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 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.