Contract Clause Drafting Flashcards
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Read the first 7 Contract Clause Drafting flashcards as text
What is the primary risk of using vague terms like 'reasonable efforts' versus 'best efforts' in a contract?
Answer: Courts interpret these terms differently, creating uncertainty about the required level of performance
Courts across jurisdictions apply varying standards to 'reasonable efforts' and 'best efforts,' making the obligation ambiguous without further definition.
In a cross-border contract, a 'currency clause' is used primarily to:
Answer: Allocate foreign exchange risk and specify which currency governs payment obligations
A currency clause specifies the payment currency and may include provisions for exchange rate adjustments to allocate FX risk.
Which clause is specifically designed to maintain a party's competitive advantage by preventing the other party from hiring away key employees?
Answer: Non-solicitation of employees clause
A non-solicitation of employees clause prohibits one party from recruiting or hiring the other's staff during and after the contract term.
A 'change order' clause in a contract primarily addresses:
Answer: The process for modifying scope, schedule, or price during contract performance
Change order clauses establish a formal process for documenting and pricing modifications to the agreed scope of work.
What makes a 'penalty clause' unenforceable under US common law, distinguishing it from a valid liquidated damages clause?
Answer: The amount is disproportionate to any reasonable estimate of actual loss and functions as a deterrent
US courts void penalty clauses because contract law aims to compensate, not punish; a grossly excessive sum signals a deterrent rather than a damages estimate.
An 'escrow clause' in a technology licensing agreement is commonly used to:
Answer: Hold source code with a neutral third party for release if the licensor becomes insolvent
A source code escrow clause protects the licensee's ability to maintain software if the vendor ceases operations or breaches the agreement.
When drafting a 'right of first refusal' clause, which element must be clearly defined to make it effective?
Answer: The triggering event, notice period, matching period, and terms the right-holder must match
A right of first refusal must specify what event triggers it, how notice is given, how long the holder has to respond, and on what terms.