Common Provisions in Your Commercial Contract
Posted by: Copenhaver, Ellet & Derrico
You may have heard about how a missing comma in a commercial contract nearly cost a Canadian company a million dollars in a dispute with a supplier. Thankfully, arguments over punctuation in a contract, while important, are rare. More imperative for your business is having commercial contracts that accurately reflect your agreement with other parties, and those that include several common, but important provisions.
Fortunately, whether you are a novice or veteran business professional, you can call the Roanoke business lawyers at Copenhaver, Ellett & Derrico for your contract needs. Our experienced attorneys can negotiate and draft contracts that are legally compliant and mitigate your risks in a transaction. To schedule a consultation of your case, contact us today at (540) 655-1854.
The Basics of Commercial Contracts
Most contracts you’ve encountered likely appear similar, especially at the beginning. There’s a title, such as “Commercial Lease Agreement,” and the first paragraph will be the party block that sets forth who the contract is between, their addresses, the type of business entity they are, and the date.
Next are the recitals, which often are sentences that start with “whereas.” For example, “Whereas, MegaMart wishes to buy hammers from John Henry Hammerworks.” There can be several recitals giving the background as to why the contract is being formed.
After the recitals, some standard language regarding consideration is often used. For contracts to be valid and enforceable, there must be mutual promises made for performance under the contract. Without consideration, there are no legal remedies. For example, if your neighbor promises to give you firewood from a tree he took down on his property, but doesn’t, you have no legal recourse. But if your neighbor promised to give you the firewood for your payment of $200, and he does not, you may pursue damages for his failure to fulfill his end of the bargain.
In some complex commercial contracts, a definitions section may be required. Commercial leases typically include a definitions section. By defining certain terms, such as what entities comprise the term “company” or what constitutes property, you can avoid ambiguity that might lead to costly litigation.
Following these sections comes the main part of the contract. These provisions should outline the parties’ rights and responsibilities as to pricing, services, and payment. By providing details such as these, there is less chance of confusion, and it is clear if the contract is breached. If the payment clause says invoices are due on the 30th of each month, and you consistently don’t receive payment until two weeks later, the other party is in breach of the agreement. Whether it is a material breach that might lead to damages depends on how material breach has been defined.
Additional Important Commercial Contract Provisions
Beyond the basics, most commercial contracts need additional provisions to ensure compliance and lessen risks. By allowing the business attorneys at our firm to draft your commercial contracts, you can rest assured that your contracts are fair and enforceable.
Commercial contracts should include when the termination of the contract occurs. If you need Widget Co. to supply you with widgets at a set price for the next five years, your contract should reflect that. But the termination clause must also provide when the contract can terminate before the original term ends, and what constitutes “with cause” and “without cause.” Some reasons include material breach, bankruptcy, or acquisition by another company. The termination provision will also detail if there is any penalty for early termination.
Because business contracts are the lifeblood of your company, when a party fails to perform, damages are likely. Accordingly, commercial contracts may contain a provision as to liquid damages for breach. If litigation occurs, there may be additional damages that are warranted.
Representation & Warranties
Commercial contracts likely will have a section containing express and implied disclaimer of warranties. This provision spells out what a party is expected to give, and what the other receives. For example, Big Foot Shoe Co. requires Leather Mart to provide top-grade cowhide leather with no more than four defects per six feet. Some commercial contracts may contain disclaimers of warranties. In this case, one party is trying to limit damages by providing goods or services “as-is.”
Today’s business transactions can involve confidential information that both parties want to protect from release. Commercial contracts often have a confidentiality clause that limits the release of such information except under certain circumstances.
This provision is a fancy way of covering everything outside normal human control applies when the contract can’t be performed because of natural disasters, terrorism, or other uncontrollable acts.
It is important for every commercial contract to have a provision determining what jurisdiction’s law will be used in case of disputes, and where the parties will potentially litigate the matter. If your company is in Virginia, but the supplier of your ball bearings is in Michigan, you will likely in Virginia.
Traveling to Michigan may make the other party’s breach too expensive for you and your witnesses to practically litigate.
Because of the expense and time of litigation from contract disputes, you may be interested in including a dispute resolution provision in your commercial contract. This clause would require arbitration or mediation before either party pursues litigation. However, such provisions, if not written by your attorney, can be stated in favor of the other party. Language truly matters.
Trust Us with Your Commercial Contracts
Our business lawyers at Copenhaver, Ellett & Derrico know the importance of drafting precise agreements with all the necessary terms and conditions to protect your business interests. When an errant comma can mean millions of dollars, or a forgotten provision bars full recovery, you need experienced business counsel to draft your contracts so you can focus on your bottom line. Contact us at (540) 655-1854 for an appointment to discuss your contract needs.