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LEGAL DICTIONARY

Contract Clause

Writing a contract means detailing its provisions in clauses, but what is a clause in a contract?

A clause is a section or phrase of a legal document that relates to a particular point. In contracts, clauses define specific aspects of the agreement.

A contract clause can only be enforced if it does not conflict with existing state laws.

There are many different types of clauses, and the ones you include will depend on the needs of each party.

Examples of Contract Clauses

Some of the most common contract clauses are the following:

  • Statute of limitations or “timing” clause. It gives each party a time limit for filing lawsuits when there’s a contract breach.
  • Remedies, also known as a damages clause. This defines the amount of money that a breaching party will have to pay as compensation.
  • The arbitration clause specifies that any disputes must be settled through arbitration rather than in court.
  • Non-disclosure states that confidential information regarding one party must not be disclosed by the other party.
  • Force majeure applies to performance. It outlines what happens if a party is unable to fulfill their contract obligations due to unexpected circumstances.
  • Indemnification states that one party promises to reimburse the other party’s costs for different types of damages.
  • The consideration clause defines what either party must give and receive to enter the agreement.
  • Severability is a type of clause that declares that if certain provisions are determined unenforceable, the rest of the contract can still be enforced.

What Is The Difference Between Non-binding and Binding Contracts?

A binding contract contains key elements to make an enforceable legal contract, some of these include:

  • Offer: one party presents something of value to exchange with the other party and this offer is accepted.
  • Consideration: as previously mentioned, the consideration clause relates to what either party must do to enter the agreement. It is considered essential to make a contract valid.
  • Intention: all parties in the agreement must want to create an enforceable contract.
  • Legality: the contract may not include any considerations which break the law.
  • Capacity: the person signing the contract must have the legal capacity to do so.

Contrastingly, a non-binding contract is an agreement which is not valid or enforceable because it is missing one or more of the elements above.

One example of this type of contract is a letter of intent. In this kind of agreement, either party can drop out at any time without facing any consequences.