Don't Sign a Contract If It’s Missing These Five Clauses!

While no two contracts are exactly the same, there are five common clauses that should be found in any well-written contract. No matter the complexity of the contract terms, the five clauses discussed below cover important aspects of the agreement between the parties, including, what happens if the contract is breached, which state law decides how the contract terms are interpreted if the contract is disputed in court, and whether the contract remains in force if any section or terms are found invalid by a court.

Here are the five most common contract clauses:

Default Clause: One of the most important clauses in any contract is the default clause. This clause establishes an agreement between the parties regarding the specific events that they consider to be breaches of the contract terms. Some common examples include: (1) failure to make a payment owed; (2) failure to perform a term of the agreement; (3) filing a bankruptcy petition; (4) subleasing without the Landlord’s prior written consent; and (5) failure to deliver goods at a specified time.
Although default clauses cannot anticipate every possible “worst-case scenario,” depending on the industry, there are often default terms that cover the most common problems that occur in those types of transactions.
Remedies Clause: Sometimes combined with the default clause, the remedies clause covers the options that are available to the non-breaching party in the event of a default. Depending on the nature of the transaction, the remedies can vary widely.
Some common remedies include: (1) monetary damages; (2) termination of the contract; (3) specific performance (i.e., the breaching party must fully perform their side of the agreement); (4) option to cure (i.e., the non-breaching party can give the breaching party the opportunity to fix their breach, without any affect to the terms or force of the contract) and (5) alternative dispute resolution, such as mediation or arbitration. A solid remedies clause can be the difference between a continued relationship and a total disaster.
Integration Clause: Also commonly referred to as a “merger clause” or “entire agreement clause,” the integration clause signifies that the final and complete agreement between the parties is memorialized in the contract and it supersedes any other agreements, whether oral or written, that are not in the terms of the contract. This clause is meant to prevent one party from later claiming that what the parties actually agreed to was different from what was written in the contract.
Severability Clause: A severability clause helps protect the parties in the event of litigation related to the terms of the contract. In essence, this clause ensures that if any portion of the contract is found to be invalid, unenforceable or unlawful, by a court of law, only that invalid section may be stricken from the contract, keeping the rest of the agreement in tact. The severability clause prevents the unnecessary headache of having to redraft an entirely new agreement should one section or clause be found invalid.
Choice of Law/Governing Law Clause: A choice of law and governing law clause are exactly what they sound like. In these clauses, the parties agree that a specific state’s laws will be used to interpret the contract, even if they live in a different state. Although contract law is quite consistent across the fifty states, there are certain provisions within contracts that are interpreted differently depending on the state law that applies.
Likewise, the laws that determine who can file lawsuits, when they can be filed and under what bodies of law they may be argued, are quite different across the states. For example, the statute of limitations for filing a breach of contract lawsuit in New York is six years, where in California, it is only four years.

Whether you’re reviewing a contract for the first time or the hundredth time, be sure that it contains these five clauses and pay extra attention to the default and remedies clause as they cover the most important decisions that must be made in the event that the contract is breached.

Disclaimer: This blog post and similar posts are not to be considered as providing legal advice. The discussion here is meant for educational and informational purposes only and shall not create an attorney-client relationship with the readers of this content.