Have you ever had the experience of trying to read a contract while the person waiting for you to sign dismissively tells you those terms on the last couple pages are just boilerplate, as though they aren’t very important to the agreement? While that may be the common understanding, it just isn’t the case. Boilerplate terms or clauses, also referred to as miscellaneous terms, may substantially impact your rights under a contract. And while it may be true that there are standard boilerplate headings, the content of those clauses can vary significantly.
While it may not be possible in all situations, some contracts may allow for negotiation of terms, including boilerplate terms, prior to signing. However, negotiations could present a challenge if you don’t know which boilerplate terms are missing from the agreement, or what each term means. Understanding boilerplate contract terms may help empower you and your business in contract negotiations. To help you with your next contract negotiation, some of the more common and important boilerplate terms are explained below.
Governing Law / Choice of Law
The Governing Law or Choice of Law term indicates what law the court or arbitrator will use to resolve the dispute. This could be relevant to you if the particular contract’s subject matter would be treated more favorably under one state’s laws over another state’s laws. Generally, the state referenced in this term relates to where the contract will be performed or to the location of the parties to the contract, but be on the lookout for outliers: if you are in Oregon and the other party is in Washington, why is Texas law chosen?
Venue / Forum Selection
Venue or Forum Selection terms indicate where any dispute based on the agreement may be filed. For example, many contracts drafted for Portland, Oregon companies set the venue in Multnomah County, where Portland is located. This means that anyone who files a claim based on one of those contracts must initially file it in Multnomah County, Oregon. Venue clauses can impact you negatively if it is cost-prohibitive for you to file in the county and state where the forum lies.
Arbitration
Arbitration terms take a dispute out of court and into private resolution. In other words, arbitration clauses may waive your right to a jury or bench trial. Arbitration is considered to be faster and less expensive than filing a claim in state or federal court, but this may not always be the case. Arbitration decisions remain private, and arbitration clauses may place limits on traditional aspects of litigation, such as discovery. Many contracts today contain arbitration clauses; arbitration requirements may be positive or negative depending on the type of contract you are signing and which party to the contract you are.
Costs / Attorney’s Fees
Costs and Attorney’s Fees provisions are a way to shift fees to one party to the contract or both parties to the contract. Costs can add up during a dispute, so it’s important to know by whom the fees will be paid if they are incurred. In some cases, prevailing parties are awarded attorney’s fees, but generally each party pays its own way. However, this can be shifted contractually, meaning that an attorney’s fees provision might indicate expressly that regardless of who wins the case, each party pays their own fees, or the losing party pays, or even that the person who files the claim pay any related fees.
Assignment
An Assignment clause can either allow you to or prevent you from assigning your rights under the contract to another party. This could come into play in a contractor / subcontractor situation. Let’s say you contract with a commercial business to install new flooring, but wish to subcontract that work out to one of your crews. If an Assignment clause in the contract prevents you from assigning the work, you may breach the contract if you give the work to your subcontractor. If you have plans to assign your rights and responsibilities under the contract to another entity, be sure this clause allows for it.
Entire Agreement / Merger Clause
An Entire Agreement or Merger clause states that the contract is the complete agreement between the parties. The clause prevents either side from arguing there are any oral or other written agreements that modify or amend the contract. This clause is important to a contract because without it, a party may claim that a conversation modified the terms of the agreement, and in case of a dispute, each party would be able to present evidence of that conversation.
Force Majeure
A Force Majeure clause indicates the events that will excuse performance under a contract. The translation of force majeure is “greater or superior force”; the occurrence of force majeure events cannot be reasonably anticipated and are generally disruptive. Standard force majeure events may include labor strikes, acts of war, and extreme weather events. Such events should be extremely unlikely to occur. These clauses can be tricky, because parties may insert events that aren’t really force majeure events as a preventative measure against anticipatable events that could impede or prevent the party’s performance.
Severability
A Severability clause tells a court or arbitrator that if any clause in the agreement isn’t enforceable under the law, that the rest of the agreement should remain enforceable. This clause prevents a court from stating that the entire contract is unenforceable based on one clause. Although in reality a court may strike an unenforceable clause and still interpret the rest of the agreement, this clause will help to ensure the remainder of the agreement is enforced.
The above list is not exhaustive, but these boilerplate terms are those most likely to impact your rights under a contract. Knowing what these terms mean and how they can impact your business can help you to be a more informed party to a contract.