Importance of “Boilerplate” Terms in Contracts
The term “boilerplate” in contracts is often used to refer to miscellaneous terms and provisions, which don’t concern the main terms and conditions of the agreement. For that reason, boilerplate provisions are often ignored or given short shrift by parties to contracts. This is a mistake because boilerplate terms can be critical to resolution of disputes relating to the underlying contract, and, if strategically tailored, can give one side to a potential contract dispute a huge settlement advantage over the other.
An example of a potentially pivotal boilerplate term is the “jurisdiction clause,” which determines which court(s) can exercise jurisdiction over a potential future contract dispute. This clause is especially important in contracts where the parties are located in different states, in different jurisdictions within a state, or in international contracts. In such situations, this clause can provide a huge “home turf” advantage to one party over the other, thus giving the benefiting side an upper hand in settlement of the dispute.
Another potentially consequential boilerplate term is the “arbitration clause”. Arbitration as a method of dispute resolution has gained increasing popularity over the past twenty years. Today, many standard commercial transactions require the parties to submit disputes to arbitration rather than pursuing their claims in courts. However, arbitration can be a double-edged sword. On the one hand, arbitration is less costly and is faster to conclusion than litigation. In addition, absent unusual circumstances, the decision in arbitration is final without an opportunity for the losing side to seek review or appeal. On the other hand, arbitration suffers from certain drawbacks. You don’t get a jury trial in arbitration and there is no right to appeal even if the arbitrator does not correctly apply the law to the dispute. Statistics confirm that Arbitration generally favors bigger, more established businesses over smaller businesses and individuals.
“Indemnity provision” is yet another potentially consequential boilerplate part of many contracts between manufacturers/wholesalers and their distributors/retailers. The indemnity clause requires the manufacturer and/or wholesaler to assume the legal costs of defending a lawsuit against the distributor or retailer who is sued for selling a product or offering a service provided by the manufacturer/wholesaler. Including an indemnity provision in their contracts with manufacturers/wholesalers can be of great consequence to a retailer who would otherwise be stuck with the legal bills.
“Integration clause” is another often ignored provision, which can be important in a contract dispute. An integration clause declares that the contract is the final and complete agreement between the parties and precludes or at least limits efforts by either side to introduce evidence that the contract was not final or complete. This provision acts to limit future efforts by either side to add to or vary the contract or its terms.
An increasingly popular boilerplate clause is the “attorney fee” clause, which allows for recovery of attorneys fees by the prevailing party in a contract dispute. This provision is important because it acts to discourage lawsuits and encourage resolution and settlement of contract disputes.
Paying attention to the strategic goals of a business in its contractual relaitons and working with an attorney to include key boilerplate clauses and provisions in the contracts, can give business owners a significant tactical advantage in any potential dispute involving the contracts.
© 2017 Dr. Dariush Adli