What are the clauses of a commercial contract that should always protect your interest in the execution of a contract?
The proper drafting of a contract or agreement of wills between two or more parties does not depend so much on its length or the technical language used, which is of course important. It is rather a matter of clarity, naturalness and accuracy of its content and drafting. Usually, a basic reading should reasonably allow its understanding with a complete picture of the distribution of rights and obligations.
The determination of one clause or another is crucial when making a contract, that is why, advice is fundamental to take the proper decisions and avoid misunderstanding and conflicts.
In addition, it is important that both parties are clear about what they want to establish in the contract and its purpose. It is true that there are standard clauses since the contract must contain a minimum information, but we must emphasize that the clauses are of free choice, in other words, the parties are the ones who freely agree and decide on the extent of the contract.
The clauses of a contract addressed in this post are the most basic and fundamental that any contract should contain. However, they must be adapted to each type of transaction.
1.- Parties
It is one of the most basic and important clauses of a contract at the same time to define the Parties. First of all, it is essential to ensure that the person who signs the contract is entitled to do so, either on his own behalf or on behalf of the company, the validity of the contract will depend on it, therefore the people who sign must have sufficient legal capacity to sign and be bound according to the terms of the contract. To check on public registry, to ensure the validity of powers of attorney and other relevant data such as the company address might have important legal effects.
2.- Purpose
A basic aspect of any contract is to indicate what its object is, that is, what kind of relationship or operation it intends to regulate between the parties. Contracts are what they are, independently of how we name them.
3.- Duration
The duration of the contract, both the start date and its end date, must be established. It is advisable to detail the possible causes of termination of the contract early or the reasons that may extend it. However, if the parties deem it appropriate, they can indicate the possibility of extended the contract after its expiry date and for how long. To facilitate continuation of the contact without a complex negotiation must be considered when establishing deadlines and duration.
4.- Payment
An essential part of the agreement will be to clearly indicate the price of the service, and indicate whether it includes VAT or not, or other taxes applicable to the operation. In addition to the price, you must indicate the payment method and the term to make it. All this, to avoid misunderstandings, and to establish clear sanctions in case of not compliance with the main obligation of one of the parties.
5.-Obligation of the parties
It is the commitment to which the parties who have agreed to the contract commit themselves. The consequences of its non-compliance by any of the parties and what each of the parties must contribute must be clearly specified. Beyond legal effects, a clear definition of obligations may facilitate the development of any business.
6.-Confidentiality
Normally, in this type of contract a lot of information is exchanged by both parties to perform their contractual duties. In order to protect such information, it is important to determine a good clause of confidentiality. The drafting of confidentiality clauses or NDA (Non-disclosure Agreement) are highly recommended when exchanging any kind of company information.
7.- Termination clauses
The termination clause provides the causes to terminate the contract. It’s often tied to the passing of time, the completion of a project, or any relevant infringement of the contract obligations.
8.-Exclusivity
The parties can be restrained from providing the same kind of services or entering into the same nature of agreement with a third party during the existence of this agreement. Usually exclusivity requires compensation and/or minimum sales.
9.-Compensation
This clause determines the consequences for the event that either party violates their obligations arising from the legal business.
10.-Force majeure
It is important to establish this clause in case any event is beyond the control of parties or unforeseeable, for instance, in case of a natural disaster, such as a hurricane or earthquake, a shipment schedule may be disrupted. The clause is vital because it ensures that failure to perform duties due to unforeseeable circumstances would not be considered a violation. Now with Covid-19, this kind of clauses are extremely important.
11.- Jurisdiction and governing law
Although most people do not attach sufficient relevance to jurisdiction and applicable law, they are often very important to solve potential conflicts or disagreement among the parties. They establish the law the interpret the contract and the court / arbitrator where any matter must be solved.
Furthermore, let us provide example of relevant matters to be considered under three kind commercial contracts under Spanish Law:
- Joint venture contract.
- Geographical scope of action of the Joint Venture (“JV”).
- Financial contribution of the parties to the JV
- Administration and management of the JV.
- Distribution contract.
- Value of Goodwill.
- Non-compete agreement.
- Minimum supply obligation.
- Compensation due to Goodwill after termination.
- Protection of industrial and intellectual property rights of the supplier.
- International sales contract.
- Delivery terms.
- Reservation of domain.
- Transfer of ownership.
- Insurance
- Inspection of the products by the buyer.
- Incoterms rules
If you need help with relevant clauses in a contract, do not hesitate to contact us. Is crucial to search for proper professional advice to assess potential risk in any operation and to draw up the most convenient clauses so that there is genuine legal certainty and your interest are duly protected.
INNOVATIVE LEGAL SOLUTIONS
Paula Turunen Cruz (Colaboradora)
Jesús Bores Lazo, Socio-Director
