The parties in a business contract usually give considerable thought to the material terms of the contract, including the promises, obligations and rights afforded to each of the parties in the contract. The remainder of the written contract often includes a number of provisions that are regarded as routine and basic, but can have a significant effect on how the agreement operates. Understanding the impact of these “miscellaneous” provisions is vital to negotiating a contract that protects your rights and interests.
Jurisdiction and choice of law. The choice of law clause designates which state’s laws will apply if a dispute arises. The jurisdiction provision determines in which state and county the lawsuit will be filed. This clause can be critical as some courts or jurisdictions are known to be sympathetic to particular plaintiffs or issues.
Arbitration. The requirement that arbitration proceedings be used to resolve disputes is commonly found in a variety of contracts, including employment and consumer contracts. Though some states have laws that supersede mandatory arbitration clauses based on the unconscionable nature of some of these contracts, arbitration is still mandated as the preferred method under the FAA and should not be invalidated.
Assignment. An assignment clause dictates whether the parties to the contract are permitted to transfer their rights to another party. If one business merges with another or purchases the assets of another entity, this clause will be important in determining which agreements can be transferred to the remaining party.
Integration. One of the principles of contract law is that the written agreement between two parties represents the complete and final understanding of the promises and obligations that the parties have agreed to perform. This is referred to as integration, and most clauses have an integration clause to explicitly provide that the final, written contract disavows any prior written or oral agreements. In any complex negotiation, it is important for the parties to understand that prior agreements that are not memorialized in the contract will not be automatically enforceable.
Indemnity. An indemnification provision states that one party agrees to pay the costs of third party claims brought against his counterparty. As this is characteristically a fee-shifting clause, the indemnifying party should ensure that the language of the provision limits the scope of the clause, guarantees indemnity only against reasonable claims and caps the amount to be paid in a lawsuit.
Contact Shane Coons at 949-333-0900 or visit his website at www.ShaneCoonsLaw.com to find out more about his practice.