Order of priority: Overview, definition, and example
What is order of priority?
Order of priority refers to the ranked hierarchy of rules, documents, or provisions used to resolve conflicts or inconsistencies in a contract or between multiple related agreements. It determines which term or source controls when two or more provisions appear to contradict each other. This concept is especially common in complex commercial contracts, financing agreements, and multi-document transactions.
Why is order of priority important?
Order of priority is important because it helps avoid ambiguity and legal disputes by clearly stating which terms take precedence. Without it, conflicting clauses in different parts of a contract—or across related documents like schedules, annexes, or exhibits—could leave parties uncertain about their obligations. A well-drafted order of priority clause ensures clarity and predictability in how the contract will be interpreted and enforced.
Understanding order of priority through an example
A loan agreement includes a master contract and several supporting documents: a term sheet, an exhibit with financial covenants, and a schedule of fees. If the fee schedule says one thing, but the body of the agreement says another, the order of priority clause may specify that the main agreement overrides all attachments, resolving the conflict automatically.
Example of how an order of priority clause may appear in a contract
Here’s how an order of priority clause may appear in a commercial agreement:
"In the event of any inconsistency or conflict between the terms of this Agreement and any exhibit, schedule, or other document incorporated herein, the terms of this Agreement shall control unless expressly stated otherwise."
Conclusion
Order of priority provisions provide a clear roadmap for resolving internal inconsistencies in a contract or transaction. They reduce the risk of confusion and litigation by making it easy to determine which terms prevail. Including this clause is essential in multi-document deals or agreements with layered attachments, annexes, or amendments.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.