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Boilerplate Matters in Contracts

I’ve been running into a lot of contracts disputes lately where a party’s rights were potentially affected by missing boilerplate provisions.  Boilerplate generally refers to language that is reused from one contract to the next.  It usually has little to do with the substance of the contract.  It is easy to ignore.  But when it matters, it can be critically important to your ability (or inability!) to enforce your contract.

What is boilerplate?

The clauses of a contract can be divided into two categories:  operative, and boilerplate.  Operative clauses concern the deal itself:  What sort of services will be provided?  How will payment work?  How is risk operated?  These are the terms of the deal, and they generally receive a lot of attention from the parties.

Boilerplate is everything else.  It is the “legalese” at the end of the contract.  It includes things like severability, integration clauses, force majeure, assignment, and the ever-important declaration that time is “of the essence.”  It does not relate to the deal itself; rather, it is concerned with the contract and how the contract is enforced.  When a deal goes bad, these details can be critical.

Why Does Boilerplate Matter?

The easiest way to explain the important of boilerplate is to pick a few examples.

The boilerplate in a good contract will almost always contain an “integration” clause–often labelled “entire agreement” and often paired with a requirement that any amendments to the contract be in writing and signed by both parties.  Why do these clauses matter?  An integration clause makes it clear that the agreement is what is contained in the contract. It means that statements and representations made during negotiations are of no consequence–if it is not in the contract, it is not part of the deal.  The integration clause protects against claims that promises were made during negotiations.  If your contract does not have such a clause and a dispute develops, you may be exposed to unexpected liabilities or obligations.

The amendment clause goes hand-in-hand with the integration clause.  Where the integration clause protects you against things that happened before the contract was signed, an amendments clause protects you against things that happen after.  A typical clause will require changes to the contract to be in writing and signed by both parties.  It prevents a party from seeking to enforce some verbal change they claim was made.  Without such a clause, you may be surprised to find the other party believes that the terms of the contract have been altered.  They may even be right.

Another boring but important clause is the assignment clause.  Assignment means the transfer of your rights and obligations under the contract from you to someone else.  While technically boilerplate, assignment clauses need to be tailored to the transaction.  For example, if you hiring a famous architect to design a building, you probably do not want him to be able to assign the contract to someone else.  On the other hand, if you are entering into a long term contract but think your business might be sold, you want to be sure the other party cannot use the assignment clause to block the sale.  Assignment clauses are easy to overlook but can create big problems later.

As a final example, choice of law and forum clauses, which are typically buried in boilerplate, can be absolutely critical.  Contract law is primarily state law, and it is different in every state.  Among other things, specifying what law applies to the contract will define how the contract is interpreted and what defenses are available.  Specifying what forum a suit must be brought in can be even more important.  If the parties are both located in the same city, it may be reasonable (but not prudent) to assume the lawsuit will be brought there.  But many businesses will use agreements with parties from all over the country.  An extreme example would be an online retailer.  A business with web sales cannot afford to defend a lawsuit in every jurisdiction into which it sells.  Proper choice of law and forum can help make sure it does not have to.

Don’t Just Copy and Paste the Boilerplate

Unfortunately, it seems like boilerplate does not always get the attention it deserves.  But when it comes time to enforce your contract, the details can make all the difference.  This is truly an area where “A little law now can save a lot later.”  Our boilerplate checklist includes about two dozen clauses, depending on the type and subject matter of the deal.  Whether you are using our flat rate review or asking us to draft a custom contract, we’ll give these clauses the attention they deserve.

Law 4 Small Business, P.C. (L4SB). A little law now can save a lot later.

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