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THE STRUCTURE OF A COMMERCIAL CONTRACT (7) - OPERATIVE PROVISIONS

After the recitals (and, the definitions section, if it is incorporated into the contract as the first section) come the ‘operative provisions’. This is the main part (or the ‘main body’) of the contract. The operative provisions include those promises which the parties to the contract give each other, the duties which each of the parties have under the contract, and the obligations which each of the parties are undertaking.


Let’s remind ourselves of the example contract we have been using throughout this series on The Structure of a Commercial Contract.


INTERNATIONAL DISTRIBUTION AGREEMENT [The Heading]


THIS AGREEMENT IS ENTERED INTO ON THIS 18th DAY OF FEBRUARY 2021 [The Date and Commencement]


BETWEEN [The Parties]


HAPPY SKIN Inc (hereinafter referred to as “HSI”), a Company registered in the State of California, having its office at 9876 Slick Boulevard, San Jose, California


AND


THE DISTRIBUTOR CAMDIS Limited, (hereinafter referred to as “CAMDIS”) whose registered office is at 12 Mountain Road, Cambridge, England, and whose registered number is 49820912.


WHEREAS HSI is the manufacturer of a range of high-quality skin care products, including skin creams, lotions, and moisturisers designed to promote healthier skin;

WHEREAS CAMDIS is an international distributor and is engaged in the marketing of skin care products to various international markets;

WHEREAS CAMDIS, which is engaged in the marketing of skin care products in the United Kingdom (hereinafter referred to as ‘the Territory’) has proposed to distribute various skin care products produced by HSI, including skin creams, lotions, and moisturisers that are designed to promote healthier skin (hereinafter called ‘the Products’) [The Recitals]


WHEREBY it is agreed as follows. [The Words of Agreement]


1. DEFINITIONS

In this agreement,

“Agreement” shall mean this Agreement

“Product” shall mean and refer to the items listed in Schedule 1, annexed hereto.

“Territory” shall mean and refer to those parts of the United Kingdom outlined in red on the plan in Schedule 2, annexed hereto.”




We can see that it is headed ‘INTERNATIONAL DISTRIBUTION AGREEMENT’. The parties to the agreement are a company from California, United States, HSI (the manufacturer of skin care products) and an English company called CAMDIS (the distributor). From the recitals, we get some information of the kind of agreement that both parties are entering into.

This kind of agreement – called a ‘cross-border agreement’ [1] – will probably have many operative provisions. These will cover a wide range of matters connected with what each of the parties is promising to do, and when.


At this point, stop for a few moments. Make a list of all the possible operative provisions that a commercial contract of this type might contain, that you can think of. It is a good idea to consider this, first from the position of HSI and then from the position of CAMDIS.


A well-drafted contract [1] will be structured logically. It is obvious that the both CAMDIS and HSI will have some duties and responsibilities. The operative provisions may begin, for example, with a clear heading which states something like


“DUTIES AND RESPONSIBILITIES OF THE DISTRIBUTOR”


Following this, in orderly, numbered clauses, the contract might set out those duties and responsibilities which CAMDIS is undertaking. The next section should, logically, be headed:


“DUTIES AND RESPONSIBILITIES OF HSI”


with the duties and responsibilities of HSI then set out.


Other main sections that you might logically expect to see in a contract like this include sections dealing with the terms of delivery of ‘the Product’ (which is, of course, a defined term, as we have seen in the last post in this series), prices, and payment. There will probably be a main section dealing with the duration [2] of the contract, and termination.


If you have made a list of the kinds of operative provisions you might expect to find in this contract, those may include the following:


1. Clauses dealing with the registration of ‘the Product’ in ‘the Territory’. This will, of course, probably be the responsibility of CAMDIS

2. As a cosmetic, the Products will almost certainly need to meet safety regulations and standards. Clauses will be necessary to allocate responsibilities appropriately to deal with this.

3. Obligations in relation to sales, marketing, and promotion of the Product.

4. The confidentiality of any information and documents about the Product which is given to CAMDIS by HSI.

5. When the Product is going to be delivered, and how it is going to be delivered.

6. Promises about the quality and safety of the Product which is delivered.

7. Clauses dealing with how long the contract is to last – its duration.

8. Clauses or provisions dealing with the price of the Product, and what happens if payment for the Product is late.

9. Provisions about the kind of situations in which the contract may be terminated, and by whom.

10. How, and where, any disputes will be resolved which arise under the contract.


There will be many more, of course. But the above gives just a few of the main areas which must be dealt with in the operative provisions.


Within the operative provisions, some of the clauses will be specific to the contract itself; for example, the price, the terms of delivery, and so on. Other clauses are more ‘general’ and are found in most types of commercial contract. These ‘general’ clauses are called ‘boilerplate clauses’. If you wish to learn more about these, see the post in our Commercial Contract Vocabulary A – Z series, here:


https://www.cambridgelegalenglish.com/post/commercial-contract-vocabulary-a-z-b-boilerplate-clauses


In the next part of this series, we will look at some other important terminology connected with the structure of a commercial contract:


· Conditions precedent

· Interpretation section

· Schedules


[1] Note the hyphen [-] between the words. That is because they create a 'compound adjective'. This is created by bringing two separate words together to describe the noun (in this case 'cross' and 'border'. If you do this, you must place a hyphen between the words.


[2] How long the contract will last, its 'duration', is also called 'the term of the contract'. Do not confuse this with 'the terms of the contract', which refers to the rights and obligations created by the operative provisions.



© Cambridge Legal English Academy 2021

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