When considering provisions to include in a contract, most people automatically include the major deal points such as purchase price, inspections, and closing procedures. However, almost equally as important are those sections at the bottom of almost every good contract which protect the contracting parties if things go wrong throughout the term of the contract. Here are five essential provisions to include:
Severability
Including a severability clause in your contract ensures that if a court would ever find that one part of your contract is invalid, illegal, void, incapable of being enforced, or against public policy that the other terms and provisions of the contract are thrown out, then a court may throw the entire contract out with it. This clause ensures that if a minor, or non-material, component of the contract is deemed unenforceable then the rest of the deal may continue as the parties intended.
Integration
An integration, also known as an entire agreement, clause shows a court that each of the contracting parties agreed that this written contract is the entire finalized agreement regarding the contract matter. Including this provision prevents another party from attempting to change or include other terms or side agreements in the contract. By including this provision, any outside agreements made prior to or contemporaneously with the written contract are inadmissible to alter the terms of the written contract.
Liquidated Damages
A contract provision providing for liquidated damages, such as a retention of earnest money in a property sale, allows the contracting parties to agree in advance to fair compensation if the other party breaches the contract. This provision protects the parties from high judgments and unnecessary litigation if something goes wrong, limiting the damages the breaching party will have to pay to the agreed-upon amount. However, to be enforceable, liquidated damages must be a reasonable estimate and may not be used to punish the breaching party.
Time is of the Essence
Including a clause in a contract stating that time is of the essence means that failing to perform within the timeframe provided by the contract creates a material breach of the contract. Merely including a date for performance does not make that deadline a material part of the agreement. Including this provision means that missed deadlines would likely entitle the non-breaching party to terminate the contract and receive damages.
Jurisdiction & Venue
Prior to a lawsuit ever being filed, the parties to a contract can agree to take a lawsuit to a specific court. This is especially important if you are dealing with out-of-state or remote parties. Including a provision specifically stating the location where any cases are to be tried can prevent you from having to travel to another city or state to defend or pursue a lawsuit in case controversy between the parties does arise.
Although these provisions are not failsafe, don’t take them for granted because including them in every contract can help to protect you when contracting goes wrong.
By: Libby Smith, Attorney at Law