What is a Clause?
When it comes to contracts, you may often wonder what is a clause? A contract clause is in its most basic form a set of terms and conditions attached to the contract which determines the liabilities and obligations of all parties.
Contracts appear in many areas of our lives, from purchasing a product or service through to investing in property. In the majority of cases the contract clause will also incorporate things such as implied terms, statutory rights and the responsibilities and expectations of all parties who sign the contract.
It is crucial that you check the small print often found in contract clauses. Some contracts can seem quite lengthy and they can include Latin phrases or legal jargon but you do need to read and fully understand the terms before you agree to them. If the contract does contain any legal terms you should seek the advice of an experienced solicitor who can read and interpret the contract for you.
Clauses within a contract will usually be small statements within the contract and certain clauses can work against other clauses particularly when they are used to reduce or eliminate any liability or obligations.
A number of contracts will include what is known as a penalty clause. If a party breaches the contract, financial penalties can be applied provided that particular clauses are in the contract. This clause can mean that if a check a contract, the other party can claim financial penalties without having to take the party in breach to court.
In a consumer contract for example, you will often find a clause that outlines specific financial penalties if the customer repays their loan early. Clauses can also state the amount of APR the consumer is charged if they pay late or do not pay at all and also what fees and other charges they must pay.
Additional Contractual Clauses
There are countless contract clauses which can be included and the type of clause will often depend on the contract. Many clauses appear in the contract after the creator has sought legal advice or they can be included on instructions from the individual or business drafting the contract.
In some contracts you will find clauses that are very difficult to read. These are complex statements and terms which are almost impossible for someone without legal knowledge to understand.
In accordance with the Unfair Terms in Consumer Contracts Regulations, clauses cannot be overly complex and they must be written in plain English. If they ambiguous or unclear they could be deemed unfair.
In law you will often hear the term clause mentioned frequently especially in contract law, but what is a clause in this context and how are they used? A proper law clause or a choice of law clause are terms in a contract that parties specify what will happen what happens if a dispute arises.
Exemption clauses will be placed into contracts and they are used as an agreement to identify whether a party is included or excluded from any liability. There have been many instances where an exemption clause has been used unfairly to the disadvantage of one of the parties who enter into the contract. As a result there have been several changes to the law to bring about a greater degree of fairness and restrict the use of such clauses.
Different Types of Exemption Clause
Within a contract there can be two different kinds of clause. The first is a limitation clause. This states that a party may be limited from any liability. The second is an exclusion clause. This means that the party is completely excluded from any form of liability.
When a court is deciding whether an exemption clause can be enforced, they will carefully review the agreement and determine whether any money has changed hands. In certain situations a court may not enforce an emption clause if it has been placed into a contract where no money is involved.
The court will also consider several phases before they reach a decision about whether an exemption clause can be enforced.
Incorporation simply means including a clause within a contract and due consideration will be given to identify whether the clause is in the contract.
Exemption Clause Interpretation
Any court of law will carefully interpret the exemption clause to decide who is liable. A legal term is used when exemption clauses are being interpreted and this is known as construction.
When reviewing contracts, a court will usually take into consideration fairness when considering liability.
The Unfair Contract Terms Act 1997
Under this Act, the rules surrounding exemption clauses and liability are clearly outlined. In accordance with Section 1(3), there are rules which relate to liability in business terms.
In this instance, liability is presented as a result of activities during business or when it is carried out at a business premises. Furthermore, Section 12 of the Act states that an individual becomes a consumer when they are not connected to the business. If a contract is fair a contract can include or exclude liability as a result of negligence.
A contract is deemed to be unfair if there is a ‘significant imbalance’ contained within the agreement and this imbalance results in a disadvantage to the consumer. Contractual terms which have not been negotiated on an individual basis are deemed to be unfair if it causes a significant imbalance in terms of rights and obligations which appear under the contract which has a negative impact on the consumer.
Drafting a Contract
When drafting a contract, specific clauses can be introduced which assign the provider of the service to amend or adapt requirements and obligations. Nevertheless it does not mean that the business or individual has an automatic right to do so. If the terms and conditions associated with a contract create a large imbalance to the benefit of the person making the offer this could be deemed as being an unfair contract.
All contracts should be read carefully and time should be taken to consider each clause in detail. Legal advice should be sought before entering into any contract, particularly those which involve high amounts of money. Any doubts should be clarified and contracts should not be signed until all parties are satisfied with the contents of the contract and they have answered all questions about clauses and terms.
So when answering the question, what is a clause, it all depends on the nature of the contract or the area of law.
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