You entered into a pretty basic commercial deal, and decided to do things properly and get it drawn up by a lawyer. You’ve now received a ‘draft’, either from your lawyer or that engaged by the other party, and it’s as long as an encyclopedia (well, almost). It was a simple deal. Why are there so many terms? Why do I have a long contract? What does this all mean?
Elements in a Long Contract
The following are the usual suspects contained in those long contracts, and you should use this as a guide in deciphering it all and undertaking your review:
- the Parties – often, simply setting out the parties to an agreement may take up some space. Usually, the parties will list a contact person (if they’re a corporate party), contact details for notices and other relevant particulars. There may be multiple parties and the agreement may be subject to guarantees (in which case, the guarantors are likely to be listed as a party);
- the Definitions – disputes as to the definition or meaning of certain words or phrases within contracts take up a lot of room in Court. To alleviate any ambiguity, most commercial contracts contain a number of definitions (for example, a promissory note), which will apply in interpretation of the relevant contractual terms;
- the Recitals – these are kind of like the ‘background’ of the contract, and are not operative terms per se. They may set out the purpose or intent of the contract, and can be considered in the event of any subsequent dispute;
- the Operative Provisions – this is the ‘meat’ contained in the contract, and is, arguably, the most important section. These provisions set out the respective parties’ rights and obligations pursuant to the contract;
- the Warranties and Indemnities – warranty and indemnity provisions are designed, in essence, to protect parties from damage caused by the other in performance of the operative provisions. It is often the case, however, that the author of a contract will draft the indemnities and warranties in their favor, so it’s important to review such clauses to ensure you are adequately protected;
- the Boiler Plate Provisions; 100’s of years of contractual disputes have resulted in there being a series of standard, or boiler-plate, provisions contained in almost every commercial contract. These are the T crossers and the I dotters of the contract world, and include such things as how notices are to be served, whether the contract can be signed in counterparts, and which Court or state will exercise jurisdiction over the contract’s operation; and
- the Execution Clauses – even executing a commercial contract is not as simple as ‘signing on the dotted line’. Corporations must sign in accordance with the Corporations Act, and parties acting jointly sign differently to those acting in their sole personal capacity.
When you take into account all of these clauses, it amounts to quite a bit of paper. It’s important to keep in mind that each individual clause of a contract is binding (provided it meets all the formalities of a binding contractual term), so you need to review and consider the whole contract. If you see anything of concern or are struggling to decipher all that legal jargon, a contract lawyer will be able to help you make sense of it all. Contact us at LegalVision and we would be happy to assist.