Just like the given letters in the bonus round of Wheel of Fortune, there are provisions that are common to almost every commercial contract. You can pretty much assume that you will find most (or all) of the following provisions in any commercial or adhesion contract you encounter, and can instead focus your attention on the clauses that are unique to the contract. Knowing what these common provisions are should help you be more aware of what happens each time you sign a contract, and allow you to more effectively skim those blasted contract monstrosities, like the Hertz Rent-A-Car agreement.
UPDATE: These are not the only provisions you are likely to see in consumer contracts. I’ll post more of these in the future. For the sake of readability, I have limited this list to nine types of contract provision.
1. Limitation of Liability. Almost every contract has a section describing how the drafting party (not you) cannot be held responsible for any damages or injury to you or your property, for whatever reason, intentional or unintentional, and that you have no recourse if some damage or injury occurs. These provisions are not always enforceable, but they are always in the contract and should be considered enforceable if you are planning to sign the contract. It’s worth noting that some Limitation of Liability provisions also limit the maximum possible dollar amount to something absurdly small (like $50 in the case of Apple’s iTunes Terms and Conditions.)
2. Separability (or Severability). Separability/severability is the ability of the rest of the contract to remain in force even if individual clauses are deemed unenforceable. So if you entered into a contract to buy a car from someone, and one of the provisions of the contract stated that you promised to use the car to rob a bank, that clause could be eliminated because it is illegal—and therefore unenforceable—but the rest of the contract to buy the car could still be enforced.
3. Heirs, Successors, and Assigns. What? What are those? “Heirs, successors, and assigns” are people who might take over the contract in the future, and this is a way that the drafter can ensure that the contract will be honored regardless of who takes over the obligation. For the purposes of larger commercial contracts this is important in case a company is purchased or subsumed by another individual or company—the contractual rights and duties are still in force. For contracts with individuals, this provision is meant to allow the drafter to collect any obligation from someone related to the person who signed the contract.
4. Costs and Attorney Fees. It is generally understood that if one party breaches a contract in a way that requires the other party to incur costs or attorney’s fees to fix it, that those costs will be borne by the breaching party. Every credit card agreement has this provision in it in case an account requires a collections agency and/or attorney to collect the money from a cardholder. In those cases, the costs and attorney’s fees are rolled directly into the amount being collected or sued on.
5. Voluntary Agreement/Competency. As I have previously mentioned, a person needs to voluntarily enter into a contract for the agreement to be valid, and the person also needs to be considered competent–i.e., above 18 years of age and sane. Because two good defenses to the formation of a contract are incompetency and duress/coercion, it is likely that some sort of provision of this sort will be in the contract so if you challenge it later on one of those grounds, the drafter will be able to claim that you fraudulently misrepresented your capacity to enter into the contract in the first place and should therefore be bound to the agreement that was made.
6. Entire Agreement. To avoid later claims that the parties agreed on an addition to the contract (either orally or in writing), a clause is usually inserted stating that a contract represents the entire agreement and that no additional terms or conditions apply that are not included in the document. This is important for the safety of both parties, but you should therefore make sure that any oral promises are included in the contract to ensure they are part of the agreement.
7. Changes. Most adhesion contracts include a term allowing the drafter to unilaterally alter the contract at any point. Granted, the change in the contract must be approved by the other party, but often this occurs tacitly rather than actively. So when your credit card company decides to change your interest rate, so long as you do not dispute the change, close your account, and cease to use the card, you will have agreed to the change. This passive acceptance is common in consumer contracts, and should be expected in every large-scale contract you encounter.
8. Waiver and Indemnity. To provide extra protection for anyone connected to the drafting party, these clauses are often included and state that you will not hold anyone with ties to the drafting party responsible for any harm or damage that occurs during the execution of the agreement. A phrase to look for in these provisions is “hold harmless,” meaning that you will never accuse that person of wrongdoing in relation to the subject matter of the contract.
9. Disclaimer of Warranties. A warranty is an expectation that a product or service will provide the desired outcome or function, and it is something that most of us expect when we purchase or sign up for a product or service. Many contracts for goods and services, however, like to disclaim any warranties, meaning that if your product or service does not work the way you wanted it to (even if you were guaranteed its function by the company), that lack of function is not the company’s fault and they are not required to do anything about it. As a practical matter, many companies will attempt to fix problems with their products or services to keep their name in good standing, but they aren’t required to do so if there is a disclaimer of warranties in the contract. (In some jurisdictions disclaimers of warranties are not enforceable, but the contract usually provides for additional limitations on responsibility and damages in those jurisdictions.)
That’s a pretty good overview of the most common clauses you are likely to find in consumer contracts for goods and services, as well as many other contracts, settlement agreements, and the like. Read over them and get used to them so you can recognize them the next time you need to sign a contract. Even if you can’t do anything about them, it helps to know they are there.
Are there other common contractual clauses you have run into? Let me know so I can either update this list or put together a second list.
(photo: http://www.flickr.com/photos/santarosa)
About Graham Martin
Graham Martin is a solo practitioner focusing on Contract law (including drafting, review, and litigation). He operates Martin Legal Services, LLC in the Minneapolis-St. Paul area.
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““hold harmless,” meaning that you will never accuse that person of wrongdoing ”
No no no. Wrong.
A ‘hold harmless’ provision is likely to be interpreted as an indemnification agreement – that is, a promise to reimburse and make whole the other party for any and all losses the other party suffers. It can be more than a waiver (a relinquishment of a claim), instead it may be an affirmative promise to make the other whole against losses caused by a third party
Thanks for the addition, Michael. I have not run into a hold harmless provision as an affirmative promise before, so this is good to know. I appreciate your contribution, and am sure the readers do as well.
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