Considerations regarding the main outline of a contract

After the words of agreement, the actual agreement is included. This blog addresses a few simple thoughts about the contract outline.

The part that follows after the words of agreement (e.g., NOW THEREFORE, weagree as follows – see my previous blog of March 2009 about it here) is usually called the ‘body of the agreement’. The typical setup of the body of the agreement is as follows:

  • Article 1, for definitions and provisions related to interpretation of the agreement
  • Article 2, (if applicable) containing the conditions to the agreement or to the closing of the transaction
  • Article 3 on the scope and main contractual obligations
  • Article 4 elaborating on the characteristic obligation of the agreement (e.g., about delivery and acceptance, service level, specifications, level of exclusivity)
  • Articles related to: purchase price, purchase price adjustments and payment; aspects of compliance; reporting; and product quality
  • Articles containing covenants
  • Articles on warranties; indemnities; and limitations of liability
  • Articles addressing the term and termination of the agreement; the confidentiality of certain exchanged information; notices; and the miscellaneous provisions (including a choice of law and a dispute settlement provision)

The core of the agreement is in the scope article and the two or three articles that follow immediately thereafter. Some drafters prefer to push elaborate clauses to a schedule. In such case, the body of the agreement should obviously contain a reference to that schedule.
Obviously, the enumeration is just a mainstream description of a contract’s outline. Shareholder agreements, joint ventures, partnerships and short agreements may well follow another order. It is common practice to list the definitions in article 1 (subject to best practice rule no. 9 related to the place and presentation of defined terms – see ). The scope of an agreement is addressed in one of the first articles. The final article or articles contain the miscellaneous provisions (sometimes divided article-by-article) and the choice of law and the dispute resolution clause.

EU vs. US style. Also in this respect, differences of style can be identified between European contracts and US-originating contracts. Contracts drafted by American practitioners tend to contain a very small number of articles: despite its volume and wordiness, a comprehensive share purchase agreement may well be limited to four or five articles, one containing the definitions, another the miscellaneous provisions, and the key provisions in an article embodying the sale and transfer (with warranties), in a payment clause and an article with all covenants (including pre-closing covenants, a closing agenda and a non-compete). On the other hand, contract drafters with a European background tend to divide the body of an agreement in various articles.

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