6 Contract Terms to Never Ignore

Here are six contract clauses that can have an impact on your business. Pay close attention:

Author

Umashankar Natarajan

29/07/2022

1 min read

When organizations sign a contract with another party it is understood that a particular contract does not only have an effect on a specific agreement, but also has an impact on the aspects of a business. This is the sole reason why companies should be thorough with the kind of contract they are getting themselves into. While most contracts may be standard for an organization, a single change to any clause can create a huge difference. Here are six contract clauses that can have an impact on your business. Pay close attention: 


Authorized Signatory 


A well-drafted contract has a clause that mentions authorised signatory (in cases applicable). But it may also happen that this authorised person may have their name under the signature line at the end of the contract. Just to be careful, it is important to be sure who this authorised signatory is and whether they are the legal authority to sign this particular contract. Especially in high stake contracts, if a person who is not authorised to sign the contract does, it leads to ultra vires acts and deems the contract illegal. 


Indemnification 


The core purpose of contracts is to allocate and mitigate risk. The Indemnification clause takes care or risk allocation; it defines who is accountable for a specific risk. For example if Party X breaches the contract and undermines Party Y, Party Z is to incur the losses for Party Y. Organizations settle for such arrangements for various reasons, making it crucial for all parties involved to be aware of who is exactly liable for what in a contract. 


Dispute Resolution

If you want to know what will happen in case of a conflict, dispute resolution is the clause that you need to pay attention to. All disputes in a contract will not necessarily lead to a court case. Depending on the contract, some may require mediation or arbitration - different legal procedures with unique legal remedies and expertise required all together. Before signing a contract organizations must make sure that all parties involved are satisfied with the proposed form of resolution as this defines how a dispute will be dealt with in case of potential mishaps. 


Subcontracting 


Various companies utilize subcontracting arrangements for products or services they offer. But not all contracts may allow this. Unless a contract permits subcontracting, it is illegal to take up such arrangements leading to a breach of contract that may have acute consequences. To avoid such situations, especially if subcontracting is a part of your business, make sure all stakeholders involved are thorough with the clause. 


Non-violation


Non-violation clauses are important as they tend to bring to notice contractual alignments with third-parties. Various organizations need a non-violation clause to be a part of a contract to make sure that no rights of any third-party are being violated by entering into a contractual relationship at hand. 


Order of Precedence 


More often than not when companies are in a long term relationship with another party, there are various agreements involved. For example: Party A will have a master contract, followed by purchase orders and amendments. In such cases it is advised that all parties involved should be able to recognize which agreements will take precedence incase of a dispute. This can be done by defining the order of precedence in the beginning of a contractual relationship.