Contract Document Clause
A Contract Document Clause is a contract document section that contains a grouping of related contract provisions (specify terms, conditions, obligations, and procedures applicable to the parties involved).
- Context:
- It can (typically) be a member of a Contract Article.
- It can (often) have an Legal Clause Identifier.
- It can be associated to a Contract Clause-Related Rule.
- It can be referenced by a Contract Clause Function, such as a contract clause similarity metric.
- It can range form being an Annotated Contract Clause to being an Unannotated Contract Clause.
- It can range from being a Real-World Contract Clause to being a Synthethic Contract Clause.
- It can range from being a Customer Contract Clause to being a Contract Clause Template.
- It can be associated to a to Contract Contract Clause Template.
- …
- Example(s):
- Limitation of Liability Clause, which contains provisions that:
- Define the types of damages that are excluded from liability (e.g., indirect, incidental, special, or consequential damages).
- Specify the legal basis for the liability exclusion (e.g., breach of contract, tort, negligence).
- State that the exclusion applies even if the other party has been advised of the possibility of such damages.
- Indemnification Clause, which contains provisions that:
- Identify the party responsible for providing indemnification (the "indemnifying party").
- Define the scope of the indemnification, such as the types of claims, liabilities, damages, losses, costs, and expenses covered.
- Specify the conditions that trigger the indemnification obligation, such as a breach of the agreement or negligence by the indemnifying party.
- Outline the procedures for claiming indemnification, such as providing prompt notice and cooperating with the indemnifying party's defense.
- Intellectual Property Rights Clause, which contains provisions that:
- Define the intellectual property rights included in the agreement, such as copyrights, patents, trademarks, and trade secrets.
- Specify the ownership of the intellectual property rights, often assigning ownership to one party (e.g., the client).
- Grant or restrict licenses to use the intellectual property, such as allowing the contractor to use the work product solely for the purpose of performing the services.
- Confidentiality Clause, which contains provisions that:
- Define the scope of confidential information covered by the agreement.
- Specify the obligations of each party to maintain the confidentiality of the information.
- Outline the exceptions to the confidentiality obligations, such as disclosures required by law or court order.
- Set the duration of the confidentiality obligations, which may extend beyond the termination of the agreement.
- Termination Clause, which contains provisions that:
- Specify the circumstances under which either party can terminate the agreement, such as for convenience, breach, or insolvency.
- Define the notice requirements for termination, such as the minimum notice period and the method of delivery.
- Outline the obligations of each party upon termination, such as the return of confidential information or payment of outstanding fees.
- Address the consequences of termination, such as the survival of certain provisions (e.g., confidentiality, indemnification) and the allocation of liability.
- …
- Limitation of Liability Clause, which contains provisions that:
- Example(s):
- Limitation of Liability Clause (with limitation of liability provisions), which limits the liability of one or more parties for certain types of damages, such as:
"NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY INDIRECT, INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR RELATED TO THIS AGREEMENT, WHETHER BASED ON BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), OR OTHERWISE, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES."
- Indemnification Clause, which specifies one party's duty to compensate the other for certain losses or damages, such as:
"Supplier shall indemnify, defend, and hold harmless Buyer and its affiliates, officers, directors, employees, and agents from and against any and all claims, liabilities, damages, losses, costs, and expenses (including reasonable attorneys' fees) arising out of or relating to any third-party claim alleging: (a) breach by Supplier of any representation, warranty, or obligation under this Agreement; or (b) any negligent act or omission or willful misconduct of Supplier or its personnel in the performance of this Agreement."
- Intellectual Property Rights Clause, which addresses the ownership and use of intellectual property in the contract, such as:
"All intellectual property rights, including copyrights, patents, patent disclosures, and inventions (whether patentable or not), trademarks, service marks, trade secrets, know-how, and other confidential information, trade dress, trade names, logos, corporate names, and domain names, together with all of the goodwill associated therewith, derivative works, and all other rights (collectively, 'Intellectual Property Rights') in and to all documents, work product, and other materials that are delivered to Client under this Agreement or prepared by or on behalf of Provider in the course of performing the Services shall be owned by Client."
- Confidentiality Clause, which requires parties to keep certain information secret, such as:
"Each party agrees to retain in confidence the non-public information and know-how disclosed or made available by the other party pursuant to this Agreement that is either designated as proprietary and/or confidential, or by the nature of the circumstances surrounding disclosure, ought reasonably to be treated as proprietary and/or confidential ('Confidential Information'). Each party shall treat the Confidential Information of the other party with at least the same degree of care as it treats its own confidential information of like kind, but in no event shall it use less than a reasonable degree of care."
- Termination Clause (with termination provisions), which describes how the contract can be ended by the parties, such as:
"This Agreement may be terminated: (a) by either party upon thirty (30) days prior written notice to the other party; (b) by either party, effective immediately, if the other party breaches any material term or condition of this Agreement and fails to cure such breach within fifteen (15) days after receipt of written notice of the same; or (c) by either party, effective immediately, if the other party becomes insolvent, files a petition for bankruptcy, or commences or has commenced against it proceedings relating to bankruptcy, receivership, reorganization, or assignment for the benefit of creditors."
- Force Majeure Clause (with force majeure provisions), which details events outside a party's control that excuse contract performance, such as:
"Neither party shall be liable for failure to perform its obligations if such failure is a result of Acts of God, war, or natural disaster."
- Severability Clause (with severability provisions), which is intended to preserve the enforceability of the remaining contract if part is invalidated, such as:
"If any provision of this Agreement is found to be invalid, the remainder of the Agreement shall continue in full force and effect."
- Governing Law Clause (with governing law provisions), which states which jurisdiction's laws govern the contract, such as:
"This Agreement shall be governed by the laws of the State of California."
- Non-Competition Clause (with non-competition provisions), which limits a party's ability to compete with the other party, such as:
"The Employee agrees not to engage in any competing business within a radius of fifty miles for a period of two years following termination."
- Arbitration Clause (with arbitration provisions), which requires binding arbitration to resolve disputes, such as:
"Any disputes arising under this Agreement shall be resolved through binding arbitration in accordance with the rules of the American Arbitration Association."
- Assignment Clause (with assignment provisions), which governs a party's ability to transfer rights or duties under the contract, such as:
"Neither party may assign this Agreement without the prior written consent of the other party."
- Warranty Clause (with warranty provisions), which contains express and implied warranties about goods, services, or information, such as:
"The Seller warrants that the goods shall be free from defects in material and workmanship for a period of one year from the date of purchase."
- Contract-Type Specific Clause, such as:
- Office Lease Agreement Clause (with office lease agreement provisions), such as:
"The Tenant shall not make any alterations to the premises without the written consent of the Landlord."
- Software Licensing Agreement Clause (with software licensing agreement provisions), like:
"Licensor grants Licensee a non-exclusive, non-transferable, revocable license to use the Software solely for Licensee's internal business purposes, subject to the terms and conditions of this Agreement. All rights not expressly granted to Licensee are reserved by Licensor."
- Service Level Agreement Clause (with service level agreement provisions), such as:
"Provider shall use commercially reasonable efforts to make the Services available 24 hours a day, 7 days a week, except for: (a) planned downtime (of which Provider shall give at least 8 hours' notice via the Services and which Provider shall schedule to the extent practicable during the weekend hours from 6:00 p.m. Friday to 3:00 a.m. Monday Pacific Time), or (b) any unavailability caused by circumstances beyond Provider's reasonable control, including acts of God, acts of government, flood, fire, earthquakes, civil unrest, acts of terror, strikes or other labor problems, or Internet service provider failures or delays."
- Office Lease Agreement Clause (with office lease agreement provisions), such as:
- …
- Limitation of Liability Clause (with limitation of liability provisions), which limits the liability of one or more parties for certain types of damages, such as:
- Counter-Example(s):
- See: Contractual Term, Contract Law, Legal Document, Binding Agreement.
References
2024
- Claude 3 Opus.
- Yes, a "contract clause" can indeed be considered a cluster of related provisions. A clause is a distinct section of a contract that addresses a specific aspect of the agreement, and it often contains multiple provisions that work together to govern that particular aspect.
- For example, a "Payment Terms" clause in a contract might include several provisions related to payment, such as:
- The amount to be paid
- The payment schedule (e.g., monthly, quarterly, upon completion of milestones)
- The method of payment (e.g., check, wire transfer, credit card)
- The consequences of late payment (e.g., interest charges, penalties)
- The currency in which payment must be made
- These provisions are all related to the overall topic of payment and work together to form the "Payment Terms" clause.
- Similarly, a "Termination" clause might include provisions related to:
- The circumstances under which either party can terminate the contract
- The notice period required for termination
- The obligations of each party upon termination (e.g., return of confidential information, payment of outstanding fees)
- The consequences of wrongful termination
- Again, these provisions all relate to the topic of termination and collectively form the "Termination" clause.
- So, while each provision represents a specific, indivisible contractual term, a clause can be seen as a grouping of provisions that are related to a common theme or aspect of the agreement.
2023a
- (GM-RKB ChatGPT, 2023) ⇒ Summarize the concept Contractual Agreement Clause in 1- 2 paragraphs, promt.GM-RKB ChatGPT (model: gpt-4-1106-preview) Retrieved: 2023-12-10
- QUOTE: A "Contractual Agreement Clause", also known as a contract clause, is a specific provision or section within a contract that outlines a particular aspect of the agreement between the parties involved. Each clause is designed to address specific points and details, such as payment terms, duration of the agreement, confidentiality obligations, the scope of work, termination conditions, dispute resolution mechanisms, and consequences of breach of contract. These clauses are integral to the structure and enforceability of a contract, ensuring that all parties have a clear understanding of their rights, responsibilities, and the procedures that govern their business relationship. By setting forth explicit terms, contractual clauses reduce ambiguity and help prevent potential conflicts. If disputes arise, these clauses can be referred to in order to resolve the issues or serve as a basis for legal adjudication. For a clause to be effective, it must be clearly worded, compliant with applicable laws, and agreed upon by all parties signing the contract.
2023b
- (Bing chat, 2023) ⇒ Bing chat on: What is a "clause" in a contract agreement? (as opposed to an article or a provision)
- A clause is a specific provision or section in a contract that defines the rights and obligations of the parties. A clause can also be called an article or a provision, depending on the context and the type of contract. There is no definitive rule on how to name the clauses in a contract, but some common practices are:
- Articles are usually the main sections of a contract that are divided into subsections or paragraphs. Articles are often numbered with Roman numerals (e.g., Article I, Article II, etc.) and have a descriptive title (e.g., Article I: Scope of Work, Article II: Payment Terms, etc.).
- Clauses are usually the subsections or paragraphs within an article that provide more details or specifications. Clauses are often numbered with Arabic numerals (e.g., 1.1, 1.2, etc.) or letters (e.g., (a), (b), etc.) and may or may not have a title (e.g., 1.1 Definitions, 1.2 Interpretation, etc.).
- Provisions are usually the individual sentences or phrases within a clause that state a particular right or obligation. Provisions are not numbered or titled, but they may be separated by semicolons or bullet points.
- For example, a contract may have the following structure:
- Article I: Scope of Work
- 1.1 The Contractor shall perform the following services for the Client:
- (a) Design and develop a website for the Client's business;
- (b) Provide training and support for the Client on how to use and maintain the website; and
- (c) Deliver the website to the Client by the agreed deadline.
- 1.2 The Contractor shall perform the services in accordance with the specifications and requirements set forth in Exhibit A, which is attached to this contract and incorporated by reference.
- 1.1 The Contractor shall perform the following services for the Client:
- In this example, Article I is the main section that describes the scope of work. 1.1 and 1.2 are the clauses that provide more details on the services and the specifications. (a), (b), and (c) are the provisions that state the specific tasks that the Contractor shall perform.
- Source: Conversation with Bing, 11/7/2023
- Types of Contract Clauses: What is a Clause in a Agreement - PandaDoc. https://www.pandadoc.com/blog/types-of-contract-clauses/.
- Contract Clause: What Is It? Examples - Contract Lawyers. https://www.contractscounsel.com/b/contract-clause.
- 29 Common Contract Clauses And What They Mean - Incorporated.Zone. https://incorporated.zone/29-common-contract-clauses-and-what-they-mean/.
- Common Clauses in a Contract | LegalMatch. https://www.legalmatch.com/law-library/article/common-clauses-in-a-contract.html.
- A clause is a specific provision or section in a contract that defines the rights and obligations of the parties. A clause can also be called an article or a provision, depending on the context and the type of contract. There is no definitive rule on how to name the clauses in a contract, but some common practices are:
2023c
- (Vidler et al., 2023) ⇒ Tony Vidler, Kenneth McGarry, and David Baglee. (2023). “Text Mining Legal Documents for Clause Extraction.” In: Proceedings of The 19th International Conference on Data Science (ICDATA'23).
- QUOTE: ... The legal wording created has historically been unique to that contract, where the writing style of the lawyer has come into play, which has resulted in a wide variety of clause texts available for each legal clause [1].
Early software solutions to extract the legal clauses from the documents have been mainly rules-based, requiring specialised teams to review large volumes of documents to look for variations in each clause type and write complex rules to extract these terms from other documents [2]. As machine learning and artificial intelligence have developed over the years, new software solutions have been developed for the legal industry. One of these machine learning technologies, Natural Language Processing (NLP) is becoming common in several software solutions [3]. They have been created to allow law firms to utilise electronic copies of their legal document to find and extract the clause text, which can be used in activities such as Legal Research, Electronic Discovery, Contract Review and Document Automation [4]. ...
- QUOTE: ... The legal wording created has historically been unique to that contract, where the writing style of the lawyer has come into play, which has resulted in a wide variety of clause texts available for each legal clause [1].
2023a
- https://termly.io/legal-dictionary/clause/
- QUOTE: A clause is a specific point or provision in a law or legal document. It can be an article, section, or standalone paragraph that addresses any topic pertaining to the document that contains it.
2022
- (Contract Safe, 2022) ⇒ https://contractsafe.com/glossary/contract-clause
- QUOTE: A contract clause is a specific section or provision in a written contract. Depending on the structure of the contract, a clause may be identified numerically, alphabetically, or by heading. While the term “clause” most often refers to a specific paragraph of the contract, this is not necessarily true. For complicated issues, a clause might consist of multiple paragraphs.
- Contract Clauses: Purposes Served
Contract clauses serve several important purposes, including the following:
- Structure – much like the outline in a textbook, a carefully crafted contract will follow a thoughtful topical structure, which flows with the purposes of the contract and promotes understanding of the contract’s purpose.
- Assist with Navigation – some business contracts are extremely lengthy. Having an effective table of contents based upon clauses, or clearly marked headings, helps everyone find specific provisions of the contract which are buried deep within the agreement.
- Ease of Reuse – many common contract provisions in an agreement are “boilerplate,” which means the clause is more or less standardized, or commonly included in contracts. The use of separate clauses within the contract simplifies drafting because some of these previously-used boilerplate clauses can be “plugged-in” to a new contract.
- Severability – sometimes parties to a contract agree that if one provision fails, the remainder of the contract will be honored. Carefully using clauses helps the parties separate out provisions about which they have concerns.
2021a
- (Hendrycks et al., 2021) ⇒ Dan Hendrycks, Collin Burns, Anya Chen, and Spencer Ball. (2021). “CUAD: An Expert-annotated Nlp Dataset for Legal Contract Review.” In: arXiv preprint arXiv:2103.06268. doi:10.48550/arXiv.2103.06268
- QUOTE: ... There are different levels of work in contract review. The lowest level of work in reviewing a contract is to find needles in a haystack. At this level, a lawyer's job is to manually review hundreds of pages of contracts to find the relevant clauses or obligations stipulated in a contract. They must identify whether relevant clauses exist, what they say if they do exist, and keep track of where they are described. They must determine whether the contract is a 3-year contract or a 1-year contract. They must determine the end date of a contract. They must determine whether a clause is, say, an anti-assignment clause or a most favored nation clause. We refer to this type of work as "contract analysis."
The highest level of work is to assess risk associated with the contract clauses and advise on solutions. At this level, a lawyer's business client relies on them to explain not only what each clause means, but also the implications such a clause has on its business and a transaction. ...
- QUOTE: ... There are different levels of work in contract review. The lowest level of work in reviewing a contract is to find needles in a haystack. At this level, a lawyer's job is to manually review hundreds of pages of contracts to find the relevant clauses or obligations stipulated in a contract. They must identify whether relevant clauses exist, what they say if they do exist, and keep track of where they are described. They must determine whether the contract is a 3-year contract or a 1-year contract. They must determine the end date of a contract. They must determine whether a clause is, say, an anti-assignment clause or a most favored nation clause. We refer to this type of work as "contract analysis."
2021b
- (Aggarwal, Garimella et al., 2021) ⇒ Vinay Aggarwal, Aparna Garimella, Balaji Vasan Srinivasan, and Rajiv Jain. (2021). “CLAUSEREC: A Clause Recommendation Framework for AI-aided Contract Authoring.” In: arXiv preprint arXiv:2110.15794. doi:10.48550/arXiv.2110.15794
- QUOTE: ... A contract can be viewed as a collection of clauses with each clause comprising of: (a) the clause label that represents the type of the clause and (b) the clause content. Our approach consists of two stages: (1) clause type relevance prediction: predicting if a given clause type that is not present in the given contract may be relevant to it, and (2) clause recommendation: recommending clauses corresponding to the given type that may be relevant to the contract.