How to read a contract for dummies

The Importance of knowing how to read a contract

Let’s be honest when you read a contract, you can start to panic as you may not understand many of the words and legal jargon used in the contract. But you don’t need to panic, instead take a deep breath, and read this blog post to understand the different clauses that can be found in a Contract.

In addition, at London-based Adam Bernard Solicitors, our expert Contract Lawyers will ensure that you understand the contents of every type of contract that you want them to draft. This is because, our Contract Lawyers will explain to you every part of your contract to ensure that it meets your needs.

Go to section to see the following:

Purpose of a clause in a contract

Interpretation clause

Commencement & Duration of a contract

Charges and Payment clause

Limitation of Liability clause

What is Indemnity?

Force Majeure clause

Confidentiality clause

Termination and Consequences of Termination clause

Jurisdiction & Governing Law

What is the purpose of a clause in a contract?

You will find that clauses found in a contract will define the obligations and rights of each party. There are two types of clauses in a contract usually: general clauses and specific clauses. For example, in most contracts you will find an interpretation clause, and, in some contracts, you will find specific clauses such as a damages clause.

Understanding all of the key clauses of a contract

What is an Interpretation clause?

This clause will define all the capitalised terms that are repeatedly used throughout the contract and will give you the meanings of these terms. This will ensure that you know the definitions of these words and will not be confused when you see these words again and again in the contract.

What is the Commencement & Duration of a contract?

The commencement and duration clause refers to the date from which, and the period of time for which, the contract will be enforce for. This means that you will know exactly when the contract begins, how long the contract is for and when the contract will end.

Understanding a Charges and Payment clause

The reason for adding this clause is to make the process of charging, invoicing, and payment clear, so that the other party will know exactly what your procedure is for charges and payment. In addition, this clause will also include the interest rate that will be payable for late payment.

What is meant by a Limitation of Liability clause?

Liability is essentially when one party agrees to compensate for any losses or damages that is caused by another party. This clause sets out the caps on each party’s liability, covers where the liability is uncapped and means that your business is protected from any potential disputes that arise regarding liability especially as it is well defined in the contract.

What is Indemnity?

An indemnity is an obligation on one party to reimburse another party, by making a payment, for loss of a certain type. An indemnity clause is a special clause which enables a party to shift the risk of a particular loss onto another party of the contract. For example, a party might decide to indemnify the other party against any losses that it could suffer if a third-party claims that its intellectual property rights have been infringed.

What is the purpose of a Force Majeure clause?

The purpose of this clause is to protect a party who is prevented from performing its obligations by events outside its reasonable control. For example, recently due to the arise of the Covid 19 pandemic, this clause would have possibly been triggered as during this period of time a party could have failed to carry out a contractual obligation. In addition, this clause can potentially outline that a party can terminate the contract if the force majeure event lasts for a specific amount of time.

What is Confidentiality?

This clause of the contract will ensure that any sensitive information passed between the parties will not be disclosed to anyone. This means that a party to the contract cannot disclose any information about the contract to any 3rd parties and therefore this will help to safeguard your business. However, an exemption may apply to this clause, for example, in a situation where disclosure of information is necessary by law or if it needs to be provided to a party’s professional advisers. 

What is a Termination and Consequences of Termination clause?

These clauses set out the party’s respective rights to terminate the contract. For example, this clause outlines when exactly a party terminate a contract and sets out the consequences if a party terminates the contract early. For example, a possible consequence of terminating a contract could be that you will need to reimburse the other party. 

What is Jurisdiction & Governing Law?

It is common to find many cross-border transactions nowadays. This means that parties to a contract can be located in more than one country, therefore it may not be clear which countries law will govern the contract. Consequently, this clause will specify the country which will have jurisdiction over the contract and hence will clearly state which law will be applicable to the contract. For example, if a contract was drafted in England, then this clause will probably state that the jurisdiction of this contract will be in the Courts of England and Wales.

Conclusion

It is common to find the clauses mentioned above in many different types of contracts. As they are so commonly used, you might not consider them important or fail to review them in detail. But the clauses will have a significant impact on the contractual relationships between you and other parties to the contract. Consequently, it is always important that you learn what each clause means and how it will impact your business.

In order to further understand the contents of a contact, you may want to consult a expert Contract Lawyer. That is why, at Adam Bernard Solicitors our expert Contract Lawyers will help you understand and explain to you in detail about the contract you want to draft. In addition, our Contract Lawyers will help you protect your business by drafting a bespoke contract that is designed specifically for you.

To assist you even more, at Adam Bernard Solicitors we offer a 15-minute consultation and operate strictly on a fixed fee basis.

The different Legal contracts that we draft can be found at: https://www.adambernards.co.uk/legal-contracts/