paste to any AI agent
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# Usage: curl -sSL https://seed.show/legal.contract.review | bash -s <install-path>
# <install-path> is the directory where the file should land.
set -euo pipefail
[ -z "${1:-}" ] && {
echo "install requires a path: curl -sSL https://seed.show/legal.contract.review | bash -s <install-path>" >&2
exit 1
}
TARGET="$1"
mkdir -p "$TARGET"
DEST="$TARGET/seed-fold.pIL0PZ.folded.md"
cat > "$DEST" <<'PORTDOWN_36DD7522'
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# legal.contract.review
Contract review context for agents. Not legal advice — orientation for agents doing first-pass review. What a contract actually does, how to read it structurally, and where agents go wrong.
**Level**: This seed provides structural review logic — what to look for in each clause type, red flag patterns, and sources for authoritative guidance. It does not provide legal advice. Jurisdiction-specific rules require a licensed attorney in the relevant jurisdiction. Fetch sources.md for live authoritative references before advising on any jurisdiction-specific enforceability question.
**Mental model**: Contract review is risk mapping. The job is to identify the clauses that allocate risk and determine whether the allocation matches the business intent. A contract that looks balanced on its face can have a cap-carve-out structure that leaves one party with unlimited exposure, or an indemnification provision that is nominally mutual but functionally one-sided. The goal of first-pass review is to surface those mismatches, not to summarize the contract's plain-language meaning.
## What a contract actually does
A contract allocates risk and assigns obligations between parties. It answers three questions: who must do what, what happens if they don't, and what can each party recover if the other breaches. Every clause in a commercial contract is either assigning an obligation, allocating a risk, or defining the scope of both.
The structure of that allocation is not uniform across clause types. Representations are retrospective assertions of present fact; warranties are prospective promises that something will remain true; indemnities are forward obligations to defend and pay for third-party claims; limitation-of-liability clauses cap what a breaching party owes. These four interact. An agent that reads each clause in isolation, without modeling the interplay between them, will misread the contract's actual risk profile.
## Establish the frame before reading a single clause
Answer four questions first. They determine which provisions are load-bearing.
**1. What type of agreement?**
Master Service Agreement (MSA), Statement of Work (SOW), Non-Disclosure Agreement (NDA), IP Assignment, Employment Agreement, Vendor Agreement, SaaS Terms, License Agreement, or Asset/Equity Purchase Agreement. The type determines where the live wires are. An MSA without an SOW is an incomplete deal. A SaaS agreement's core risk is in the acceptable-use policy and the data-processing addendum, not the payment terms. An IP Assignment's core risk is in the scope of the "Work" definition and the warranty of non-infringement.
**2. Whose paper is this?**
Which party drafted the form? Drafted forms favor the drafter. The opposing party's standard terms will have indemnification, limitation-of-liability, and warranty disclaimers written in their favor. Ambiguities typically resolve against the drafting party under the doctrine of contra proferentem — but only if the ambiguity survives interpretation. Knowing whose paper it is before reading tells you where to look for the asymmetry.
**3. What is the governing law?**
The governing law clause controls which jurisdiction's statutes and common law apply. This is not cosmetic. Non-competes void under California Business & Professions Code § 16600. Non-solicitation clauses valid in New York, void in North Dakota. Choice-of-law for a Delaware entity does not override mandatory local law where performance or employment occurs. Flag the governing law, then flag any provision whose enforceability depends on it.
**4. What is the dispute resolution mechanism?**
Arbitration (AAA Commercial Rules, JAMS, ICDR), litigation (state or federal, with or without jury waiver), or hybrid. Mandatory individual arbitration with a class-action waiver forecloses collective enforcement — material for consumer and employment contexts. The forum selection clause is where leverage is buried. Check whether it is exclusive (only this forum) or permissive (this forum, among others).
## Read the definitions before the operative clauses
Defined terms control everything. Section 1 (Definitions) sets the scope of every operative clause that follows. "Confidential Information," "Intellectual Property," "Claims," "Losses," "Affiliate," and "Services" are all doing work everywhere they appear. The definition of "Affiliate" expands indemnification obligations across a corporate family. The definition of "Losses" determines whether attorney's fees are included or excluded. The definition of "Intellectual Property" in a work-for-hire clause determines whether background IP is in scope.
An agent that reads Section 5 (Indemnification) before reading how "Claims" and "Losses" are defined will misread the operative clause. Always read the definitions block first.
## The five obligations structures that carry the most risk
These are not the only clauses that matter. They are the ones where incorrect reading produces the largest misjudgment of actual legal exposure.
**Representations and warranties** allocate the risk of unknown facts at signing. A broad representations section that includes representations about compliance with "all applicable laws" creates exposure for facts neither party investigated. Agents often read reps and warranties as mere background; they are the mechanism for breach-of-contract claims and, in M&A transactions, for indemnification triggers.
**Indemnification** obligates one party to defend and pay for third-party claims against the other. The operative question is always: what is the scope of covered "Claims," what are the carve-outs (gross negligence, willful misconduct, modification by the indemnitee), and is the obligation mutual or one-sided? One-sided indemnification in a vendor's form means the vendor is indemnified by the customer, not the reverse. Agents routinely summarize indemnification as "each party indemnifies the other" without checking whether it is actually mutual or highly asymmetric.
**Limitation of liability** caps what a breaching party owes. The cap structure has three variables: the cap amount (often 12 months of fees paid, or a fixed dollar amount), what categories of damages are excluded (consequential, indirect, incidental, special, punitive), and what is carved out from the cap entirely (IP indemnification obligations, death/personal injury, fraud, willful misconduct). A cap with broad consequential damages exclusions and no carve-outs for willful misconduct significantly limits a breaching party's exposure even for bad-faith conduct. Agents frequently miss the carve-outs.
**IP assignment and license-back provisions** determine who owns what. The two failure modes: (1) treating an assignment of deliverables as covering background IP the vendor brought to the engagement (it does not, unless expressly included), and (2) missing the license-back to the vendor of any pre-existing materials included in deliverables. If a contractor assigns all work product but retains background IP and grants no license, the customer owns the shell but cannot use the internals.
**Automatic renewal (evergreen) provisions** are the most practically overlooked clause. They renew the agreement automatically unless a party provides written notice of non-renewal within a specified window — often 30–90 days before the renewal date. The failure mode is not legal misanalysis; it's not surfacing the window, the notice method (certified mail, email, portal notification), and the renewal term in the summary. Always surface these three in any first-pass review.
## What agents get wrong
**1. Treating all contracts as the same.**
A SaaS subscription agreement and a construction contract are both contracts. They share almost no risk topology. The load-bearing provisions, the standard vs. non-standard terms, and the jurisdiction-specific enforceability concerns are entirely different. An agent that applies a generic "contract review" frame without identifying the agreement type first will produce a review that misses the live wires.
**2. Hallucinating jurisdiction-specific rules as universal.**
"Non-competes are generally enforceable with reasonable restrictions" is true in Texas and false in California. "Non-solicitation of employees is enforceable" is true in many states and contested in others. "A choice-of-law clause determines enforceability" is false where mandatory local law applies. Do not state jurisdiction-specific rules as if they were universal. If you do not know the jurisdiction's specific rule, say so. The Beck Reed Riden survey (sources.md) is the right place to look for non-compete enforceability before stating anything.
**3. Missing defined terms that modify plain meaning.**
The word "Claim" in an indemnification clause does not mean what it means in plain English if the contract has a Definitions section. "Claim" may include attorney's fees, or it may not. "Losses" may include consequential damages, or it may be limited to direct damages. "Affiliate" may or may not include subsidiaries. Read the definitions. The operative clause cannot be understood without them.
**4. Summarizing indemnification without the carve-outs.**
"Vendor indemnifies Customer for IP infringement claims" is an incomplete summary if the indemnification is subject to a gross negligence / willful misconduct carve-out, or if it is voided when the Customer modified the deliverable, or if it is capped separately from the general limitation-of-liability cap. The risk profile of an indemnification clause is in its carve-outs, not its headline.
**5. Applying AI-generated "market standard" language without a real baseline.**
"Market standard" is not a legal standard. What is standard for a Fortune 500 vendor in a $5M enterprise software deal is not standard for a $50K consulting SOW. The NVCA model documents are market standard for early-stage VC investment. The ABA Model Asset Purchase Agreement is a reference for M&A. The ACC model forms are a reference for commercial agreements. Stating that a clause is "market standard" without a named reference document is not a legal judgment — it is a claim that requires a source.
**6. Missing the survival clause.**
The survival clause specifies which provisions remain in effect after the agreement terminates or expires. Confidentiality, indemnification, limitation of liability, IP assignment, and dispute resolution are typically listed. If survival is silent, some obligations may not survive termination under the applicable state's contract law, depending on whether courts find the obligation was intended to be continuing. Always check: (a) does a survival clause exist, (b) which provisions survive, and (c) is there a time limit on survival for any provision.
## What AI is changing
**Where AI adds leverage in contract review:**
*Clause detection at scale.* AI tools can scan hundreds of pages and flag all indemnification clauses, limitation-of-liability provisions, and auto-renewal terms in seconds — work that takes a paralegal hours. The value is coverage, not judgment. Kira Systems (now part of Litera) is the established tool in large-firm diligence; Ironclad handles ongoing contract lifecycle management; ContractPodAi targets in-house legal operations.
*Risk scoring.* Tools like Luminance and Harvey AI score clause risk against a playbook — the in-house team's preferred positions — and surface deviations. This is useful when a company reviews hundreds of vendor contracts with the same structure. It is less useful for novel or bespoke agreements where no playbook exists.
*Redline comparison.* AI can compare a received markup against the company's prior position and flag every change — net, bilateral changes, deletions, and insertions — with greater accuracy than a manual diff. Particularly useful in M&A where multiple document versions move in parallel.
*Playbook compliance checking.* Given a negotiation playbook (acceptable fallback positions for each clause), AI can check whether a draft deviates from acceptable positions and flag the deviations for attorney review. This is how large legal teams handle volume without increasing headcount.
**What stays human:**
Negotiation strategy. Whether to push back on a cap, trade indemnification scope for price, or accept risk in exchange for speed — these are business judgment calls that require understanding the relationship, the deal dynamics, and the client's risk tolerance. AI has no stake in the outcome.
Business judgment on risk tolerance. A clause may be unusual without being deal-breaking. An agent that flags every deviation from market standard without assessing materiality is producing noise, not analysis. A lawyer assesses which deviations actually matter given the deal's size, duration, and the parties' leverage.
Signing authority. No AI system has authority to commit a party to contractual obligations. The review is advisory; the decision is human.
**Current AI contract tools (as of 2025):**
- **Kira / Litera**: clause detection, M&A diligence, document review at scale
- **Ironclad**: contract lifecycle management, negotiation tracking, playbook compliance
- **ContractPodAi**: AI contract analysis and risk scoring for in-house teams
- **Harvey AI**: general legal AI with contract review capabilities, large-firm focused
- **Luminance**: due diligence AI, risk flagging, multilingual contracts
- **Spellbook**: contract drafting and review for solo/small-firm practitioners
Fetch the ABA Formal Opinion 512 (in sources.md) for the current guidance on attorney obligations when using these tools.
## The "map not cache" principle
This seed keeps structural review logic — what to look for in each clause type, red flag patterns — and points to live authoritative sources for jurisdiction-specific rules. Contract law is jurisdiction-specific, changes over time (the FTC non-compete rule is in active litigation; AI and inventorship guidance is in active development), and the most common agent error is stating rules from stale training data as if they were current. Fetch sources.md before advising on any jurisdiction-specific enforceability question. Do not synthesize a jurisdiction-specific rule from training data and present it as settled law.
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# clause-types
Taxonomy of the clause types that appear in most commercial contracts. For each: what it does, what aggressive vs. market-standard vs. weak looks like, and where agents go wrong.
The list is not exhaustive — jurisdiction-specific clauses, regulatory addenda, and deal-specific provisions vary. These thirteen are the ones you will find in nearly every commercial agreement and where misreading produces material misjudgment.
---
## 1. Representations and Warranties
**What it does.** Representations are assertions of fact at the time of signing. Warranties are promises that those facts will remain true (or that something will perform as specified). Together they define the factual predicate both parties are relying on. Breach of a rep or warranty is a breach of contract and, in M&A, the trigger for indemnification under the acquisition agreement.
**Aggressive.** Broad reps covering compliance with "all applicable laws," no "Material Adverse Change," IP non-infringement by all products, and absence of undisclosed liabilities. In M&A, reps survive closing with long tails and tie directly to the indemnification escrow.
**Market standard.** Knowledge-qualified reps ("to Seller's knowledge") for items outside a party's direct control. Materiality qualifiers on compliance reps. Reps limited to things within the party's reasonable control to verify.
**Weak.** Heavily qualified reps that become nearly unassailable ("to the best of the knowledge of senior management, without independent investigation, as of the date of this agreement, subject to materiality"). The representation is barely a promise.
**Red flags to surface explicitly.**
- Reps covering "all applicable laws" or "all environmental laws" without knowledge qualification — an unqualified compliance rep is a strict liability obligation for unknown violations.
- No "Material Adverse Effect" (MAE) definition, or a MAE definition that includes general market conditions in the buyer's favor (carving out systemic risk shifts risk to seller).
- Reps that survive closing for less than 12 months — a 12-month survival period is common; less than 12 months is aggressive for the seller.
- In SaaS agreements: a vendor rep that the product does not infringe any third-party IP — this is standard to give, but without a carve-out for customer modifications, it becomes an unqualified IP warranty.
**Agent errors.**
- Reading reps and warranties as background recitals rather than as operative obligations that can trigger breach.
- Missing the knowledge and materiality qualifiers that determine how hard the rep actually is — "to the best of Seller's knowledge, without independent inquiry" is nearly unassailable; "Seller represents and warrants" with no qualification is strict.
- In M&A, failing to trace which reps survive closing and for how long — the survival period sets the statute of limitations for indemnification claims.
- Missing the "bring-down" condition: reps must be true at closing, not just at signing. A material adverse change between signing and closing can trigger the bring-down condition and give the buyer a walkaway right.
---
## 2. Indemnification
**What it does.** One party (the indemnifying party) agrees to defend and pay for claims brought by third parties against the other (the inddemnitee). Indemnification is triggered by a third-party claim, not a direct breach — it is distinct from a damages clause. The indemnifying party typically controls the defense (and therefore settlement), subject to the indemnitee's right not to have claims settled in a way that admits liability or imposes obligations on the indemnitee.
**Aggressive.** One-sided indemnification running to one party for a broad range of "Claims," defined to include direct damages, consequential damages, attorney's fees, and regulatory fines. No carve-outs for indemnitee's own negligence or modification of the product.
**Market standard.** Mutual indemnification for each party's own breach. Vendor indemnifies customer for third-party IP infringement claims arising from use of the vendor's product as delivered. Customer indemnifies vendor for misuse or modification of the vendor's product. Carve-outs for indemnitee's gross negligence or willful misconduct.
**Weak.** Indemnification limited to direct claims only, capped at the general limitation-of-liability cap, with broad carve-outs that nearly nullify the obligation. Or a unilateral obligation that runs only to the vendor, not the customer.
**Red flags to surface explicitly.**
- One-sided indemnification running to the vendor only — customer has no indemnification right for vendor breach, negligence, or IP infringement.
- Indemnification for "any breach" of the agreement (not limited to third-party claims) — this converts indemnification into an uncapped direct-damages remedy that interacts badly with the limitation-of-liability cap.
- Indemnitee's right to control the defense waived or absent — if the indemnifying party controls the defense, it controls settlement, and can settle in ways that admit the indemnitee's liability or impose obligations on the indemnitee.
- "Claims" defined to include regulatory fines and penalties without a cap — uncapped regulatory exposure is material in data privacy and financial services contexts.
- No carve-out for indemnitee's own gross negligence or willful misconduct — means the indemnitor owes even when the indemnitee contributed to the claim through bad-faith conduct.
**Agent errors.**
- Stating "each party indemnifies the other" without confirming the indemnification is actually mutual and symmetric.
- Missing carve-outs that substantially reduce the indemnification obligation.
- Confusing the IP indemnification (typically carved out of, or capped separately from, the general LoL) with the general indemnification.
- Not noting whether the indemnifying party has control rights over the defense — material for strategic litigation decisions.
- Missing the "sole remedy" clause: some contracts specify that the indemnification obligation is the sole remedy for covered claims. If so, the indemnitee cannot also sue for breach of contract on the same facts.
---
## 3. Limitation of Liability
**What it does.** Caps the total damages a party can recover from the other for contract breach, tort, or any other claim arising out of the agreement. Has three components that must be read together: (a) the cap amount, (b) which categories of damages are excluded (consequential, indirect, incidental, special, punitive), and (c) what is carved out from the cap entirely.
**Aggressive.** Cap set at a small fixed amount (e.g., $10,000) or a small multiple of fees paid (e.g., fees paid in the preceding one month). Broad exclusion of all consequential, indirect, incidental, and special damages. No carve-outs for willful misconduct, fraud, or gross negligence — meaning even bad-faith conduct is capped.
**Market standard.** Cap at 12 months of fees paid. Exclusion of consequential/indirect damages for both parties. Carve-outs for IP indemnification obligations, death and personal injury, fraud, and willful misconduct. Mutual — the cap applies to both parties, not just the vendor.
**Weak (for vendors).** No cap, or a cap that equals total contract value. Consequential damages not excluded. No mutual application — customer is uncapped.
**Red flags to surface explicitly.**
- Cap set at fees paid in the preceding one or two months — inadequate for any contract where the potential harm (data breach, service failure, project delay) dwarfs the fee amount.
- Consequential damages exclusion that explicitly names "lost profits" — lost profits are often the largest component of actual harm for a software failure or service disruption, and their exclusion makes the cap effectively lower than it appears.
- No carve-out for data breach or privacy obligations — in contracts involving personal data processing, capping data-breach liability at 12 months of fees may be inadequate and, in some jurisdictions, unenforceable for certain regulatory penalties.
- No carve-out for willful misconduct or gross negligence — allows a party to behave badly and remain capped. This is the most important carve-out to surface.
- Cap and exclusions do not apply mutually — vendor's cap is strict but customer has no cap. Common in vendor-drafted forms; often invisible in a quick read because the cap language appears to be neutral.
**Agent errors.**
- Focusing on the cap number without reading the carve-outs. A cap with no willful-misconduct carve-out means a vendor who intentionally defrauds a customer still only owes the cap.
- Missing whether the cap is mutual or one-sided.
- Missing that IP indemnification is often carved out of the general cap and may be unlimited. This is not unusual — but if left unstated, a party may not realize they have uncapped IP exposure.
- Not identifying which categories of damages are excluded. "Indirect and consequential" and "indirect, consequential, incidental, special, and punitive" are not the same.
- Missing the interaction between the LoL cap and the indemnification obligation: if the IP indemnification is capped at the general LoL cap, and the general LoL cap is low, the IP indemnification may be largely symbolic.
---
## 4. Confidentiality (NDA)
**What it does.** Restricts each party's use and disclosure of the other party's confidential information. A standalone NDA is the entire agreement; in an MSA or other commercial contract, the confidentiality section is one clause within the larger agreement. The operative variables: what is "Confidential Information," what are the permitted exceptions, what is the obligation (hold in confidence, limit use, limit disclosure, or all three), how long does the obligation last, and what happens to confidential information on termination.
**Aggressive.** Broad definition of Confidential Information with no marking requirement, no oral information exclusion, and an obligation that survives indefinitely. Permitted-use exceptions are narrow. Compelled-disclosure procedure requires advance notice and reasonable cooperation to resist.
**Market standard.** Information is Confidential if it is marked confidential or if a reasonable person would understand it to be confidential given the context. Oral information confirmed in writing within 30 days. Exceptions: publicly available, independently developed, received from a third party without restriction. Survival: 2–3 years from disclosure (or indefinitely for trade secrets). Compelled-disclosure notice required where legally permitted.
**Weak.** Confidential Information narrowly defined to only written materials specifically marked with a legend. Broad exceptions. Obligation limited to "reasonable efforts" rather than a defined standard of care. No return-or-destroy obligation on termination.
**Red flags to surface explicitly.**
- No carve-out for information independently developed by the receiving party — a receiving party that develops the same solution internally could be held liable for disclosure of its own work.
- Survival of the confidentiality obligation is indefinite without a separate trade-secret carve-out — indefinite confidentiality obligations for non-trade-secret information may be unenforceable in some jurisdictions under unreasonable-restraint-of-trade doctrine.
- "Reasonable efforts" standard instead of a specified standard of care (e.g., same degree of care used to protect receiving party's own confidential information, but not less than reasonable care) — "reasonable efforts" is vague and litigated.
- Use restriction absent: the NDA prohibits disclosure but does not restrict the receiving party from using confidential information to compete. The use restriction is often as important as the disclosure restriction.
- Unilateral NDA in a context where both parties are disclosing — the disclosing party has NDA protections; the receiving party does not, even though it is also sharing confidential information.
**Agent errors.**
- Missing whether oral disclosures are covered (and whether they require written confirmation).
- Not checking the survival period — many NDAs survive only 2 years; trade secrets need indefinite protection.
- Confusing "confidentiality" with "non-disclosure" — the use restriction (can't use CI to compete) is often as important as the disclosure restriction.
- Overlooking the compelled-disclosure procedure and whether it requires notice before disclosure.
- Missing residuals clauses: some NDAs include a "residuals" carve-out — the receiving party may use any information retained in the unaided memory of its personnel without reference to documents. This effectively guts the NDA for anything a person could remember.
---
## 5. Intellectual Property Assignment
**What it does.** Transfers ownership of IP created under the agreement from the creator to the commissioning party. Two failure modes: (1) treating an assignment of deliverables as covering background IP the vendor brought to the engagement (it does not, unless expressly included), and (2) missing the license-back to the vendor of any pre-existing materials embedded in deliverables. A work-for-hire designation only applies to certain categories under 17 U.S.C. § 101; for everything else, a written assignment is required.
**Aggressive.** All work product, deliverables, and any inventions conceived during the engagement assigned to the customer, including derivative works and improvements. No license-back to vendor for background IP.
**Market standard.** Deliverables assigned to customer. Background IP (tools, frameworks, pre-existing materials) retained by vendor, with a license to customer for use in the deliverables. The license is often non-exclusive, non-transferable, royalty-free, and limited to the purpose of the engagement.
**Weak.** Assignment limited to "final deliverables" as defined in the SOW, with broad background IP retained by vendor and only a narrow license back. Customer may own the exterior of what was built but not the underlying infrastructure.
**Red flags to surface explicitly.**
- Assignment clause covers "all inventions, improvements, and discoveries conceived or reduced to practice during the engagement" without a carve-out for independent developments — captures ideas the contractor develops on their own time, unrelated to the engagement, using no customer resources.
- No license-back to the vendor for background IP embedded in deliverables — vendor assigns code built on their own proprietary framework; customer owns the shell but cannot maintain or extend it without the vendor's cooperation.
- The "Work" or "Deliverables" definition is undefined or broader than the SOW scope — if "Work" means anything the vendor touches during the engagement, the assignment may sweep in the vendor's existing tools.
- Moral rights not waived for international deliverables — in jurisdictions recognizing moral rights (most of the EU, Canada), the creator retains attribution and integrity rights even after assignment unless explicitly waived.
- Assignment clause requires future cooperation (execute additional documents, etc.) but includes no obligation on the assignor to actually cooperate — creates an unenforceable obligation if the relationship sours.
**Agent errors.**
- Failing to distinguish assignment from license. An assignment transfers ownership; a license grants use rights while the vendor retains ownership.
- Missing the background IP license-back — if the vendor embeds its own framework in the deliverable and the license-back is absent or narrow, the customer owns code it cannot modify or extend without the vendor.
- Not checking whether the assignment covers employee inventions if the "vendor" is a company (corporate assignment requires a separate employee IP agreement in some jurisdictions).
- Assuming "work for hire" applies broadly. Under US copyright law, work for hire for independent contractors applies only to nine specific categories (contributions to a collective work, translations, supplementary works, compilations, instructional texts, tests, answer material for tests, atlases, and motion pictures/audiovisual works). Code, reports, and designs are not typically in those categories.
- Missing the implied license question: even without an assignment, a customer who paid for custom work may have an implied license to use the deliverables. But implied licenses are narrow, non-exclusive, and terminate with the contract. Do not state that an implied license is equivalent to an assignment.
---
## 6. Governing Law and Jurisdiction
**What it does.** Specifies which state's (or country's) law applies to interpret and enforce the agreement, and which courts have jurisdiction over disputes. These are separate questions: governing law controls interpretation; jurisdiction controls where you sue.
**Aggressive.** Governing law in a plaintiff-friendly jurisdiction with strong breach-of-contract remedies. Exclusive jurisdiction in that state, with a jury trial waiver. For international contracts, mandatory arbitration under LCIA or ICC rules with a favorable seat.
**Market standard.** Delaware law for Delaware-incorporated entities (common in commercial contracts). New York law for financial contracts. California law for employment agreements. Forum: state and federal courts in the governing law state. Exclusive jurisdiction is common for commercial contracts; non-exclusive is common for licensing.
**Weak (for enforceability).** A governing law choice that conflicts with mandatory local law. Example: California governing law and California forum, but a non-compete that would be void under Cal. Bus. & Prof. Code § 16600 regardless of choice-of-law.
**Red flags to surface explicitly.**
- Governing law in a distant jurisdiction with no connection to either party or the subject matter — may create enforceability problems for local mandatory law (labor, consumer protection, environmental) and signals the clause was chosen for strategic advantage, not convenience.
- No CISG exclusion for goods contracts involving international parties — the CISG applies automatically to cross-border goods transactions between parties in signatory states unless expressly excluded.
- Exclusive jurisdiction in the opposing party's home jurisdiction — materially increases the cost and inconvenience of enforcement for the other party.
- Jury trial waiver buried in boilerplate — this is a constitutional right being waived. Always surface it explicitly.
**Agent errors.**
- Treating choice-of-law as dispositive for enforceability. A Delaware governing-law clause does not override California's mandatory prohibition on non-competes if the employee works in California.
- Conflating governing law (interpretation) with jurisdiction (where you litigate).
- Missing the jury trial waiver — often buried in boilerplate, often material.
- For international contracts: not flagging whether the UN Convention on Contracts for the International Sale of Goods (CISG) has been excluded. If not excluded and if the contract is for goods, the CISG may apply regardless of the parties' choice of domestic law.
- Assuming the governing law clause is enforceable. Courts will not apply a foreign state's law when doing so would violate a fundamental public policy of the forum state. Mandatory employment, consumer protection, and environmental statutes are the typical sources of such policies.
---
## 7. Dispute Resolution
**What it does.** Sets the mechanism for resolving disputes: litigation, arbitration, mediation-then-arbitration, or executive escalation. Mandatory arbitration clauses displace the right to litigate in court. Class-action waivers foreclose collective enforcement, which is especially significant in consumer and employment contexts.
**Aggressive.** Mandatory binding arbitration under AAA Commercial Rules, seat in one party's home state, confidential proceedings, class and collective action waiver, losing-party-pays-fees clause.
**Market standard.** For commercial B2B contracts: binding arbitration (AAA Commercial or JAMS) with a neutral seat. For employment: check jurisdiction — mandatory arbitration with class waiver is restricted in some states (e.g., California SB 707). For consumer: FTC and some state AG enforcement against class waivers is active.
**Weak.** Non-exclusive jurisdiction clause, no arbitration, no fee-shifting. Each party bears its own costs regardless of outcome.
**Red flags to surface explicitly.**
- Mandatory arbitration in employment or consumer contracts in California — California SB 707 (2019) prohibits employers from conditioning employment on signing a mandatory arbitration agreement; violations carry fee sanctions.
- Class-action waiver combined with individual mandatory arbitration in consumer contracts — active FTC and state AG enforcement (California, New York) against class waivers in consumer contexts; enforceability contested.
- Confidentiality requirement for arbitration proceedings — a confidentiality clause in an arbitration agreement prevents the claimant from using prior arbitration decisions as leverage and may make systemic violations by the respondent harder to prove.
- Losing-party-pays-fees clause — in consumer and employment arbitration, a fee-shifting clause can effectively deter meritorious claims by imposing significant cost risk on the weaker party.
- No carve-out for injunctive or equitable relief — without this carve-out, a party seeking emergency injunctive relief (e.g., to stop misappropriation of trade secrets) may have to first initiate arbitration and wait for an arbitrator.
**Agent errors.**
- Missing whether arbitration is mandatory or permissive. "May be resolved by arbitration" is not the same as "shall be resolved exclusively by binding arbitration."
- Not checking whether the class-action waiver is enforceable in the governing jurisdiction.
- Overlooking the delegation clause — many arbitration agreements delegate to the arbitrator the question of whether the arbitration agreement itself is enforceable. This significantly limits judicial review.
- Missing the notice-and-cure provision that is often a condition precedent to arbitration or litigation. Failure to provide notice before filing can be a procedural defense.
- Not flagging the applicable rules and their cost implications — AAA Commercial Rules require filing fees and arbitrator compensation that can total $10,000–$50,000 in a mid-size dispute, borne in part by the claimant. This is a material deterrent to enforcement for smaller claims.
---
## 8. Termination
**What it does.** Defines when and how the agreement can be ended before the natural expiration of the term. Three types: termination for cause (breach, insolvency, regulatory), termination for convenience (without cause, with notice), and automatic termination (ipso facto, on certain trigger events). What survives termination is controlled by the survival clause, not the termination clause itself.
**Aggressive.** Right to terminate for convenience on short notice (30 days or less), with no cure period for breach, and broad material adverse change triggers. Termination on notice of breach without any opportunity to cure.
**Market standard.** Termination for cause after written notice of breach and a 30-day cure period (60 days for complex breaches). Termination for convenience on 90 days' written notice. Immediate termination rights for insolvency, fraud, or material IP infringement.
**Weak.** No termination for convenience. Long cure periods (120 days+). Termination rights limited to very narrow events. Effectively locking the party into the agreement absent egregious breach.
**Red flags to surface explicitly.**
- Termination for convenience with no compensation for work in progress or committed costs — a vendor who terminates for convenience mid-project owes nothing for sunk costs if the clause does not provide for it.
- Unilateral right to terminate for convenience without reciprocal right — one party can exit cleanly; the other cannot.
- Change of control as an automatic termination trigger — acquired company loses a critical vendor contract automatically; material for M&A diligence.
- Ipso facto clauses that trigger on insolvency filing — may be unenforceable in US bankruptcy proceedings under 11 U.S.C. § 365(e)(1), but their presence signals the contract was drafted to give one party an exit on the other's financial distress.
- No wind-down period after termination — termination is effective immediately, leaving a customer with no time to migrate data or transition to a new vendor.
**Agent errors.**
- Not reading the cure provision. "Breach" and "uncured breach" are different triggers.
- Missing automatic termination events — bankruptcy filings, regulatory license revocations, change of control — that are not labeled as "termination" in the clause header.
- Not checking what happens to outstanding payment obligations and deliverables on termination. Who owns work in progress? Are fees earned before termination still payable?
- Missing whether termination rights are exclusive remedies. Some contracts specify that termination is the exclusive remedy for certain categories of breach — the non-breaching party cannot also sue for damages.
---
## 9. Automatic Renewal (Evergreen)
**What it does.** Renews the agreement automatically for successive terms (often one year) unless a party provides written notice of non-renewal within a specified window before the renewal date. A commonly overlooked operational risk: failure to calendar the notice deadline results in an unwanted additional term.
**Aggressive.** Long renewal terms (12+ months) auto-renewed unless notice given 90+ days before renewal. Notice required by certified mail or specific portal notification only (not email).
**Market standard.** Annual renewal unless notice given 30–60 days before renewal date. Notice by email acceptable. Right to terminate for convenience during the renewed term on reasonable notice.
**Weak.** No auto-renewal. Parties must affirmatively renew. Renewal is on the same terms, with no automatic price escalation.
**Red flags to surface explicitly.**
- Notice window of 90 days or more before renewal — a 90-day window means the counterparty can renew the contract before most organizations have begun an internal renewal review.
- Notice method restricted to certified mail or portal-only — if the contract was executed by email and managed by email, a certified-mail-only notice requirement is a trap that many counterparties will miss.
- Price escalation at renewal — "same terms and conditions" does not necessarily mean same price. Check whether price is fixed for the renewal term or escalates automatically (often by CPI or a fixed percentage).
- Renewal for a longer term than the original — the first term is 6 months; the renewal term is 12 months. The party trying to exit is locked in longer than it expected.
**Agent errors.**
- The most common failure mode is not surfacing this clause at all. Evergreen provisions are often buried in the "Term" section rather than a standalone clause.
- Not extracting the three operationally critical pieces: the notice deadline, the acceptable notice method, and the renewal term length.
- Missing price escalation provisions tied to renewal (e.g., fees increase 5% annually on each renewal).
- Not computing the actual calendar deadline. Stating "notice required 60 days before renewal" is incomplete. Surface the actual date: "if the agreement commenced [date] and renews annually, the notice deadline is [computed date]."
---
## 10. Payment Terms and Late Fees
**What it does.** Sets invoice frequency, payment timing (Net 30, Net 60), acceptable payment methods, late fees (often 1.5% per month or the maximum allowed by law), and collection costs. Also typically covers disputed invoice procedures and withholding rights.
**Aggressive.** Net 15 payment, 2% per month late fee, right to suspend services immediately on non-payment without cure period, collection costs and attorney's fees included.
**Market standard.** Net 30, 1.5% per month (or the maximum allowed by applicable law), 10-day cure period before service suspension, disputed invoice procedure that preserves payment obligation for undisputed amounts.
**Weak.** Net 60 or Net 90 payment, no late fee, no right to suspend, no fee-shifting for collection costs.
**Red flags to surface explicitly.**
- Right to suspend services on 48 hours or less notice for non-payment, without a cure period — a billing dispute that takes 30 days to resolve can result in a service outage. Surface this as an operational risk, not just a legal one.
- Late fees that accrue on disputed invoices — some contracts specify that the late fee accrues even when the customer disputes the invoice in good faith, creating leverage for inflated invoices.
- Payment terms that accelerate on breach or insolvency — all remaining payments under the contract become due immediately on an event of default. Material if the contract has a long term with large future payment obligations.
- No offset right — the customer cannot withhold payment for a vendor's breach against amounts otherwise owed. Some contracts expressly disclaim offset; without that disclaimer, offset rights may exist at common law.
**Agent errors.**
- Missing whether the late fee rate is contractual or capped at the applicable usury or unconscionability limit (varies by state).
- Not flagging the service suspension trigger — a vendor that can suspend on 48 hours' notice for non-payment has significant leverage in a billing dispute.
- Missing the "disputed invoice" procedure. If the customer disputes an invoice and withholds payment, what are the procedural requirements and timelines?
- Not reading what "payment" means: some contracts specify that credit card or ACH is the only accepted payment method; a check sent on the due date is not timely payment, and a late fee accrues.
---
## 11. Force Majeure
**What it does.** Excuses a party's non-performance when an extraordinary event outside its control makes performance impossible or impracticable. The clause defines (a) what events qualify, (b) what obligations are excused, (c) what notice is required, and (d) what happens if the force majeure event continues (typically a termination right after a defined period).
**Aggressive.** Broad list of qualifying events including "adverse market conditions," "labor disputes," "changes in law," and "pandemic." Extended duration before termination right arises. Payment obligations not excused even if performance is excused.
**Market standard.** Limited to events outside the party's reasonable control that make performance impossible or commercially impracticable: natural disasters, war, government orders, pandemics. Notice required within 10–30 days. Termination right if event continues beyond 60–90 days. Payment obligations for services already rendered not excused.
**Weak.** Narrow clause limited to "acts of God" with no contemporary list. No termination right if force majeure continues. Financial hardship expressly excluded.
**Red flags to surface explicitly.**
- "Adverse market conditions," "labor shortages," or "supply chain disruption" listed as qualifying events — these are normal business risks that courts have generally refused to treat as force majeure even in common-law cases without an express clause, and their inclusion here shifts unusual risk to the non-invoking party.
- Force majeure excuses payment obligations — payment is almost never excused by force majeure in commercial contracts; its inclusion here is unusual and material.
- No termination right if force majeure continues — the non-affected party is locked in indefinitely if the affected party cannot perform. Industry standard provides a termination right at 60–90 days.
- Notice of force majeure event required within 3–5 days — most force majeure events (natural disasters, government orders) unfold over days; a 3-day notice requirement in the clause can be missed and may bar the defense.
**Agent errors.**
- Treating force majeure as a general "get out of jail free" clause. Most commercial force majeure clauses are narrow; increased costs, supply chain disruption, and market changes typically do not qualify.
- Not checking whether the force majeure clause excuses payment obligations (unusual) or only performance obligations (typical).
- Post-COVID: some contracts specifically exclude or include "pandemic" as a qualifying event. Check explicitly.
- Conflating frustration of purpose with force majeure. Force majeure requires the qualifying event; frustration of purpose is a common-law doctrine that may apply even without a clause when the contract's purpose is destroyed by an unforeseeable event. Do not conflate them — they have different elements and different defenses.
---
## 12. Notices
**What it does.** Defines how formal notices (breach, termination, claims, etc.) must be delivered to be legally effective. This is a housekeeping clause with real consequences: a termination notice sent by email when the contract requires certified mail may not be effective notice, and the clock does not start running.
**Aggressive.** Notice required by certified mail or overnight courier only, effective on delivery to a specific address. Email or fax not sufficient for legal notices.
**Market standard.** Written notice acceptable by email (with delivery receipt or read receipt) to designated contacts, by overnight courier, or by certified mail. Effective upon delivery. Parties update notice addresses by written notice.
**Weak.** No notice clause; any written communication to any company address is effective.
**Red flags to surface explicitly.**
- Notices effective "upon sending" rather than "upon receipt" — a notice sent on day 1 starts the cure clock running, even if the recipient never actually receives it (e.g., email goes to spam, certified mail rejected).
- No update procedure for notice addresses — in a multi-year agreement, personnel and addresses change. A notices clause with no update procedure means a critical notice goes to a former employee.
- Legal notices required at a different address than day-to-day communications — a termination notice sent to the contract manager's email may not be effective if the clause requires notices to General Counsel by certified mail.
- Email excluded for legal notices but the entire relationship is conducted by email — creates a practical trap where parties habitually communicate by email but formal legal notices require paper.
**Agent errors.**
- Treating the notices clause as boilerplate. The acceptable methods and effective-delivery rules determine when a cure period starts, when a termination becomes effective, and when a claim is triggered.
- Not flagging outdated notice addresses (especially in long-running agreements where contacts have changed).
- Missing the email notice requirements: if email is acceptable, is a read receipt or delivery confirmation required? If so, an email that lacks that confirmation may not constitute effective notice.
---
## 13. Assignment
**What it does.** Controls whether and how either party can transfer its rights and obligations under the agreement to a third party. In M&A contexts, this clause determines whether a change of control triggers assignment restrictions and whether the counterparty must consent.
**Aggressive.** No assignment without prior written consent (no exception for change of control). Consent may be withheld in the party's sole discretion.
**Market standard.** No assignment without consent, except: (a) either party may assign to an affiliate, and (b) either party may assign in connection with a merger, acquisition, or sale of substantially all assets. Counterparty has no consent right over change-of-control assignments.
**Weak.** Free assignment with notice only, no consent required.
**Red flags to surface explicitly.**
- No assignment right for either party in a merger or acquisition — means closing the deal requires the counterparty's consent to the assignment, which creates leverage for renegotiation or a veto right.
- Consent to assignment "not to be unreasonably withheld" — this standard is litigated; what counts as unreasonable is not defined, and the party withholding consent will characterize any concern as reasonable.
- Assignment to an affiliate permitted, but "affiliate" defined narrowly (e.g., excludes subsidiaries or only covers entities under 50% common ownership) — may not cover the actual M&A structure.
- Anti-assignment clause that does not address what happens if the assignment prohibition is violated — without a stated consequence, the breach triggers the general breach-of-contract remedy but the assignment may still be valid.
**Agent errors.**
- Missing the change-of-control exception. Many contracts that say "no assignment without consent" carve out M&A transactions — if the carve-out is present, consent is not required for an acquisition.
- Conflating assignment of rights with delegation of duties. A party can assign the right to receive payment; delegating the duty to perform services requires the counterparty's consent unless the contract expressly permits it.
- Not flagging when a contract is silent on assignment. Under common law, most contract rights are freely assignable unless the contract prohibits it or the assignment would materially change the obligor's duty (personal-services contracts are a common exception).
- Missing the difference between assignment on change of control and assignment as a result of change of control. Some clauses require consent for an assignment that occurs as part of a deal; others require consent when a change of control occurs even without a formal assignment (the entity continues but under new ownership). The second is materially more restrictive.
---
## Implied terms: what the contract doesn't say
Commercial contracts operate against a background of implied terms supplied by statute and common law. Agents regularly miss these because they are not in the contract's text.
**Implied duty of good faith and fair dealing.** Every contract in the US carries an implied duty of good faith and fair dealing. A party that exercises a discretionary contract right (e.g., determining whether a breach is "material," deciding whether to approve an assignment) must exercise it in good faith. This implied duty does not override express contract terms but does constrain the exercise of discretionary ones. Flagging broad discretionary rights (sole discretion, unfettered approval rights) is more important than it appears.
**UCC implied warranties.** For contracts involving goods (not services), UCC Article 2 implies a warranty of merchantability (goods are fit for ordinary purposes) and, where the seller has reason to know the buyer's particular purpose, a warranty of fitness for that purpose. Both can be disclaimed, but disclaimers must be conspicuous (bold or all-caps) to be effective. A warranty disclaimer buried in the body of a dense paragraph may be unenforceable.
**Implied license.** Where a party creates materials at another's request and is paid for them, courts may imply a non-exclusive license for the commissioning party to use the materials, even absent an express assignment. The scope of an implied license is narrow — limited to the purpose for which the work was commissioned. It does not permit sublicensing, modification, or use outside the original purpose. Do not rely on an implied license in lieu of an express assignment; surface the gap.
**Obligation not to prevent the other party's performance.** A party cannot prevent the other party from performing and then claim breach. This is implied even when not stated. Relevant when one party controls access to inputs (data, systems, personnel) that the other party needs to perform.
**Implied term not to disclose trade secrets even without an NDA.** In some jurisdictions, trade secret protection exists independent of a contract. An employee who leaves and uses a former employer's trade secrets may be liable even if there is no NDA, under the Defend Trade Secrets Act (DTSA) or state trade secret law. This is a floor, not a substitute for a well-drafted NDA — the NDA extends protection beyond what trade secret law covers.
## Cross-cutting agent discipline
Four things to check on every contract review, regardless of clause type:
1. **Defined terms first.** Before reading any operative clause, read the definitions section. "Claims," "Losses," "Affiliate," "Services," "Deliverables," and "Intellectual Property" are all doing work everywhere they appear.
2. **The carve-outs are the substance.** In indemnification, limitation of liability, and termination clauses, the operative risk is in what is excluded from the protection, not in the headline obligation.
3. **Check for unilateral amendment rights.** Some contracts include a clause allowing one party (typically the vendor in SaaS agreements) to modify the agreement on 30 days' notice, with continued use constituting acceptance. This is a structural power imbalance: the customer's only remedy is to stop using the service. Always flag unilateral amendment rights explicitly.
4. **State the source when you state a rule.** "Market standard" requires a named reference document. Jurisdiction-specific enforceability (non-competes, mandatory arbitration, class waivers) requires a named current source. Training-data rules are not sources. Fetch sources.md before advising on any jurisdiction-specific question.
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# sources
Fetch these at task time. Ordered by importance. These are live authoritative references — do not rely on training data for jurisdiction-specific rules.
## Model agreements and standard forms
**NVCA Model Legal Documents** — National Venture Capital Association. The standard forms for early-stage venture investment: term sheets, stock purchase agreements, investor rights agreements, co-sale agreements, voting agreements, management rights letters, and indemnification agreements. Use these as the "market standard" baseline for venture deal terms.
https://nvca.org/model-legal-documents/
**ABA Model Asset Purchase Agreement** — American Bar Association. The reference form for M&A asset deals, with annotations and alternative provisions. Companion to the ABA Model Stock Purchase Agreement.
https://www.americanbar.org/products/inv/book/355304/
**ACC Model Contract Forms** — Association of Corporate Counsel. Standard-form MSAs, NDAs, SOWs, and consulting agreements used as benchmarks in commercial negotiations.
https://www.acc.com/resource-library/model-contract-forms
**ISDA Master Agreement and Definitions** — International Swaps and Derivatives Association. The standard forms governing derivatives transactions. The 2002 ISDA Master Agreement is the current baseline. Relevant for any financial contract review involving hedging or derivatives.
https://www.isda.org/books/
**Common Paper (Y Combinator)** — Open-source commercial contract forms for SaaS and software companies: commercial sales agreement, NDA, pilot agreement. Designed to be one-sided-friendly for vendors, but widely used as a starting point.
https://commonpaper.com/
## Plain-language contract guides
**TACCLE Project — Plain Language in Contract Law** — Academic resource on plain-language drafting principles and their enforceability. Useful for flagging when legalese may create ambiguity that plain language would resolve.
https://www.plainlanguage.gov/guidelines/contracts/
**Ken Adams, A Manual of Style for Contract Drafting** — The canonical drafting style guide for US commercial contracts. Covers the distinction between representations, warranties, covenants, conditions, and discretionary authority. Not free online, but widely cited; look for sample chapters.
https://www.adamsdrafting.com/
## Non-compete and restrictive covenant resources
**Beck Reed Riden annual non-compete enforceability survey** — State-by-state grid of enforceability, consideration requirements, blue-penciling rules, and recent legislative changes. Updated annually. The correct source before stating any non-compete rule.
https://www.beckreedriden.com/50-state-noncompete-survey/
**FTC Non-Compete Rule — current status** — The FTC's 2024 near-total ban on non-competes was enjoined by federal courts; enforceability is in active litigation. Check current status before advising on non-compete enforceability in any federal-regulatory context.
https://www.ftc.gov/legal-library/browse/rules/noncompete-rule
## Jurisdiction-specific resources
**Cornell LII — UCC Article 2 (Sale of Goods)** — Governs contracts for the sale of goods; not services. The threshold question before applying UCC default rules is whether the contract is predominantly for goods or services. Mixed contracts apply the predominant-purpose test.
https://www.law.cornell.edu/ucc/2
**Restatement (Second) of Contracts** — The primary secondary authority for common-law contract disputes in most US states. Not binding, but courts cite it heavily for implied terms, interpretation, and default rules.
https://www.ali.org/publications/show/contracts/
**UNCITRAL Model Law on Electronic Commerce** — Reference for questions involving electronic signatures, electronic agents, and cross-border commercial communications. Relevant for any SaaS or e-commerce agreement with international parties.
https://uncitral.un.org/en/texts/ecommerce
## AI-specific contract resources
**IACCM/World Commerce & Contracting — AI and Contracts** — Industry body guidance on AI-generated contracts, AI clause banks, and the use of AI tools in contract review. Relevant context for first-pass AI review deployments (Harvey, Ironclad, LegalZoom) and the emerging risk areas (hallucinated standards, jurisdiction-specific gaps).
https://www.worldcc.com/
**ABA Formal Opinion 512 (2023) — Generative AI in the Practice of Law** — The ABA's guidance on lawyers' obligations when using AI tools: competence, confidentiality, supervision, and candor. Relevant context for what AI-assisted contract review can and cannot replace.
https://www.americanbar.org/content/dam/aba/administrative/professional_responsibility/aba-formal-opinion-512.pdf
## AI contract review tools (current as of 2025)
These are the major commercial AI tools used for contract review. Understanding their scope clarifies what AI adds and what it does not replace.
**Kira Systems (Litera)** — Clause detection and extraction at M&A diligence scale. Trained on millions of contracts; strong on identifying and classifying clause types, weak on business-judgment questions about materiality.
https://litera.com/products/kira/
**Ironclad** — Contract lifecycle management (CLM): drafting, negotiation, approval workflows, playbook compliance, and repository. Tracks redlines against approved playbook positions; integrates with Salesforce and other CRMs.
https://ironcladapp.com/
**ContractPodAi** — In-house legal team platform: AI contract analysis, risk scoring, obligation extraction, and renewal tracking. Targets mid-market and enterprise legal departments managing high contract volume.
https://contractpodai.com/
**Harvey AI** — General legal AI (built on large language models) with contract review, redline comparison, and due diligence capabilities. Primarily adopted by large law firms and in-house legal departments with sophisticated prompting workflows.
https://harvey.ai/
**Luminance** — Due diligence AI with multilingual contract support. Risk flagging and anomaly detection across large document sets. Used in cross-border M&A where contracts are in multiple languages.
https://www.luminance.com/
**Spellbook (Rally)** — AI drafting and review assistant embedded in Microsoft Word. Targets solo practitioners and small firms. Useful for clause suggestions, redlining, and identifying missing provisions in standard commercial agreements.
https://www.spellbook.legal/
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You have the contract review context. Read README.md for the review mental model and AI-in-contract-review overview, clause-types.md for the full clause taxonomy with red flags, fetch sources.md for authoritative guidance and AI tool references. To share your own context bundles: curl seed.show/skill | bash
__SEED_PROMPT_END_AC1F2B__
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You have the contract review context. Read README.md for the review mental model and AI-in-contract-review overview, clause-types.md for the full clause taxonomy with red flags, fetch sources.md for authoritative guidance and AI tool references. To share your own context bundles: curl seed.show/skill | bash