Understanding Contracts 2 10A

At the beginning of most commercial contracts there are sections that deal with information such as the names of the parties, the background to the contract and the defined terms. After these sections you will find the main body of the contract. The main body of the contract is made up of clauses. There are some types of clause that you will find in most commercial contracts.

A commercial contract usually contains, for example, a clause that states what the … of the contract will be. The term of the contract is the duration of the contract. It means the period of time for which the contract is valid. There will also be a … clause. This clause contains information about the … of the contract. Expiration means end. So, the agreed date of expiration of a contract is the agreed date upon which the contract will end. A contract of employment, for example, might have a term of one year. The termination clause tells the employer and the employee how the contract can end after a shorter period of time, before the agreed date of expiration.

There is often a clause in a contract that deals with information that must remain secret. This clause usually obliges one of the parties to keep … certain information connected with the other party. For example, let's say an advertising company enters into a contract with a drugs company. The advertising company agrees to create an advertising campaign for a new kind of medicine that the drugs company produces. The contract will include a clause that obliges the advertising company not to tell or …certain information to any third party about the drugs company's products, production methods or financial information. This clause is often known as the confidentiality clause or the … clause.

Many modern contracts also have a clause that deals with … rights. This is very common in contracts under which someone such as an … or a self-employed, … designer produces … for a third party such as a publisher or a company. For example, Anna is a good artist. She designs birthday cards for children. The Cinderella Card Company … Anna to create two new designs for its birthday cards. To commission someone means to formally ask that person to do something or produce something, usually of a creative nature. The contract should make clear who is the owner of the design after the company prints the cards. Is it Anna or is it the card company? Can the card company use Anna's designs on other goods? The design is intellectual property and it can be very valuable. Most contracts make clear who has … in intellectual property. To have copyright in a design, for example, means that you are the owner of that design.

End

Self-employed

Secret

Duration

Writer

Tell

… is work that requires some imagination, such as a painting, a book or a song.

To have … in creative work, such as a book or a song, means to have legal ownership of that work.

The writer who writes a piece of work such as a book or a song is usually referred to in a contract as the … of that work.

To be a … worker means to be self-employed, usually in a creative area of work such as design.

Sometimes large businesses … freelance workers to do creative work for them, such as designing a company logo.

A … clause states the way in which a contract can come to an end.

… information is information that is private and must be kept secret.

The parties to a contract often agree not to ... any confidential information to any third party.

Another word for the duration of a contract is the … of the contract.

The … of a contract is the end of that contract.

A ... clause states that one party to the contract is not allowed to tell anyone certain confidential information concerning the other party.

An … property clause states which of the parties to a contract has copyright in creative work.

They are goods like meat, fish, milk or fruit. These things are impossible to use or to sell after a certain time because they become dangerous for people to eat.

Because this name is often used for buildings and land which are for businesses to use and not for people to live in.

These are goods that the public can buy from shops. They might also be described as 'consumer goods'.

It means to pay for something in several regular payments over a period of time. Sometimes businesses pay for goods in this way.

It is a large building where a business keeps goods for a period of time before it sells them.

It is a person who sells the assets of a business in order to pay the business's creditors. This person is sometimes called 'a receiver'.What is the job of a liquidator?

It is a very specific amount of money. It is the exact amount of money that a person has available to spend in order to do a particular thing.What is a budget?

It means that the business does not have enough money to pay its debts.

It means that you have an obligation to pay money to that person.

It is very similar to a bill. It is a list of goods or services that a seller supplies to a buyer and it names the price that the buyer must pay. It often says how many days the buyer has to make the payment, for example, 30 days.What is an invoice?

It means to keep goods in a particular place where the goods will be safe until you are ready to use them or you are ready to sell them.

Why do some businesses put a serial number on their goods?

Money and payment

Goods

The buyer will pay for the goods in six equal monthly …

The agent has an advertising … of £10.000 to advertise the company's products in Italy and he must not exceed this amount without written permission.

My company produces goods in China and we need a place to weeks before we transport them to England. … the goods for three

A … is a large building that businesses often use to store their goods.

Meat and fish are … goods and will go off very quickly if they are not stored correctly.

This contract will terminate immediately if the buyer becomes … or has any other serious financial difficulty.

How much money do we … to our supplier?

We enclose our … with the goods, which gives a full description of the goods that the buyer ordered and the amount of money that the buyer must pay.

If the buyer becomes bankrupt and a … is appointed to deal with the buyer's creditors, then the seller has the right to terminate the contract.

The business … for sale consist of a factory, a separate office building and a warehouse.

It is easy to identify our company's goods if someone steals them because every item has a … stamped on it before it leaves the factory.

The shop was full of … at the time of the fire and the retailer had to make a claim on his insurance policy for all of the goods that were destroyed.

To go above the amount that is allowed.

When food such as fish or meat goes off it means that you cannot eat the food because it is decaying.

Put on or placed on, usually by a machine.

A person or company that you must pay because they supplied you with goods or services.

A building where goods are manufactured. A factory is sometimes called a 'plant'.

A person or company that sells goods to the public.

All modern commercial contracts contain a termination clause. This clause tells the parties the circumstances under which the contract can … before the agreed date. A termination clause often lists three ways in which this can happen. When a contract ends before the agreed date we say that the contract is …

The first way in which a contract can terminate is that one party … notice to the other. This is a period of warning that one party is about to end the contract. It is usual for a termination clause to say that notice must be in … A typical notice period in an employment contract, for example, is four weeks.

The second way in which a contract can terminate is in circumstances where one of the parties … a material breach of the contract. A material breach is a significant breach. The breach must have a major effect on the injured party. It is not usually possible to terminate a contract because of a minor breach. A minor breach is a … and more insignificant breach. A court in the UK does not consider this type of breach …enough to end the contract.

The third way in which a contract can terminate is in circumstances where one of the parties has serious problems concerning … Many termination clauses state that if one party's business goes into liquidation and a liquidator is appointed to sell the assets of the business, this will terminate the contract. This is to … the party who may … money if the contract is allowed to continue. Many termination clauses also state that if one party's business ceases trading, which means it … operating as a business, then the contract will terminate immediately.

What is the correct way to say that one party is warning the other party that a contract is about to end?

A termination clause usually requires the parties to give notice in a specific way. What is the usual way to give notice?

How long is a typical notice period stated in the termination clause of an employment contract?

What is a material breach?

What is a minor breach?

Is a minor breach sufficient to terminate a contract according to UK law?

What is a liquidator?

What are assets?

What does cease trading mean?

Who are creditors?

TERMINATION

Either party may terminate this … by

7.1 giving six weeks … notice to the other; or

7.2 giving notice where there is a … breach of terms; or

7.3 giving notice where one of the parties … to trade or is unable to pay its debts.

An intellectual property (IP) clause in a contract deals with ... This means that the contract clearly states which of the parties owns any creative work, such as writing, music or designs. When a lawyer drafts an IP clause he or she must be sure of the wishes of the parties. Does the party who created the intellectual property really want the other party to have ownership of it? Or does he or she want the other party only to have permission to use the intellectual property for a particular project, but not to own it?

Let's look at an example. A songwriter sends a new song to an advertising company. The company agrees to pay the songwriter £5,000 to use his song in a television advertisement for coffee. The songwriter accepts. Two years later, the manager of a different advertising company contacts the songwriter. This advertising manager wants to use the same song in an advertisement for a car. Can the songwriter give permission to the second advertising manager to use his song? The answer is that it depends on the terms of the contract with the first company.

Did the contract with the first advertising company state that the songwriter agreed to … all IP rights to the company? Assign means to transfer ownership. If the answer is 'yes', then the advertising company owns the song. The songwriter cannot give permission to anyone else to use his song. He does not own it. This is bad luck for the songwriter and for the second company.

However, maybe the songwriter only agreed to … a … to the first company to use his song. In this case, this means he gave the first company permission to use his song, but he remains the owner. Therefore, he can probably give the second company the right to use it too. Granting a licence is often a good idea. The creator of the work can make money from his or her work but continues to own the work.

A person who assigns his or her IP rights is called an … in a contract. In our case the assignor is the songwriter. The person or company who buys the IP rights is called the ... A person who grants a licence to use his or her intellectual property is called a ... The person who is allowed to use the intellectual property is called the ...

When an assignor assigns his or her IP rights to a third party, the assignor usually has to make certain guarantees to the assignee. One of these is that the intellectual property assigned is free of any encumbrance. An … is the right that some third party has in the intellectual property. In our case the songwriter must guarantee that his song is completely his own work and he is legally able to assign it to the advertising agency.

A contract clause that deals with IP rights usually states what will happen when there is an … of the rights. To … an intellectual property right means to break the law concerning that right. We breach a contract but we infringe copyright.

When an assignee buys IP rights he or she usually requires a guarantee from the assignor that the work, for example, a book, a play, a song, is not in the … ... In the public domain means the public can find the work easily because the work is on the Internet or copies of it exist. In our case the songwriter cannot give this guarantee. His work is in the public domain because it was on television.

What must a lawyer be sure of when he or she drafts an intellectual property clause?

 What does to assign ownership of IP rights mean?

In situations where I want to give a company permission to use my intellectual property for a particular project what must I do

What is an assignor?

What is an assignee?

What is a licensor?

What is a licensee?

What is an encumbrance?

What does to infringe an IP right mean?

Where do we say intellectual property is when intellectual property is easily available to the public?

Who owns the … in this piece of writing?

My client is interested in buying your designs and he wants permanent ownership of them. Are you willing to … your IP rights to him?

My client is a publisher and she wants to use your designs as an illustration in a new book. However, she does not want to buy the IP rights to the designs. I have instructed her that to do this she needs a … from you.

Our client does not want to assign copyright in her design to anyone but she is willing to … a licence to you to use it.

Your use of our company logo on your products is an …of our intellectual property rights and we will take legal action against you.

Our client owns the IP rights in the design. When she grants a licence she will be described in the contract which grants the licence as the …

Our client is selling the IP rights in the design. When she sells the rights to you she will be described in the sale contract as the …

We want to use a piece of music in our new advertisement. However, we must first check that this will not … anyone's IP rights.

My client paid £10,000 for the rights to the music and he is now the owner. In the sale contract he is described as the …

My client paid £1000 to use the music in his new radio advertisement. He is not allowed to use the music again without a new licence. In the contract which grants the licence he is described as the …

It is important to the publishing company that no one has seen your new book. Are there any copies? Is any part of the book in the …?

The contract guarantees that you assign your work to the buyer free from any … This means that no third party has any interest in the work.

A retention of title clause deals with when ownership of goods passes … the seller to the buyer.

The seller will retain title … the goods until the buyer makes payment in full.

The seller will retain ownership … the goods until the buyer makes payment in full.

The buyer must pay the seller for the goods … 30 days of receiving those goods.

A retention of title clause often states that the seller continues to own the goods … he or she receives payment.

You will see clauses dealing with warranty, indemnity and force majeure in most commercial contracts.

A … is a guarantee that one party gives to the other. It is a statement of fact. In a contract … the hire of an industrial machine, the hirer will warrant to the owner that he will return the machine … the same condition and … the date stated in the contract.

An … is a promise that one party makes to the other. It is a promise by one party to compensate the other if there is a loss that 'arises from' the contract. Arises from means comes from. The process of indemnity is sometimes called 'covering' someone against a loss. In the example above, one party hires a machine … the other and warrants that he will return it in the same condition. What happens if he does not do that? The indemnity clause states that the hirer must compensate the owner for his loss. An indemnity clause usually requires the party who gives the indemnity to buy a policy of insurance to make sure that he or she can keep his promise to pay. The contract will say that the hirer must 'take out' a policy of insurance. Take out means buy. In the USA an indemnity clause is sometimes called an indemnification clause.

A … is something that happens that stops one of the parties from fulfilling his or her contractual obligations. It might be a problem with very bad weather, or something like a terrorist attack. A force majeure clause protects the parties from these unexpected circumstances. It describes the force majeure as an 'unforeseeable' event. Unforeseeable means that the parties did not and could not imagine that such a thing could happen. This clause states … what unexpected circumstances the parties are free from fulfilling a contractual obligation. In the above example, the hirer of the machine promises to return it on a certain date. What happens if there is a serious fire at the owner's premises? The police will not allow the hirer to enter the premises. The hirer will not be in breach of contract because the force majeure clause will protect him.

A clause in which one party makes certain guarantees to the other party.

A clause in which one party says that he or she will compensate the other party for certain losses that may happen as a result of entering into the contract.

A phrase that means 'comes from' or 'as a result of something.

A word that means to pay someone money so that they do not suffer the effects of a loss.

A phrase that means to buy something, especially insurance.

The formal name for an insurance document.

The word that American lawyers sometimes use instead of indemnity.

An international term that describes an event that stops a party from fulfilling a contractual obligation.

A word that means 'could not be imagined in advance'.

In the … clause of this contract the hirer guarantees that he or she will comply with the terms and conditions it contains.

The … clause requires your client to cover any loss that my client suffers as a result of entering into this contract.

Your client agrees to … my client for any financial loss that he suffers as a result of entering into this contract.

It is necessary to … insurance when you enter into this contract. This means the other party knows that you have the money to compensate him for any loss that he suffers.

Do you have a … of insurance? It is an important document and you should keep it in a safe place.

When a loss … a breach of the terms of a contract, the indemnity clause usually covers the injured party against that loss.

Our New York office has sent us a contract that uses the clause heading … instead of indemnity.

Events that are usually classified as a … include war, revolution, and terrorism.

The terrible storm on 10 July was an … event and therefore can be classified as a force majeure.

It is usual for a contract to contain a clause that tells the parties under what circumstances they will be … from fulfilling a contractual obligation. Excused means the party is free of the obligation. The obligation no longer exists. However, the circumstances under which this can happen are very limited. A party can usually be free of a contractual obligation only because something unusual happens that stops him or her from fulfilling the obligation. The clause in a contract that mentions the ways in which this cancellation of an obligation can happen is called the … … clause.

Let's say that one party to a contract agreed to deliver goods by plane to the other party. However, on the delivery date agreed in the contract the delivery company's local air traffic controllers decided to have a strike, which continued for more than a month. It was impossible to deliver the goods on the agreed date because the airports were closed. Under circumstances like these, there is normally no breach of contract. This is because there is a … event that is preventing the contract from being carried out. A supervening event is something that is unexpected. It stops or interrupts an event or situation.

The force majeure clause states that if a supervening event happens that is completely out of the control of the contracting parties, such as a strike, then the party who is unable to fulfil his or her obligations will not be liable under the contract. Lawyers describe an event like this is as '…'. In other words, neither party could have predicted or imagined it. Other force majeures include things like computer failure, war, revolution, earthquake or fire. Lawyers sometimes refer to a force majeure, especially an event that is not connected to human activity, as an '… … …'. Fire, hurricane, flood or earthquakes can each be described as an Act of God. When a party wants to use a force majeure clause to avoid being in breach of contract, we say that he or she '… …' the force majeure clause.

An event that interrupts the performance of a contract.

A situation where many people stop working, usually because they have a dispute with their employer.

he parties could not predict when they signed the contract.

You are no longer responsible for fulfilling that obligation.

A type of force majeure such as a natural disaster.

To use or depend on that particular contract clause.

A clause in a contract that states that neither of the parties will be in breach of contract if certain things happen.

'My client is not in breach of contract. Under certain circumstances a contracting party is … from fulfilling his obligations. This means he is free of the obligation. My client is free of his obligation due to a force majeure."

'My client agreed to provide his hotel garden for your wedding. I am sorry that you were unable to have the ceremony there after all. However, the storm that happened on 15 July was completely … Even the government's weather office did not predict such a terrible event!"

'My client contracted with you to keep your goods in his warehouse. There was a gas explosion at the warehouse last week, before you delivered your goods. The warehouse was destroyed. This is clearly what a lawyer calls a … event. My client is not in breach of contract.'

'My client contracted to deliver goods to you by lorry. There was a flood that blocked all of the roads in your town and the lorry could not get there. We are not in breach of contract. He will … the force majeure clause in the contract if you try to sue him.'

'My client is a travel agent. You booked a holiday on a Caribbean island with his company. There was a hurricane that damaged all of the hotels on the island. Your holiday is cancelled. My client is not in breach of contract as this is the type of natural disaster that we describe as an ...’

'My client owns a nightclub. You booked the nightclub so that you could have a party to celebrate your birthday. There was a fire at the club last night. Please look at your contract with my client. You will see that there is a … clause that covers situations such as this.'

FORCE MAJEURE

5.1 For the purpose of this Agreement 'Force Majeure' means an event outside the reasonable … of a party affecting his or her obligations under this Agreement.

5.2 If either party is affected by a Force Majcure he or she must immediately … the other party in writing.

5.3 A Force Majeure does not entitle e ther party to terminate this Agreement and neither party shall be in … of this Agreement by reason of any … in performance or non-performance of any of its obligations due to Force Majeure.

To pay for something … instalments means to make several regular payments.

A termination clause informs the parties of the circumstances … which a contract can end.

The Seller retains title in the Goods until the Buyer pays … full.

A force majeure prevented my client … fulfilling his obligations.

Copyright … the design belongs to the artist.

The Hirer agrees to comply … the terms and conditions of this Agreement.

If a party wisnes to terminate the contract he or she must … four weeks' notice in writing.

I … money to two people. I must pay Mary £20 and I must pay Andrea £10.

This information is confidential and you must not … it to anyone.

Please … this information strictly confidential.

When I … a breach of contract it means that I do not fulfil my obligations under that contract…

I … my goods in a warehouse in Manchester.

I agree to … a licence to your client to use my design on his merchandise for a period of one year.

To use someone's artwork without his or her permission is to … that person's copyright.

I will … a new termination clause for my client's contract as he is not satisfied with the current clause.

The author agreed to … her intellectual property rights to the publishing company, so the author no longer has legal ownership of those rights.

When I … someone against a loss it means that I promise to compensate him or her for that loss.

FROM A TERMINATION CLAUSE

1 This … shall … on the 25 June 20XX and shall continue for a … of one calendar year.

2 Each party to this Agreement may at his or her own discretion and without being required to pay … … the Agreement by … two months' written notice in advance.

3 Each party to this Agreement may by giving written notice to the other party terminate the Agreement immediately as follows:

3.1 If the other party has committed a … … of this Agreement

3.2 If the other party goes into … or compulsory liquidation

3.3 If the other party is insolvent or unable to pay his or her … when they become due

3.4 If a receiver is appointed over the whole or any part of the … of the other party.

Contract

Sending a document in the correct, formal way

Money to pay someone for a loss

Amounts of money that a person owes to other people

Serious, significant

Start

Violation

Duration, the period of time for which a contract is valid

Intentional, something that a person chooses to do

End

Property, including money and equipment