Contract Clause Drafting Flashcards
7 cards from real CBN practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Contract Clause Drafting flashcards as text
In a joint venture agreement, a 'deadlock clause' is designed to resolve situations where:
Answer: Equal partners cannot reach a decision on a material issue
A deadlock clause provides a mechanism—such as a buy-sell provision or independent arbiter—to break stalemates between equal JV partners.
Which clause ensures that a contractor's pricing automatically adjusts based on changes in labor or material costs over a multi-year contract?
Answer: Economic price adjustment (EPA) clause
An economic price adjustment clause links contract pricing to a published index (e.g., CPI or PPI), automatically reflecting cost changes.
A 'hell or high water' clause in a lease or financing agreement means the obligor must:
Answer: Pay regardless of any defect, failure of the asset, or supervening event
A hell or high water clause makes the payment obligation unconditional, surviving equipment failure, disputes, or other adverse events.
When drafting an 'assignment clause,' which default rule is most important to override for a licensor's protection?
Answer: Contracts are assignable by either party without consent unless restricted
Under US common law, most contract rights are freely assignable by default; a licensor must include an anti-assignment clause to restrict transfers.
What is the purpose of a 'sunset clause' (also called an expiration clause) in a regulatory compliance contract?
Answer: It allows either party to terminate if a regulation is repealed or materially amended
A sunset clause ensures the contract terminates or is revisited if the underlying regulatory framework that justified it changes.
In drafting a 'dispute escalation clause,' which structure is generally most effective before triggering formal arbitration?
Answer: Executive-to-executive negotiation, then mediation, then arbitration
A tiered escalation clause—executive negotiation, then mediation, then arbitration—saves costs and preserves the relationship before formal proceedings.
A 'ratchet clause' in a term sheet or investment agreement primarily functions to:
Answer: Adjust an investor's equity upward if performance targets are not met by founders
A ratchet clause reallocates equity from founders to investors if agreed financial milestones are missed, protecting the investor's return.