3 contractual clauses to know about

Needless to say, all businesses have previously been or will be faced with the problem of 

unpaid debt

. But to prevent and help deal with these common 

failures to pay

, there are several tips that can be followed, most notably the inclusion of various useful

contractual clauses

 in the contract signed between the creditor and the debtor. So here are a few examples which will help protect you as a creditor when faced with a negligent debtor:

Title retention clause

The 

title retention clause

 happens to be very useful in an 

asset

 sale contract. In principle, the transfer of ownership takes place as soon as the parties agree on the deal and the price, but this clause means the seller remains the owner of the asset until the purchase price has been paid in full. Should payment never occur, ownership of the asset in question will remain in the hands of the creditor. However, be careful not to reduce the use of this clause to a mere formality, as there are a number of exceptions to it and it’s sensible to seek advice on the validity of such a clause. Please note that for this clause to be valid, the asset in question must be identifiable and non-transformed.

Termination  for cause clause

This 

termination for cause clause

 is very simple. If one of the parties fails to comply with one of the contractual obligations, this will result in the dissolution of the contract. Please do not mistake this clause for the unilateral termination clause, which allows either party to dissolve the contract without the other contracting party having committed any breach. In order for this termination for cause clause to have effect, its wording must clearly indicate that the parties wish to exclude, without any possible doubt, the prior intervention of a judge. When drafting this clause, the parties may also agree that formal notice shall not be required in order to dissolve the contract, but that it is mandatory for the party wishing to dissolve the contract to notify the other of their desire to terminate it.

Penalty clause

According to 

Article 1226 of the Civil Code, 

the 

penalty clause is

: “

one by

which a person commits to paying, in case of non-execution of the agreement, a flat rate compensation for the damage potentially suffered as a result of said non-execution.”

We should specify that penalties are acceptable if they are not excessive and represent a form of compensation. However, despite the use of the word “penalty”, the penalty clause has no punitive role, but, in fact, constitutes compensation for the unfortunate creditor. This clause is designed to repair the damage which is likely to occur. Care should, however be taken not to draw up a penalty clause where the amount would clearly exceed the extent of the damage suffered by the creditor, at risk of seeing the judge reduce this amount or even deciding to void the clause in contracts between a consumer and a professional. To avoid this, the clause amount should be calculated on the basis of the damage which was foreseeable by the parties at the time the contract was produced. Please note that in a contract between a consumer and a trader, the clause needs to benefit both parties for it to be valid. A clause which would only benefit the creditor is unlawful. We will be analysing

other useful clauses

to insert in your contracts/general terms and conditions in a future article, to be published very soon. Would you like more information on what we can do for you? Then don’t hesitate to contact TCM.  Check out our 

website

 or 

contact us

!

Needless to say, all businesses have previously been or will be faced with the problem of 

unpaid debt

. But to prevent and help deal with these common 

failures to pay

, there are several tips that can be followed, most notably the inclusion of various useful

contractual clauses

 in the contract signed between the creditor and the debtor. So here are a few examples which will help protect you as a creditor when faced with a negligent debtor:

Title retention clause

The 

title retention clause

 happens to be very useful in an 

asset

 sale contract. In principle, the transfer of ownership takes place as soon as the parties agree on the deal and the price, but this clause means the seller remains the owner of the asset until the purchase price has been paid in full. Should payment never occur, ownership of the asset in question will remain in the hands of the creditor. However, be careful not to reduce the use of this clause to a mere formality, as there are a number of exceptions to it and it’s sensible to seek advice on the validity of such a clause. Please note that for this clause to be valid, the asset in question must be identifiable and non-transformed.

Termination  for cause clause

This 

termination for cause clause

 is very simple. If one of the parties fails to comply with one of the contractual obligations, this will result in the dissolution of the contract. Please do not mistake this clause for the unilateral termination clause, which allows either party to dissolve the contract without the other contracting party having committed any breach. In order for this termination for cause clause to have effect, its wording must clearly indicate that the parties wish to exclude, without any possible doubt, the prior intervention of a judge. When drafting this clause, the parties may also agree that formal notice shall not be required in order to dissolve the contract, but that it is mandatory for the party wishing to dissolve the contract to notify the other of their desire to terminate it.

Penalty clause

According to 

Article 1226 of the Civil Code, 

the 

penalty clause is

: “

one by

which a person commits to paying, in case of non-execution of the agreement, a flat rate compensation for the damage potentially suffered as a result of said non-execution.”

We should specify that penalties are acceptable if they are not excessive and represent a form of compensation. However, despite the use of the word “penalty”, the penalty clause has no punitive role, but, in fact, constitutes compensation for the unfortunate creditor. This clause is designed to repair the damage which is likely to occur. Care should, however be taken not to draw up a penalty clause where the amount would clearly exceed the extent of the damage suffered by the creditor, at risk of seeing the judge reduce this amount or even deciding to void the clause in contracts between a consumer and a professional. To avoid this, the clause amount should be calculated on the basis of the damage which was foreseeable by the parties at the time the contract was produced. Please note that in a contract between a consumer and a trader, the clause needs to benefit both parties for it to be valid. A clause which would only benefit the creditor is unlawful. We will be analysing

other useful clauses

to insert in your contracts/general terms and conditions in a future article, to be published very soon. Would you like more information on what we can do for you? Then don’t hesitate to contact TCM.  Check out our 

website

 or 

contact us

!