15.2 Common Clauses and Their Purposes

Contracts often include clauses to manage risk and clarify performance obligations. Indemnification clauses shift potential liability between parties, while force majeure clauses excuse non-performance due to unforeseen events. These provisions help allocate risk and provide clarity in various scenarios.

Choice of law clauses specify which jurisdiction's laws govern the contract, offering predictability in interpretation. Termination clauses outline when and how a contract can end, including available remedies. These elements are crucial for managing expectations and resolving potential disputes.

Risk Allocation and Performance Excuses

Purpose of indemnification clauses

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• Shift potential liability from one party to another
  • Indemnifying party agrees to compensate indemnified party for losses, damages, or expenses arising from specified events or circumstances (third-party claims, intellectual property infringement)
  • Protects indemnified party from financial consequences of liabilities
• Allocate risk between contracting parties
  • Allows parties to negotiate and agree upon who bears responsibility for certain risks (product liability, environmental damage)
  • Provides clarity and predictability in the event of a loss or claim
• Scope of indemnification varies
  • May cover specific types of claims (personal injury, breach of warranty)
  • Can be broad or narrow depending on language used and parties' intentions
• Limitations on enforceability
  • Some jurisdictions restrict enforceability of overly broad or one-sided indemnification clauses
  • Indemnification for a party's own negligence or willful misconduct may not be enforceable

Significance of force majeure clauses

• Provide legal excuse for non-performance due to unforeseen events beyond a party's control
  • Events include natural disasters (hurricanes, earthquakes), wars, government actions, and pandemics
  • Specific events covered depend on language of the clause
• Allocate risk of unforeseeable events
  • Without force majeure clause, party may be liable for breach of contract if unable to perform due to unforeseen event
• Requirements for invoking force majeure
  • Event must be beyond party's control and not due to their fault or negligence
  • Event must prevent, hinder, or delay performance of contractual obligations
  • Affected party must provide timely notice to other party
• Consequences of invoking force majeure
  • Performance may be suspended, delayed, or excused without liability for breach
  • Duration of excused performance typically lasts until force majeure event subsides

Contract Interpretation and Termination

Impact of choice of law clauses

• Specify governing law for interpreting and enforcing the contract
  • Allows parties to select jurisdiction's laws favorable or familiar to them (Delaware, New York)
  • Provides predictability and certainty in contract interpretation
  • May impact enforceability of certain contractual provisions
• Enforceability of choice of law clauses
  • Generally enforceable unless unreasonable, against public policy, or obtained through fraud or undue influence
  • Some jurisdictions have specific requirements for enforceability (reasonable relationship to chosen state)

Key considerations for termination clauses

• Specify circumstances under which a party can end the contract
  • May include events of default (material breach, insolvency)
  • Can provide for termination for convenience, allowing party to end contract without cause
  • Should address consequences of termination (return of confidential information, payments owed)
• Outline available remedies in case of a breach
  • May include monetary damages, specific performance, or injunctive relief
  • Can limit or expand types of recoverable damages (consequential, liquidated damages)
  • Should consider enforceability of certain remedies under applicable law
• Importance of clarity and specificity
  • Termination and remedies clauses should be drafted with clear, unambiguous language
  • Specific triggers, procedures, and consequences help avoid disputes and provide predictability
• Balancing interests of the parties
  • Termination and remedies clauses should strike a fair balance between parties' interests
  • One-sided or overly punitive provisions may be unenforceable or damage business relationship