys at Polymath Legal PC at (833) 931-6418. We can discuss whether any of the following types of contract clauses could work for you.
Choice of Law Clause
A choice of law clause specifies which state law will govern the contract. The contract will be interpreted under a particular state’s laws if there is a dispute. California law requires a nexus between the contract and the choice of law. For example, the jurisdiction chosen is also where the contract is to be performed or where the parties are located.
Commencement Clause
The commencement clause states when the parties intend to begin the contract.
Confidentiality Clause
A confidentiality clause requires the parties to keep information about the contract and the business dealing private. The parties might include such a clause when they want to protect trade secrets or ensure that certain information is only used for purposes under the contract. Confidentiality may be a clause in a longer agreement or may make up its own agreement in a non-disclosure or confidentiality agreement.
Dispute Resolution Clause
A dispute resolution clause describes how the parties will resolve any disagreements that come up while performing the contract. For example, they may agree to mediation or arbitration as more affordable alternatives to litigation.
Escalation Clause
An escalation clause speeds up terms of the contract. For example, in a payment agreement, an escalation clause may state that the total amount due under the contract may become payable if the other party misses a certain number of payments. Labor contracts often contain escalation clauses if there is a spike in the cost of materials so that additional funds are due if inflation rises.
Exemption Clause
An exemption clause limits one of the party’s liabilities under the contract if the party breaches the contract.
Force Majeure Clause
Force majeure clauses were largely relied on during the COVID-19 pandemic. These clauses excuse a party from performing the contract or from liability because of unforeseeable circumstances, such as:
- Natural disasters
- Supply chain disruptions
- Pandemic
- War
- Acts of terrorism
- Acts of God
Typically, only the types of items contemplated in this clause can make this type of clause arise.
Indemnity Clause
An indemnity clause shifts the risk of a loss or liability to one of the parties. Indemnity clauses typically state that the other party will be responsible for paying for losses or liabilities stemming from the contract. For example, if party A gets sued by C, party B might agree to pay for the legal expenses and any losses stemming from such a case.
Liquidated Damages Clause
In some cases, it may be difficult for parties to determine the exact amount of losses that they may suffer in case the contract is breached. One solution is to create a liquidated damages clause that states how much money one party must pay to the other in the event of breach or delay.
Merger Clause
A merger clause states that all previous versions of the contract have merged together and the final contract is the complete agreement between the parties.
Non-Compete Clause
Sometimes, parties involved in a contract may try to prevent each other from competing against them after the contract is fulfilled. For example, a company may hire a salesperson and include a non-compete clause that limits where the salesperson can sell similar products or services if the salesperson stops working for the company. This type of claim can prevent the salesperson from using the company’s client lists or trade secrets to make a separate business or work for a competing business. This type of clause must generally contain reasonable terms related to:
- The duration of the restriction
- The scope of the services and skills
- The region where the party is restricted from competing
Severability Clause
A severability clause states that if any other type of contract clause is found to be illegal or unenforceable, that clause will be severed from the contract and the remaining clauses will still be in effect. This type of clause is important because it can help keep the rest of the contract intact. Without this type of clause, the court could consider the entire contract void.
Term Clause
A term clause states how long the contract will remain in place. This could be indefinitely or a defined period of time, such as one year. This type of clause can state that the contract automatically renews each period until one of the parties provides notice that they want to terminate the contract.
Termination Clause
A termination clause states the circumstances when the parties can end the contract. It also specifies the notice necessary. It may define which “for cause” reasons allow the parties to terminate the contract.
Warranty Clause
A warranty clause guarantees the quality of a product or service. Warranties can also confirm that the party is the valid owner of property that is the subject of the contract. Warranty clauses are important because they can provide a separate claim against the party for breach of warranty.
Contact a Business Lawyer for Help with Your Contract
As you can see, there are various types of contract clauses that you could potentially incorporate into your agreements. However, if you want to customize your agreement so that it is carefully worded and clearly define the duties and expectations of the parties, consider contacting a knowledgeable lawyer from Polymath Legal PC by calling (833) 931-6418.