Commercial Contracts- Structure & Content

Commercial contracts come in all shapes and sizes and their contents vary depending on their subject matter. But there are many features that will appear in a majority of them, and these are ot always understood even though they are sometime referred to as being 'standard provisions' or words to that effect.

So this blog explains some of the most common elements of commercial contracts:

Parties
The names, addresses (registered address in the case of companies) are set out at the start of the contract.The parties also are named at the end as well where they sign it.

Each party will be given a short name for the purposes of the entire contract, such as 'Seller', 'Buyer', 'Client', 'Contractor', or each may be identified by their initials e.g. Stefan Lithgow ('SL").

It's vital that the correct parties are named in the contract. This means making sure that within a group of businesses, the one that is to be responsible for undertaking the contract obligations.

An example of how the parties may be described:

"THIS AGREEMENT is made the [xx] day of [month] 2020  

BETWEEN:

(1) [Name] a company registered in the United Kingdom under number [xxxxxxxxxx] whose registered office is at [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx] (the “Company”) and

(2) [Name] a company registered in the United Kingdom under number [xxxxxxxxxx] whose registered office is at [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx] (the “Client”)"

Preamble or Recitals

This is the part of the contract that appears immediately after the names and addresses of the parties and before the Interpretation or Definitions clause.

The recitals set the scene, so to speak, and 'recite' in a fairly summary form how and why the parties have got to where they are, what the subject matter of their deal is and that they and have decided to make an agreement.

Sometimes, but not always, the recitals will form part of the agreed text of the contract. Usually, this is to ensure that any pre-contract representations that may have been made between the parties are expressly agreed to form part of their agreement.

An example of how recitals may be worded:

"WHEREAS:

(1) The Manufacturer manufactures the Products, as described in Schedule 1 and now wishes to sell the Products to the Client, together with certain services to maintain the Products.

(2) The Client wishes to purchase the Products from the Manufacturer and to distribute the Products in the Territory under its own brand names.

(3) The Manufacturer has agreed to fabricate and deliver the Products to the Client and provide the Services to the Client in accordance with the terms and conditions of this Contract.

IT IS AGREED as follows:"

Interpretation or Definitions

These come immediately after the recitals and are usually numbered Clause 1 in commercial contracts.

They are a key part of the mechanics of the agreement and must always be carefully crafted to ensure accuracy throughout the document.

All the words and phrases that are going to be used frequently in the contract are given a specific meaning to enable the document to flow when it is read and interpreted.

Some fairly typical examples of defined terms are to illustrate what they can look like are:

Each contract will need to have its own unique set of defined terms to make it work properly and to avoid misunderstandings and disputes.

Express Terms

These are the real guts of a commercial contract and are to be distinguished from the 'boiler plate' clauses (see next).

The parties will have set about coming to a broad understanding of what they are agreeing to through meetings and other communications, and the main body of the contract will set out the details.

Very often, the parties will find that these clauses contain more than they expected to see, based on their own, often shorthand pre-contract exchanges. This is because contracts usually aim to protect parties' interests and to cover more eventualities than the parties themselves have had either the time, inclination or ability to properly consider.

A not untypical list of clause topics (e.g. for a services agreement) will contain the details of what is being agreed might look something like the following:

• Scope of Services
• Provision of the Services
• Key-personnel
• Home Office Support
• Service Levels & KPIs
• Fees and Payment
• Term
• Resources
• Training
• Reporting
• Intellectual Property
• Liability and Indemnity
• Schedules:
  1. Systems
  2. Training Materials
  3. Telephone Numbers
  4. Resources
  5. Reporting procedures

'Boiler Plate' Clauses

This expression is often used when a contract is being drafted or referred to and it simply means provisions in a contract that are generally accepted as being a common feature in most forms of commercial contract.

The exact wording of 'boiler plate' clauses will likely vary from contract to contract, but whatever their exact formulation, they will essentially cover the same ground.

Boiler plate usually finds its place towards the end of a contract and rounds it off as a document. Often, the last two boiler plate clauses deal with the contract’s governing law, the jurisdiction and the method of resolving disputes.

Why does a contract need Boiler Plate clauses?

The selection of Boiler Plate clauses depends on several matters including the type and subject matter of the contract and the parties’ respective interests.

Boilerplate Examples 

The following are some common provisions that you might expect to find in a commercial contract, with some example wordings:

• Confidentiality: imposes confidentiality obligations on the parties and can vary a great deal depending on the information and be protected and for how long, e.g.:

“Each Party undertakes that it shall, at all times during the continuance of this Agreement [and for 2 years after its termination] keep confidential all Confidential Information and not disclose any Confidential Information to any other party.”

•  Costs: establishes who pays for the preparation of the contract and can be varied depending on what is agreed, e.g.:

“The costs and expenses (including professional, legal and accountancy expenses) of the preparation, negotiation and execution of this Agreement and associated documentation shall be borne by the [Company] [by the parties in equal proportions].”

• Duration: states the length of time the contract is to be in force for, e.g.:

“This Agreement shall continue in full force and shall bind each of the Parties for so long as he or she shall be the beneficial owner and/or registered member in respect of any Shares in the Company until the date of commencement of the Company’s winding up.” 

• Force Majeure: provides that if circumstances arise that are outside the control of the parties then their rights and obligations can be suspended for an agreed period, e.g.:

“No Party to this Agreement shall be considered to be in breach of or liable for any failure or delay in performing their obligations where such failure or delay is due to Force Majeure [which term will be defined in the Definitions clause]”

For more on Force Majeure- see our blog on Coronavirus

• Governing Law: establishes the system of law to be used to interpret the contract and any disputes arising under it, e.g.:

“This Agreement shall be governed by and construed in accordance with the laws of England and Wales.” 

• Jurisdiction: establishes the court system that will be used to determine a dispute under the contract, e.g.:

“All disputes or differences between the Parties arising under or in relation to this Contact shall be referred to and finally decided by the Courts of England and Wales.”

• Non-Assignment: prohibits assignment of a contract or part of a contract to another legal entity, e.g.:

“This Agreement is personal to the parties and neither party may assign any of its rights hereunder, or sub-contract or otherwise delegate any of its obligations hereunder, except with the prior written consent of the other party.”

• Notices: provides the methods by which the parties must give a contractual notice to one another and the clause can take many different forms, e.g.:

“All notices under this Contract shall be in writing and be deemed duly given if signed by, or on behalf of, a duly authorised officer of the Party giving the notice.”

A boilerplate notice clause may also include a deemed notice provision, such as:

“Notices shall be deemed to have been duly given under this Contract:
a. when delivered, if delivered by courier or other messenger (including registered mail) during normal business hours of the recipient; or
b. when sent, if transmitted by facsimile or e-mail and a successful transmission report or return receipt is generated; or
c. on the third Business Day following mailing, if mailed by national ordinary mail, postage prepaid; or
d. on the fifth Business Day following mailing, if mailed by airmail, postage prepaid.

In each case notices shall be addressed to the most recent address, e-mail address, or facsimile number notified to the other Party.”

• No Waiver: preserves the parties’ rights if they have failed to exercise them or waived them for an earlier breach by the other party who then commits a later one, e.g.:  

“No failure or delay by either Party in exercising any of its rights under this Contract shall be deemed to be a waiver of that right, and no waiver by either Party of a breach of any provision of this Agreement shall be deemed to be a waiver of any subsequent breach of the same or any other provision.”

• Relationship of the Parties: establishes that the parties are only in a contractual relationship and no other type, e.g.:

“Nothing in this Agreement shall constitute or be deemed to constitute a partnership, joint venture, agency, or other fiduciary relationship between the Parties other than the contractual relationship expressly provided for in this Agreement.”

• Severance:  permits survival of the contract even if some of its provisions are held by a court to be invalid or unenforceable, e.g.:

“If any provision of this Contract is held by any court or other competent authority to be invalid or unenforceable in whole or in part, this Contract shall continue to be valid as to its other provisions and the remainder of the affected provision.”

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By the publications team at: Contracts-Direct.com with the assistance of the referenced third parties 

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Note: This publication does not necessarily deal with every important topic nor cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice. The information contained in this document is intended to be for informational purposes and general interest only.

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