Basic Contract Terms – Part Three

Continued from The Business Contract – Part Two.  

Integration Clauses:  The integration clause states that the written contract entered into by the parties is their entire agreement.  A typical clause reads: “This Agreement constitutes the entire agreement between the parties with respect to the subject matter of this Agreement and supersedes all prior agreements, oral and written, between the parties hereto with respect to the subject matter of this Agreement.”  The integration clause ensures that neither side will be able to later claim that there were additional terms agreed to in a side agreement, orally or otherwise.  All contracts should include an integration clause.  

1267744_time.jpgModification Clauses:  The modification clause is a simple but important clause that requires contract changes be set forth in writing and signed by all parties to be enforceable.  

Severability Clauses:  It is sometimes possible that a particular clause in a contract is unenforceable under California law for a myriad of reasons.  To avoid having such clauses invalidate the entire contract, parties routinely include severability clauses which state that in such cases the remainder of the agreement is valid and enforceable to the fullest extent permitted by law.  

Authority to Execute Clauses:  When corporations, limited liability companies or other formal business entities enter into contracts it is important that the person that signs the contract actually has the authority to bind the corporation, limited liability company or other business entity.  The “authority to execute” clause warrants that those signing for the company have said authority.  This important language is often overlooked by businesses informally contracting with each other without attorney consultation.  

Attorney Consultation Clauses:  It is always wise when one side prepares and presents a contract to the other to include an “attorney consultation” clause asking the other side to acknowledge that it has had an opportunity to consult with independent legal counsel.  This reduces the likelihood that the party may later try and argue that the agreement was so one sided that it was not freely bargained for (adhesion contract) or that the contract was entered into under duress or fraudulent circumstances.  

Counterpart Clauses:  Counterpart clauses are clauses of convenience allowing all parties to sign separate copies of the contract.  It is often the case that parties wish to execute a contract in different locations and on different dates.  With a counterpart clause, the parties may do so while maintaining an otherwise enforceable contract.  

This is not an exhaustive list of common contract provisions, nor is the list intended as a substitute for critical analysis of the four corners of any contract entered into.  Contract drafting and negotiation is a complex process requiring careful review of each clause, and the rights and obligations of the parties.  Consultation with a San Diego contract attorney, despite the understandable hesitation to involve a lawyer, remains the safest way to protect your business.

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