Common contract clauses explained

Force majeure appears in exactly one of the twelve agreements published on this site. So do severability and waiver, and it is the same agreement all three times. Twelve properly drafted contracts, and the clauses everyone calls standard turn out to be nothing of the sort.

That is the useful thing to know before you read a contract: there is no fixed list. There is a set of jobs a contract can do, and each draft picks the ones its deal actually needs.

Why clauses read the way they do

Contract language is not deliberately obscure, it is deliberately settled. Cornell’s Legal Information Institute defines boilerplate as stock language that appears in all instruments of a given type, and adds that a boilerplate clause is construed against the party offering it where there is no evidence the terms were negotiated. Wording that a court has already interpreted is safer than wording nobody has tested, which is why the same phrases persist.

The cost is that the person signing often cannot tell what they have agreed to. The rest of this post is the translation.

This is general information, not legal advice. Contract law differs by jurisdiction, and whether any of these clauses is valid, required or enforceable where you are is a question for a lawyer admitted there.

The twelve clauses in plain English

• Definitions. Fixes what the document’s key words mean so they cannot drift. Capitalised words in a contract are usually the defined ones, and the definitions clause is where you check them.
• Term. When the agreement starts, how long it runs and what happens at the end: automatic renewal, rollover month to month, or simply stopping.
• Payment. The amount, when it is invoiced, when it falls due, what happens if it is late, and whether the figure can move during the term.
• Intellectual property. Who owns what existed beforehand, who owns what gets made, and whether the other side receives ownership or only a licence. Watch the timing: rights that pass on payment behave very differently from rights that pass on delivery.
• Confidentiality. A duty over information handed across, with exclusions and a period attached. The NDA post works through the choices inside this one.
• Warranties. Cornell’s Legal Information Institute describes a warranty as a promise or assurance about the existence or accuracy of facts, or the condition, quality or nature of goods or property. A warranty that turns out to be untrue is a breach, without anyone having to prove carelessness.
• Limitation of liability. Caps the money. Usually three layers: the things that cannot lawfully be excluded, then indirect and consequential loss excluded, then a number.
• Indemnity. Per the same source, one party commits to compensate another for prospective loss or damage. It is a promise to pay, usually aimed at claims made by third parties, and it usually runs one way.
• Termination. How the agreement ends early, on what notice, for what reasons, and what survives the ending.
• Force majeure. Cornell describes it as freeing parties from obligation where an extraordinary event directly prevents performance. Economic hardship is generally not enough, and some jurisdictions expect the specific event to be listed.
• Governing law. Which law is used to read the contract, normally paired with jurisdiction, meaning which courts hear a dispute.
• Entire agreement. Also called an integration or merger clause. Cornell describes it as establishing that the contract is the complete and final agreement, so prior conflicting agreements stay out of the argument.

The clause matrix

The table above searches each of twelve finished agreements for the clause’s own name. That method has a deliberate limit, and the limit is the finding.

Payment is the only universal. All twelve name it. Nothing else comes close: governing law and term reach nine, entire agreement and confidentiality seven, force majeure one.

The one Definitions heading is not what you expect. Only the service agreement has a clause called Definitions, and it is local rather than global: it sits inside the service levels clause and defines Business Hours and Response Time for that clause alone.

Plain drafting removes the labels, not the clauses. The consulting agreement has no clause called Termination, but clause 8 is “Ending the engagement” and gives either party fourteen days written notice. The partnership agreement has “When a partner leaves” and “Ending it”. The freelance agreement has no intellectual property clause and does have “Who owns the work”, which transfers rights on final payment and keeps the working files. All three are marked No above, correctly, because a reader searching for a heading will not find one.

Informality has a cost. Counted across the twelve clauses, the service agreement names eleven, the master services agreement ten and the consulting agreement nine. The freelance agreement names one, the casual employment agreement two and the retainer three. Those three are written to be read by one person over a coffee, and they trade legal coverage for that. Sometimes that is the right trade, and the retainer and fixed fee question page covers when a standing arrangement suits the work at all. It should be a decision rather than an accident.

Which clauses to negotiate first

Money and risk, in that order, and there are usually only four or five worth spending time on.

The service agreement example makes them concrete. Its liability clause has the three layers: nothing excludes liability that cannot lawfully be excluded, indirect and consequential loss is excluded, and total aggregate liability is capped at the fees excluding GST and expenses paid in the twelve months before the event giving rise to the claim. Its indemnity runs one way, from client to provider. Its termination clause allows either party to terminate immediately for a material breach not remedied within thirty days, and lets the provider suspend the services on seven days notice for non-payment.

Those four numbers, the cap period, the direction of the indemnity, the cure period and the suspension notice, are the negotiation. Everything else in a thirteen page document is usually accepted as drafted.

Clauses that hide in boilerplate

Three of the quietest clauses change outcomes.

Entire agreement decides whether the promise made in an email during the negotiation counts. Governing law decides where you sue, which matters most when the parties are in different places. Force majeure decides whether an outside event excuses performance at all, and because some courts read these narrowly, a generic clause may not cover the thing that actually happens.

In the service agreement all four of its general clauses, entire agreement, force majeure, waiver and severability, sit together in clause 11, on page eleven of thirteen. That is exactly where attention has run out, which is worth remembering the next time you skim the back of a contract.

Signing and initials

Numbering matters more than it looks. A clause that says “subject to clauses 8.1 and 8.2” only resolves if the numbers hold, which is why agreements like this are built as numbered clause documents rather than free prose.

At the end, the signature block does the mechanical work. Each party in it becomes one recipient in the signing flow, with a name, an email and a place in the signing order. The signature area becomes a signature field, and a Date line is stamped from the moment of signing rather than typed by the signer. If you want initials on each page as well, that is a separate field placed in the signing editor.

The example

The service agreement is thirteen pages and twelve numbered clauses, which makes it the fullest of the twelve counted here. The rest of the set is on the document examples hub. For the same treatment applied to one document rather than twelve, read what to include in an NDA, and for the split between standing terms and project terms, SOW versus MSA.