The Definitive Contract Checklist For US

Contracts
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The Definitive Contract Checklist For Us Contracts

No. Heads of Clauses

1. Title ❏
You can give any title to the agreement. It is best if the agreement has a
title that is commonly understood in the market, e.g. Services Agreement,
Stock Purchase Agreement, etc., or something that describes the
relationship between the parties, e.g. Affiliate Marketing Agreement,
Exclusive Distribution Agreement, etc.

2. Parties to the Contract ❏

This will include the names of the parties to the contract and their
addresses. Unlike in India, in US contracts, if the party is an entity, there
isn’t the practice of adding company registration numbers and the law
under which the entity is registered. It can mention the type of the entity,
for instance XYZ Inc., a Delaware Corporation.

3. Preamble/Recitals ❏
The Preamble is worded as short sentences separated with semicolons.
These precede the first clause of the contract, and provide a background
to the contract, explaining what is the purpose behind entering into the
contract. Most US contracts do not have a preamble.

Recitals will usually begin with ‘Whereas’ and will give a background to
what existed before the contract and how the parties came together to
enter into the contract.

4. Definitions ❏
Define any terms which have a technical meaning or to which you intend
to give a technical meaning. Make sure you capitalize the terms wherever
you use them in the contract.

This clause is also used to put one word to a list of things. For instance,
the word “Products” can be defined in a distribution agreement as
products listed in an Annexure (usually called an ‘Exhibit’ in US contracts).

5. Effective Date (or sometimes, a Conditions Precedent clause coupled ❏

with Completion)

Mention the date when the parties’ obligations are triggered/active. It can
be a specific date or a situation when certain prerequisite conditions are
met (called a Conditions Precedent clause). When these conditions are
met, a ‘Completion’ action from both the parties will activate the
agreement. For example, in an investment agreement, it can be the issue
of stock by the Board and payment of money by an investor.

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6. Obligations of the Parties + Consideration ❏

The key obligation of the parties (e.g. license of intellectual property in a

work/performance of services, etc.) and the consideration for the same
(in the above examples, the license fee or the remuneration) must be
specified.

7. Term ❏

Mention the duration of the agreement - i.e. how many months, years,
etc. It is closely tied to the termination and renewal clauses.

8. Termination ❏

Mention circumstances under which the agreement can be terminated.

Make sure you mention termination for convenience (i.e. no reason and
at the free will of either party, and termination for breach). Defining
breach is critical and gaps here can often lead to disputes in future.

9. Covenants/Duties of Each Party (this clause can have different ❏

headings depending upon the type of contract)

Every action that each party commits to undertake or abstain from must
be mentioned here. Breach will lead to a default situation, leading to a
release of the non defaulting party from its obligations and the right to
claim compensation/seek specific enforcement.

10. Representations and Warranties ❏

Every transaction is based on a set of underlying statements of fact (such

as having ownership and title), or assertions about the quality of
something (i.e. Factory X is fit for the manufacture of semiconductor
materials) - this clause lists down all such ‘representations’ and
‘warranties’ by the parties. Breach of these triggers the right to seek
compensation. It can also lead to a release of the other party from its
obligations.

11. Indemnification ❏

Sometimes, breach of responsibility by one party can lead to losses for

the other. Will these losses be made good and to what extent? For
example, if you license IP you don’t own, the licensee may end up paying
damages to the owner. He will want to be ‘indemnified’ by you. To what
extent will ‘indemnification’ be applicable?

12. Amount and Method of Payment ❏

This clause lays down the price and the mechanics of payment, such as
the date of payment, mechanism (bank transfer, cheque, etc.), invoicing,
etc.

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13. Governing Law ❏

The law applicable to the contract. Selection of a governing law is very

important in international contracts. In the US, it is particularly important
to select the State law to which the contract will be subject. Generally,
there is freedom to choose the State law, however, usually, it will be
selected based on the residence or office of the parties or having at least
some connection or nexus with the parties or the transaction.

14. Dispute Resolution ❏

How will disputes be resolved? Usually parties specify alternate dispute

resolution methods, such as consultation, mediation and arbitration, or a
combination of them. It is very important to keep your dispute resolution
clause tightly worded so that the contract is speedily enforceable.

15. Waiver ❏

Does non-insistence on performance of particular contractual provisions

imply that the party has waived off its rights? Usually, parties will include a
specific clause stating that waiver cannot be inferred simply from a failure
to insist on performance, and a waiver needs to be expressly provided in
writing.

16. Non-compete & non-solicit ❏

A non-compete clause is inserted with the intention that a collaborator,

consultant, partner or any other person that you enter into a relationship
with does not directly compete or work with your competitors.

A non-solicit clause is inserted to ensure that people who work with you
do not engage your employees or consultants to work with them.

17. Assignment ❏

Receipt of benefits can usually be assigned, but are the parties agreeable
to assign responsibility for their own performance to another entity? If so,
under what conditions? The assignment clause will provide for this,
depending upon the choice of governing law.

18. Confidentiality ❏

With whom can the terms of the agreement be shared and under what
circumstances? What measures should be taken to keep its contents
confidential? Are there any exceptions? This looks like a plain cut, copy
and paste clause but can be worded in many ways.

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19. Severability ❏

If some portion(s) of the contract are struck down or declared illegal, what
happens to the rest of the contract? To avoid any confusion, parties
simply state that the remaining portions will continue to be valid.

20. Intellectual Property Rights (If intellectual property is involved) ❏

Who owns the intellectual property that is created out of the contract?
Will it be transferred or licensed? This clause may also cover the
assignment of the intellectual properties.

21. Amendment ❏

How can the contract be amended? This clause describes the procedure.

22. Breach, Consequences of Breach and Remedies ❏

What amounts to breach and what are the consequences of breach?

Many agreements have an ‘Event of Default’ (or EOD) clause explaining
what is considered to be a breach. Consequences of breach also need to
be defined. For example, in loan agreements, an ‘Acceleration’ clause,
triggered at the time of an EOD typically states that all loans plus interest
due needs to be repaid immediately. Especially for this clause, it is very
important which State laws have been selected as governing law.

What kind of remedies can be sought in case of breach? Are damages a

remedy? Sometimes, there can be contracts stating that no party can
claim damages from the other where the termination is in accordance
with the contract.

23. Entire Agreement ❏

This clause states that the contract captures the entire understanding
between the parties and that no evidence of there being any other terms
in the transaction will be accepted.

24. Notices ❏

What is the specific procedure to give a notice? To whom should the

notice be addressed? This clause serves the advantage that if you serve a
notice as per the procedure specified under the contract, then the notice
is considered served and is not dependent on actual receipt.

25. Liquidated Damages/Limitation of Liability ❏

The liquidated damages clause specifies a particular amount of money

that will be payable in the event of default.

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The Limitation of Liability clause limits the liability for breach to a

pre-specified amount. It is very often included in software and technology
contracts.

(The difference is that the Liquidated Damages attempts to quantify

damages on the higher side, a Limitation of Liability clause limits the
quantum of damages. Both are included with a view to avoid uncertainty).

26. Force Majeure ❏

This clause specifies situations which are outside the control of parties
and are unforeseeable, and under which the parties cannot be compelled
to perform under the contract.

27. Exclusivity (in some contracts) ❏

This clause states that both parties will be in an exclusive commercial

relationship, or if a term-sheet is being signed, in exclusive discussion
about crystallizing a final commercial relationship. This clause may state
some period as ‘period of exclusivity’.

28. Signature sections (for execution of a contract by the parties) ❏

Typically, the first and last pages contain full signatures, and all the others
are initialled by the parties. Certain contracts may require ‘attestation’ by
a witness, who will also need to place his signature in the same way as the
parties.

29. Exhibits (in some contracts) ❏

These can be used for describing the subject matter of a transaction or

providing details for payment or wherever in the contract there are
details which are too lengthy to be used at various places in the contract -
for example details of a property being sold or details of contents in an
apartment or details of shares being transferred or details of bank
accounts to which payment is to be made etc.

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