(iii) Body paragraphs (articles)

Structure. After the words of agreement, the actual agreement is set out. This is usually called the ‘body of the agreement’. The typical structure is as follows:

  • Article 1, for definitions (see section 3.4) and provisions related to interpretation of the agreement (see section 1.2(c));
  • Article 2 (if applicable), containing the conditions to the agreement or to the closing of the transaction (see section 4.1);
  • Article 3, on the scope and main contractual obligations (see chapter 3);
  • Article 4, elaborating on the characteristic obligation of the agreement (e.g. regarding 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 (see section 4.2);
  • Articles on warranties, indemnities and limitations of liability (see sections 4.5 and 4.6); and
  • Articles addressing the term and termination of the agreement, the confidentiality of certain information (see section 4.7), notices and miscellaneous provisions (see section 4.8 – including choice of law and dispute settlement – see section 4.9).

The core of the agreement is in the scope Article and the two or three Articles that immediately follow. Some drafters prefer to push elaborate clauses into a schedule. As shown above, the final Article or Articles usually contain the miscellaneous provisions (sometimes divided Article by Article), the choice of law and the dispute resolution clause. Obviously, this enumeration is just one way of setting out a contract outline. Agreements may well follow a different order.

Prioritisation and logical sequencing. To determine the best sequence of Articles and contract clauses, efficiency suggests that the following principles should be applied:

  • General provisions (e.g. defining scope, desired results and principles) should precede specific provisions (e.g. limiting provisions, procedures, exceptions and carve-outs).
  • Important provisions should precede less important provisions.
  • Clauses identifying causes of action or triggering events should precede their consequences.
  • Substance should be distinguished from form.
  • Content should be distinguished from procedure.
  • Chronological order should be used (if applicable).
  • Provisions with a certain permanency should precede temporary or ad hoc provisions.
  • Miscellaneous provisions (boilerplates) should be placed at the end.