Professional contracts protect your business interests and preserve your working relationships with vendors, business partners, and employees. An experienced business attorney at Harrison Law, PLLC, can help you identify the optimal types of contract clauses to help you accomplish your business goals and protect yourself and your business in the event of a contract dispute. Contact us today at (480) 320-2310 to schedule your individual consultation.
Essential Elements of a Business Contract
The clauses of a business contract address common concerns that people in transactional relationships have. Contracts are a promise of one party to provide services or products in exchange for remuneration or another benefit.
According to Title 44 of the Arizona Revised Statutes, business contracts have six essential elements that make them legally binding:
- Offer, or the invitation to enter into the contractual relationship. This is the promise of one party to provide goods or services in exchange for something of value (usually money) from the other party
- Acceptance, in which one party can accept or decline the offer
- Consideration, or the stated value exchanged between the two parties
- Awareness, in which both parties acknowledge that they are not signing the contract under duress nor fraud or misrepresentation
- Capacity, demonstrating that both parties are legally capable of signing the contract (of sound mind, not a minor, etc.) and indicating that they understand the terms of its fulfillment
- Legality, or that the exchange in the contract is legal for both parties
Absent one or more of these elements, the contract is not legally binding. However, a well-written contract goes beyond these essential elements to contain several clauses that further define the relationship between both parties.
The Main Clauses of Business Contracts
The specifics of your contracts vary by situation and purpose, but many contain similar elements. Some of the most common types of contract clauses include:
Indemnification
The indemnification clause is your business risk allocation tool, whereby you and the other party determine the amount of risk you wish to accept. This type of contract clause delineates how the indemnifying party will compensate the indemnified party for stated costs and expenses.
The clause also protects both parties from lawsuit-related damages and establishes how each party will be held accountable if something goes wrong. This is often the most heavily negotiated part of a business contract, as its terms structure the kind and extent of risk assumed by each party.
The State of Arizona differentiates between indemnification clauses in contracts between private parties and those in contracts to which the state or a political subdivision thereof is a party. Arizona also maintains a set of rules pertaining to construction work specifically.
Force Majeure
Force Majeure clauses protect all signatories against unexpected and unavoidable events out of either party’s control that may render one or all of the parties unable to fulfill their contractual obligations. Common scenarios include:
- “Acts of God,” such as a pandemic, explosion, hurricane, tornado, or explosion
- Prolonged shortage of supplies or energy due to war, lockdowns, or strikes
- Government actions that prohibit or impede any party’s attempts to satisfy the terms of the contract
Contracts without a force majeure clause may be enforceable with common law doctrine, like impracticality or frustration of purpose. Sometimes, however, these may not remove liability from the party unable to fulfill the terms of the contract.
Limitations on Liability
This limits the exposure one party has if the other party suffers losses due to their inability to uphold the terms of the contract. Contract clauses of this type set limits on the damages the wronged party can collect for losses caused by:
- Negligence
- Breach of contract
- Intellectual property rights infringement
- Misrepresentation
Confidentiality
Also referred to as a nondisclosure clause, the confidentiality clause helps business owners protect trade secrets, best practices for certain services, client lists, and other confidential client details, sales strategies or marketing plans. Essentially, this clause shields you if the other signatory will have access to private or proprietary information.
Copyright
If the contract involves the sale or use of intellectual property (IP), it needs a copyright clause. This type of contract clause helps to ensure that your copyrighted materials are protected. A copyright clause may also spell out the terms under which the other party may use the intellectual property in question.
A copyright clause typically establishes your IP as the proprietary product of your business and states that none of the contract provisions are intended to deprive the IP owner of ownership rights and control over the copyrighted material(s).
Use Restrictions
Use restrictions further limit the co-signer’s use of another party’s IP, including copyrighted materials, trade secrets, and patented or trademarked IP. Contract clauses in this category establish the parameters within which one party to a contract is permitted to use another’s protected information, and any processes parties must go through to disclose confidential information to third parties not included in the contract. Use restrictions can prohibit another signatory from creating a derivative product, reverse engineering a patented invention, or otherwise capitalizing on their access to protected IP. Because IP can be a highly valuable intangible business asset, you may wish to consider having an experienced contracts lawyer at Harrison Law, PLLC review this clause with you.
Termination
Termination clauses establish how either party can terminate the contractual agreement and outline the specific notice period each party must give. This is a standard clause in almost every business contract, but it is still a good idea to read and review this portion carefully.
Warranties and Disclaimers
This clause is similar to the limitation of liability clause in that it limits damages that the other party can collect if they have a negative experience due to the contract. If you sign a contract transferring a product “as-is,” then the disclaimer should stipulate the condition of the product, protecting you from liability if the buyer is not satisfied with the as-is item.
Dispute Resolution
A dispute resolution clause establishes how the parties plan to resolve any disputes that arise during the contract period. This way, should a problem occur, the steps for resolving it are already presented, and the parties simply follow them.
Common contractual dispute resolution methods include:
- Negotiation
- Mediation
- Arbitration
You may choose only one method to resolve disputes or have an option for more formal mediation or arbitration should negotiations fail.
Privacy
Privacy clauses demonstrate that your business is dedicated to privacy rights. A privacy clause can be a simple clause that shows you are compliant with relevant regulations and privacy laws.
Protect Your Business With an Arizona Contracts Lawyer
Do you need a business and contracts attorney? Harrison Law, PLLC, can determine the right types of contract clauses to best suit your business needs. One of our experienced contracts attorneys can also review any contract presented to you, ensuring your business interests are protected. Should a dispute arise, we are here to represent you in mediation, arbitration, or take your case to court. Contact us today at (480) 320-2310 to learn more about our contract services.
© 2023 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved
This website and article have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal or financial advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.
