CONTRACTS: THE STRUCTURE OF A COMMERCIAL CONTRACT

(A) TITLE AND DATE A commercial contract has a title stating what type of agreement it is, for example, ‘Sale and Purchase Agreement’. After any table of contents which may be necessary in a long contract is the date of the agreement, for example, ‘This Agreement is made on 25 August 20XX’. The month is written as a word to avoid confusion. This is because in the UK 25 August is 25/08 but in the USA it is 08/25. The date at the start of the contract should match the date at the end, which is the date the parties sign it. The date of the agreement is often different from the effective date, which is often called the ‘commencement date’.

(B) PARTIES AND RECITALS Information about the parties is next. This is typically the full name of each party, including legal status (Ltd, LLP, for example) and address. It is a requirement in the UK for corporate bodies to include the company number as registered with Companies House. This means that if a party has changed its name it will still be identifiable from its number, which never changes. The next part of the contract is the ‘Recitals’ or ‘Background’. This explains the reasons why each party is entering into the contract and should be limited to that purpose rather than including any obligations. Each statement or ‘recital’ in this section is numbered, but often as (A), (B), (C), so as not to confuse the recitals with the contract clauses that come later, which are numbered (1), (2), (3). In traditional drafting each recital starts with the word ‘WHEREAS’, meaning something like ‘because’ or ‘considering that’. The recitals may not be seen as binding upon the parties unless the contract states that they are.

(C) THE OPERATIVE PROVISIONS: DEFINITIONS There is often a statement after the recitals to show that the most important, binding part of the agreement is about to start, such as ‘NOW, THEREFORE, IT IS AGREED AS FOLLOWS:’ The first operative provision is usually the definitions section, sometimes under the heading ‘interpretation’. Certain words are defined to avoid any ambiguity and to avoid repeating long names or descriptions in the main body of the contract. There is usually a statement at the start of this section, such as ‘In this Agreement the following words shall have the meanings set out below:’. The first letter of each defined term is a capital letter and it should start with a capital letter whenever it appears in the agreement. Defined terms are listed in alphabetical order.

(D) OTHER OPERATIVE PROVISIONS This is the real heart of the contract and all of the most important points of agreement are listed in these pages. The main commercial terms come first, such as the subject of the contract (what is being bought, sold or supplied, for example), the price of the work (consideration), followed by warranties, indemnities, payment terms and other key, usually heavily negotiated issues between the parties. This is the longest section of the contract.

(E) THE BOILERPLATE CLAUSES These are the general, standard clauses found at the end of most commercial agreements. They usually deal with how the contract will be regulated by law rather than with obligations. Examples include clauses on governing law, jurisdiction and force majeure.

(F) SIGNATURE BLOCK The final section of the contract where the parties sign and date the agreement is called the ‘execution clause’. It is important that this section is clearly dated, or it may be difficult later to establish when the agreement was ‘executed’. It may be necessary to have a lawyer present when the contract is signed to make sure all formal requirements are complied with.

This agreement is made on 25 August 20XX (1) ….. : Chatsworth Tech for Life Ltd, (hereinafter the ‘Company’) whose registered office is at 14 Charles Square, Chatsworth CW1 VB8, a company registered in England and Wales: 37009818: (2) …..

Chelsea Corporate Communications Ltd, (hereinafter ‘Consultant’) whose registered office is at Bella Vista House, Morton Street, London N7 0GZ, a company registered in England and Wales: 55980147.

RECITALS (A) WHEREAS the parties (3) ….. to discuss the business opportunity between the Company and the Consultant, the discussions will (4) ….. the disclosure of information concerning the business affairs of each other and of other companies in the same (5) ….. of companies as each of the parties ((6) ….. the ‘Business Affairs’). (B) WHEREAS each party requires (7) ….. disclosures to be (8) ….. in confidence and to be protected in accordance with the terms of this Agreement. NOW THEREFORE IT IS AGREED AS FOLLOWS: