Common Contract Clauses – That “nonsense” at the end of the contract

In this last installment of the series, we will examine those various clauses that occur at the end of every agreement. They may seem unimportant and rote. If, however, there is a disagreement that must be settled in court, these clauses will serve a pivotal role in the litigation. A general understanding of what they mean and why they are there will be helpful for anyone before they sign on the dotted line.

Governing Law/Choice of Law clause:

This common clause lays out in the contract the jurisdiction in which any dispute over that agreement will be heard. Generally, the clause is written very broadly, with language such as “any dispute arising out of this contract” covering most issues that could concern it. A clause like this is helpful to a developer or seller who is distributing a product on the Internet, where normal jurisdiction rules would allow a plaintiff to haul the developer into court in their home.

For instance, a California game developer who sells a game to someone in New Hampshire may be required to appear in a New Hampshire court if they are sued over the game. If this clause makes it clear that all disputes over the game are governed by California law and courts, then it will save the developer a lot of hassle should there be a meaningful dispute.

The particular set of laws chosen could have a great impact on how the contract is interpreted, so choose carefully. Generally, the chosen jurisdiction has to have some connection to the parties; picking a random state or country will probably not be upheld in court.

Notice:

The notice clause in a contract details the requirements for communicating important information to the other party, such as a request to terminate the contract. Failure to follow these instructions could leave an opening for the other party to dispute that proper notice was given. This could put a big damper on efforts to end the agreement, or achieve some other important goal that must be communicated to the other side. When signing a contract, be sure to read this section to ensure that it is not over-burdensome or complicated.

Severability:

This clause states that, if one clause in the contract is found to be unenforceable, it will be severed from the agreement and the rest of the clause will survive. Without this, there is a danger that the entire agreement could be thrown out if there is one bad provision. For instance, if there is a liquidated damages clause that kicks in to penalize someone for not performing, this will be thrown out by a court. With a proper severability clause in the contract, the rest of the agreement will survive and reasonable damages will apply. Without it, the entire contract could be void.

Merger/Entire Agreement:

Last, the so-called “merger” clause is usually near the end of the contract, and states that the contract is the final and only agreement between the parties. This clause is there to avoid any modifications that may have been made before or during negotiation of the agreement. This is the very essence of “get it in writing”; everything that is in the agreement IS the agreement.

Hopefully this little walk through some of the important, but often ignored, parts of nearly every contract has been educational. As always, any drafting or review of agreements should be done with the advice and counsel of an experienced attorney. Don’t wait until there is already a dispute to get legal protection.