Sep 20, 2019

Boilerplate Clauses in Business Contracts: Why They Matter

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Boilerplate clauses are those provisions typically placed at the end of a contract, often grouped together under a “Miscellaneous” or “Other” heading. They look like a lot of legalese that can continue for multiple pages. They do not relate to the substantive provisions of the contract, are mostly standardized, and not controversial, and parties typically don’t spend much time negotiating them. Do boilerplate clauses really matter, then?  

Boilerplate Clauses in Business Contracts

Boilerplate clauses are important because they define how the parties must act to enforce rights and interpret the contract. They have significant practical implications and can save headaches and lawsuits in the event a dispute arises later. The absence of certain boilerplate clauses can create ambiguity or even a different result than the parties intended when they entered into the contract.

Done correctly, boilerplate provisions will better define the relationship of the parties to the contract and provide greater certainty in the event of later disagreements and substantially reduce the cost of legal bills associated with a dispute.    

Each boilerplate clause serves a specific purpose. Not all boilerplate clauses belong in every contract. We have highlighted below a non-exhaustive list of common boilerplate clauses that should at least be considered as part of any business contract:

  • Attorneys’ Fees. This clause provides that in a legal dispute, the losing party pays the winning party’s legal fees and related costs. Under the so-called “American Rule,” each party is responsible for paying its own attorneys fees, win or lose.  Including an attorneys’ fees provision can deter a party from bringing a claim where it may not clearly prevail. This can help push the parties to reach a fair negotiated business solution. On the other hand, if one party is generally more likely to be sued than the other party, such as a seller of a business, that party may not want an attorney’s fees provision as deterrent to the other party bringing a lawsuit over a relatively small amount when compared to the costs of litigation.
  • Entire Agreement. The entire agreement clause, sometimes referred to as the integration or merger clause, provides that the contract represents the entire agreement between the parties on the subject matter of the contract.  This clause is intended to provide certainty that the contract signed by the parties includes everything the parties have agreed to. This prevents either party from claiming that prior negotiations, agreements, representations, emails, or discussions are part of the final agreement. Sometimes, other contracts are part of a transaction. In such instances those other contracts should be specifically mentioned as being part of the overall transaction.
  • Amendment. This clause typically provides that any amendments or modifications to the contract must be in writing and signed by both parties. This is intended to prevent a party from later claiming that a verbal change or one email to another party was made to amend the contract after its execution.
  • Assignment. Generally under common law, either party has the ability to assign its rights under a contract to a third party. This clause specifies whether assignment is permitted without the consent of the other party.  Often it is tailored to the particular contract. For example, if one party anticipates its business being acquired at some point, it may want to provide for the right to assign its contract rights to a successor in a merger or acquisition without the consent of the other party. In many cases, though, the parties expect to be dealing with each other and may insist that consent is required for any assignment.
  • Further Assurances. A further assurances clause provides that the parties will take other actions not specifically set forth in the contract if necessary to carry out the intent of the parties if there was an unintentional omission or unanticipated situation. However, courts generally will not allow a further assurances clause to change or expand the parties’ rights or obligations.  
  • Survival. Often contracts have provisions that the parties expect to continue beyond the end of a contract, such as confidentiality or an obligation to pay for services performed prior to termination. Specifying the particular provisions that should survive after the contract ends helps assure these obligations are enforceable.
  • Severability. Without a severability clause, your entire contract could be invalidated if one provision is found to be void or unenforceable. This clause is designed to keep the remainder of your contract intact and enforceable even if a court strikes down one or more of its provisions.  
  • Governing Law. The governing law clause provides which state law will apply in the interpretation and enforcement of the contract. In general, parties should choose the law of a state in which the contract will be performed or in which they have a connection. When parties are located in different states, each party often wants the laws of its state to govern, resulting in a negotiation.
  • Forum or Venue. This clause specifies where lawsuits under the contract may be filed. This is especially important if the parties are located in different states. Litigating in another state typically is more costly and inconvenient, and there is a perceived benefit to the party in its home-town courts.   

Other boilerplate clauses typically considered for most business contracts include those relating to:

  • Notice Requirements
  • No Third-Party Beneficiaries
  • Waiver of Jury Trial
  • No Waiver of Breach
  • Expenses
  • Cumulative Remedies
  • Force majeure
  • Interpretation
  • Counterparts and Electronic Signatures

While the boilerplate may not be the most exciting provisions in your contract, they are important to help assure the intent of the parties is implemented and enforceable. Boilerplate clauses should not be considered generic and simply copied and pasted from another contract.  Which boilerplate clauses to include, and with what variations, should be tailored based on each particular business relationship?

The attorneys at Linden Law Partners have extensive specialized experience with drafting and negotiating a broad range of commercial and other business contracts of all types. Please contact us here if we can be of assistance to your business.

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