21 Jul 2013

So You Just Want a Boiler Plate Contract?

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Asking a lawyer to prepare a “boilerplate” contract is like fingers scratching the chalkboard. Lawyers hate this because it devalues their services. Clients only think they love them.

Why are you asking for that?

For some reason (actually I know the reason) lately I am being asked by clients to prepare a “boilerplate” contract for them. Why? Well I suspect the obvious – that they are looking to save money or control their costs. I suggest that working with your lawyer to avoid run away hourly fees is often a good thing, but doing that in exchange for a cookie cutter contract is short sighted.

What is boilerplate anyway?

Boilerplate clauses are contract provisions that do not bear any direct relationship to the subject matter of the contract. That is they do not speak to any specific needs of the parties to the transaction or their business goals. In theory these clauses could appear in any contract and not affect the terms of the transaction. They mostly affect the respective rights of the parties to the contract during the life of the contract and often afterward, particularly if there is a breach of the contract.

The basic idea is to use terms familiar to attorneys so that drafting the contract can take less time.

So What’s The Problem with Boilerplate?

Where should I start? First, as stated above, the boiler plate clauses mostly address legal rights not transactional one. In any contract you must make sure that the terms of your deal are being completely and fully addressed. No boilerplate contract is going to do that for you. Second, because they become so commonly used, boilerplate clauses are often overlooked and not scrutinized to make sure they apply to the particular deal or how you actually are doing business with the other side. Rest assured, if there is a problem, everyone is going to be looking at the boilerplate to determine their rights. That is a terrible time to find out mistakes were made or important points overlooked.

Sometimes the error can be as simple as a “cut and paste” error which results in mistaken names or irrelevant clauses. Other times, the error can be substantial and result in increased litigation over what the “boilerplate” even means! So much for standard language. These types of clauses really should only be used as a starting point to make sure that important issues are raised. Then the particulars have to be focused on.

If you have been lucky enough to avoid litigation over the terms of a contract, you are very fortunate. Most contract litigation involves just that – a dispute over the terms of the contract and whether they can avoid a breach, minimize damages or provide other remedies. It is an expensive way to find out what your “standard” contract really means.

Oh, and by the way, understand that in a hard case, the court may overlook or reinterpret the terms of your contract to fashion a relief for the party it feels should prevail. The more “boilerplate” your language looks, the more chance a court may find its own way to interpret it to find justice. Believe me, it happens.

So What are Some Boilerplate Clauses and What do they Mean?

Even with the potential problems it is good to know what some boilerplate clauses are, what they address and some potential concerns:

  • Costs and attorneys’ fees. In the event of a legal dispute, the party that loses must pay the prevailing party’s legal fees. Often clients think that this will result in an automatic award of fees if you win. Problem is that any particular judge or court has their own view of what “prevailing” means in the event of any less than a full victory or what it should have taken to obtain that.
  • Arbitration. Any disputes about the contract must be resolved through arbitration proceedings, not in a lawsuit. The common wisdom is that you can save legal fees through arbitration. This may be true, but arbitration is not necessarily inexpensive or likily to reach the right type of result. You need to consider the type of transaction you have.
  • Choice of law. In the event of a dispute, which State’s law will apply to your lawsuit. In a case with all parties in the same State this may not be an issue. The second an out of state party is involved this clause needs attention because states have different laws on contracts.
  • Jurisdiction. How would you like to fight a lawsuit in a different county or worse, in a different State. It can happen if this clause is overlooked.
  • Waiver. Sometimes a party gives the other party a break during the life of the contract. That party does not want this to become a permanent part of the contract. This clauses allows such temporary deviations.
  • Severability. If a court finds that one of your clauses is invalid, this clause will save the rest of the contract from being declared invalid. Otherwise the baby goes out with the bathwater…so to speak.
  • Integration. This clause prevents a party from claiming that there were other terms that you agreed to that were not in the written contract. It also usually provides that any changes have to be in writing. This is a good think unless you anticipate that you will be making may oral changes as you transact your business.
  • Notice. This is often overlooked or not specific enough. When the time comes to give the other party notice of a problem with the contract, you need to know how this can be done properly or risk the other side claiming that you failed to give prior notice. It also had to take into account that future notice locations may change.
  • Assignment. The last thing you want to find out is that the other party has transferred their rights under your contract to another party that you never dealt with.
  • force majeure (pronounced fors- mazhoor’; also referred to as “Acts of God”). This clause establishes that the agreement will be suspended in the event of unforeseen disasters (such as earthquakes, hurricanes, floods, and so on).
  • Headings. This is a silly clause that says that the headings of each paragraph are not to be given any meaning. No doubt, somewhere, litigation turned on this issue.
  • Jury trial waivers. The expense and time of a jury trial is huge. Most if not all commercial contracts contain this clause.
  • Limitations on damages. This is sometimes considered boilerplate, but experience shows that this will be a heavily negotiated clause if it inserted. No one really wants to leave any money on the table in the event of a dispute.
  • Warranties. If anyone thinks warranties are boilerplate, they are sorely mistaken. This is where a dispute is going to arise in many conflicts.
  • Indemnity. These clauses, too, are not boilerplate. This amounts to a potential guaranty of paying for certain costs in a dispute. Often insurance coverage concerns are relevant, but there is tremendous exposure here for the business owner
  • Applicable Law: Even if you end up litigating in a different jurisdiction, you may want your local law to apply. This clause will allow that.

So What is the Value of Boilerplate Clauses to You?

No question, the use of boilerplate clauses can reduce the drafting time of a contract. For any agreement that involves any significance to your business, thinking that you can use a boilerplate contract runs a tremendous risk that your contract may work against you in a big way. For most transactions other than the simplest ones, it will benefit you to understand what such clauses are for and what they address. Your contracts, however, should be constructed for you or your business specifically.

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