Contract is formed by agreement of the parties regarding a cooperation, transaction, arrangement or relation. Based on the principle of freedom of contract, the parties have the right to decide the content of their contract. However, the content of the contract should not violate the compulsory provisions of laws, public policy or good tradition and moral of the society. This article will discuss the item or points which should be written in the contract.
- Title or name of the contract
The contract should have its title. Why is it important to have title or name for a contract? This is because the title or name of the contract can quickly tell the status or nature of the transaction, arrangement or agreement of the parties. For example, car sale-purchase contract, car lease contract, employment contract, and loan contract, etc., simply and immediately tell us the nature of the transaction or agreement of the parties in those contracts. Another reason to have title for contract is that it provides parties with convenience in reference to their contract.
- Date of contract
Date of contract refers to the date the parties entered into the contract. It tells when a contract starts and when the parties should perform their respective obligations. In other words, the date of contract is a means reminding the parties that they should not be late for performance of their obligations. There are cases where the parties can set the date of the contract which is different from date of performance of the contract. For example, an employment contract is dated 01 January 2021; however, it is agreed that the employee starts working for the employer from 01 March 2021. Date of contract can be stated on the first page of the contract or at the signature page. It is an option of the parties to state the date of the contract at any part of their contract, provided that the date should be consistent if parties state more than one time in the contract.
It is necessary to include information of the parties into a contract because the parties are those who exercise the rights and perform obligations as provided in the contract. Such information includes name, sex, date of birth or age, nationality, national identity card, passport, date of issuance of national identity card or passport and address. In cases where the party is a legal entity, a contract should mention the name and form of the company (such as partnership or limited liability company), number of commercial registration, date of incorporation, registered address, information of the individual signatory (name, sex, position, national identity card/passport and address) who are duly appointed as representative of the legal entity to sign the agreement for and behalf the legal entity.
Preface tells history or purposes of the parties that cause the conclusion of contract. It is an option of the parties to include the preface for their contract. Generally, if the nature of the contract is complicated and if it is necessary to have introduction or history of the contract, preface is needed in the contract. For example, if the parties are going to enter to a supplementary agreement which is a revision or supplement to the existing agreement, it is important to have preface or introductory phrases to make the contract understandable. However, if it is just a simple agreement, preface might not be included in the contract.
It is quite common that the parties define key terms which are often used more than one time in their contract. The parties find it easy to define the key terms one time in their contract and that they do not have to repeatedly mention or explain whenever they use the same key terms again in the same contract. Such practice is to ensure the consistent interpretation and understanding of the content of the contract.
Objective or subject mater the parties agreed should be included in the contract and should be consistent with title or name of the contract. For example, if the objective of the parties in conclusion of the contract relates to sale-purchase transaction of a car, the title or name of the contract should be sale-purchase contract of a car.
- Obligations of the parties
This is linked to the objective or subject matter of the contract. In order to realize the objective of the contract, the parties should list down their rights and obligations in the contract. For example, if it is a sale-purchase contract, the seller has the obligations to transfer the ownership or right over the property while he or she has the right to receive purchase price from buyer as a consideration. The buyer, on the other hand, has the obligation to pay the purchase price of the property to seller while the buyer has the right to acquire ownership right over the property. Other than above rights and obligations, parties may include other aspects of their agreement into their contract to ensure that their benefits are protected. Generally, the clauses of the agreement should specify what, when, where and how an obligation is performed.
The rights and obligations of the parties vary depend upon the transactions or agreed cooperation and arrangements of the parties. The above example is a sale-purchase transaction. There are other transactions in our society such as gift, exchange, lease, loan for consumption, loan for use, employment, mandate, work contract, etc. In designing the rights and obligations clause, the parties may come up with the process and flow of obligations based on risk foreseen and risk mitigation in each transaction. For example, in case of house construction contract, the parties may agree to the clause where the principal pays the fee to the contractor according to stages of completion of the construction. On the one hand, this arrangement is to mitigate the risk which might be a consequence of full payment of fee to contractor prior to the competition of the construction. On the other hand, it also mitigates the risk which might be a consequence of completion of construct by the contractor prior to the payment of fee by the principal.
- Representation and warranty
There are clauses that mention about the representation and warranty of the parties in the contract. The parties may want to assure each other about the quality of products, capacity in performance of obligations, accuracy of the information provided under the contract, etc. Representation and warranty are references upon which the parties make decision and enter into the contract. If the representation or warranty turns out to be incorrect, the other party may terminate the contract and demand compensation.
- Confidentiality clause
There are cases where the parties wish to protect their confidential information by not allowing the party who receives confidential information to disclose or use the information without consent of the party who discloses confidential information. The parties generally define the confidential information, non-disclosure obligations of the parties and management of the confidential information during and after the life of the contract.
- Indemnity clause
There is also a practice where the parties tend to include the indemnity clause in their contract. The clause is general and applicable to either party who has obligation to indemnify the other party against damages, loses, expenses, costs, claims, lawsuits, disbursements incurred or paid by the other party as a consequence or result of the breach of the contract of such party.
- Termination clause
It is important to include clauses regarding the term and termination of the contract. The contract normally ends at the expiry date. However, the parties may agree to terminate their contract before the expiry date according to the mutual agreement, or unilateral termination of either party based on the ground of material breach of the contract or unilateral termination based on the prior notice.
Unless otherwise stated in the laws, the contract does not renew upon expiry of the term. In general, it is an option or right of the parties to state the conditions on renewal of their contract. For example, the parties may agree to the clause that the contract is automatically renewed if either party fails to notify of intention not to renew the contract to the other party within the limit of specified period before the expiry date. In the cases where the contact is renewed, the parties may fix the period of renewal of the contract which should be the same as period of the previous contract or in other period as decided by the parties.
Parties also can agree to the rules or arrangements for the exit of their contractual relation. For example, they may agree to the arrangement on delivery of products or services which have not be delivered or the payment which has not been paid under the terminated contract. Last but not least, the parties may agree to the arrangement for return and management of confidential information.
- Governing laws
The parties may choose the law to govern their contract. In the cases where there is any dispute over the interpretation, execution and enforcement of the contract or any dispute in relation or arising from the contract, the governing law should be law of jurisdiction the parties have chosen.
- Dispute forum
For commercial contract, it is an option that the parties can choose the court or commercial arbitration as forum where they can submit their disputes to be settled.
The parties may also decide the language of the contact or language for communication or notice between the parties in execution of the contract. If the parties speak different languages, they may choose the language the parties can understand. The contract can be made into different languages with equal validity. In such case, the parties may insert a clause under which if there is any discrepancy between the contracts of different languages, a contract of a particular language should prevail over the contracts in other languages.
- Waiver of rights
The parties may also include a clause on waver of rights under which the parties state that deferment, omission or failure to exercise any of the rights of either party does not mean that such party waives his or her right provided in the contract. The waiver of right is only valid if it is in written documents.
- Severability clause
The parties can insert a severability clause in their contract. The parties tend to state that in cases where any clause of the contract is invalid due to violation or breach of compulsory provisions of the law, public policy or good tradition or moral of the society, only such clause is affected. The other provisions of the contract remain valid and enforceable.
- Counterpart clause
If there are several parties and they are in different locations, there are cases where the parties may include the counterpart clause under which parties can sign different copies of the same contracts and such contracts which are signed in counterparts are valid and enforceable.
- Entire agreement clause
The parties may insert an entire agreement clause in their contract to clarify that what have been included in the contract are their entire agreement. This is to ease the parties to refer to only contract document and to avoid the dispute on references of contract documents.
- Signature or thumbprint or seal
In the contract there is the signature page where the name of parties or signatories are specified so that they can sign or affix thumbprints on the contract.
In conclusion, the content of the contract is decided by the parties to such contract. The content should not be restricted to items discussed in this text. The parties can include any aspects of their agreed transactions into the contract. This article is written based on my experience in drafting and reviewing contracts in Cambodia. My personal observation is that there is tendency in drafting the contact in lengthy and detailed contract. The reason for this change might be due to the thought that although there are several aspects which have been governed by the provision of laws, it is necessary to include those agreed aspects into the contract to avoid ambiguity, different interpretation and dispute.
This text is not intended as a legal advice or opinion.