The term “boilerplate” refers to standardized language in a contract that usually appears at the end of the agreement (often in a section titled “miscellaneous” or “general terms”). While boilerplate provisions are common clauses in a contract, they should always be checked carefully and tailored to the particulars of the situation as they will address important issues that will be determinative of the parties’ rights with respect to the business contract. You should remember that every clause in a contract may be negotiated – even the boilerplate provisions.
These boilerplate provisions include, among other things:
- Rules on how the agreement will be interpreted
- What law will govern the subject matter of the contract
- Whether the business contract can be assigned
- What happens to the entire agreement if its provisions are found by a court to be invalid
- Whether third parties are deemed to be third party beneficiaries of the agreement
Although these provisions are referred to as “miscellaneous” or “boilerplate,” you should not underestimate them because even these provisions can be disputed.
Outlined below are examples of common boilerplate provisions counsel will encounter in business contracts.
Third parties
Most contracts will exclude any rights of third parties to enforce the agreement. When acting for a customer, you should ensure the customer’s corporate entities that are impacted by the terms of the agreement are named as additional parties along with the customer.
Assignment and Sub–Contracting
You should consider whether there is a need for either party to assign the contract with or without consent, and whether to include an appropriate standard for consent (e.g. at the other party’s sole discretion or consent not be unreasonably withheld). Even if consent is required, the parties may agree to exclude certain assignments for which consent will not be required, such as when there is a change in control of a party or a sale of all or most of a party’s assets.
You should consider the potential impact that an assignment may have on performance of the business contract and on the client, and you may want to limit consent to circumstances that would have a negative effect on the deliverables.
Another variable to consider is whether the seller should be allowed to sub-contract, and, if so, whether the seller will remain primarily liable for the acts and omissions of the sub-contractor. This issue will be of particular importance to a buyer in agreements where the seller is manufacturing the subject goods to buyer’s specifications.
Force Majeure
A critical provision that sellers should consider including in the business contract is what is known as a “force majeure” clause. This is a provision in the contract that lists a series of events that are beyond the reasonable control of a party, the occurrence of which will excuse performance by a party for as long as the event occurs and, usually, for a reasonable period of time thereafter.
A party will not want to incur or be subjected to liability for events that it is unable to predict or control. In contracts where the provision is drafted to only protect the seller, buyer’s counsel will want to make the force majeure clause mutual.
In mutual force majeure provisions, it is common for the seller to include language that a force majeure event does not excuse performance of the buyer’s payment obligation. You should also consider whether to include language that allows the other party to terminate the agreement should the force majeure event last for more than a designated length of time. It may not want to remain contractually bound to a party that will not be able to perform the business contract for a prolonged period and be able to secure performance from another party.
There is no reason the parties need to limit a force majeure clause to classic force majeure contingencies grounded in unforeseeability. The parties are free to allocate the risks as they see fit, and it is possible that the client may not be willing to assume the risk of performing in the face of certain clearly foreseeable events. The obvious drafting solution is to expressly condition performance upon the nonoccurrence of such an event.
For example, one or both parties may not be willing to assume certain market risks, such as market price exceeding a certain level. Instead of relying upon a general, omnibus force majeure clause for protection, it may be in the party’s interest to expressly enumerate the specific risks it does not wish to assume, and to include a risk management clause that expressly avoids such risks.
Such a risk management clause could excuse the specifically listed risks in addition to “any and all events, regardless of their dissimilarity to the foregoing, deemed to be impracticable under the law.” By including such specific exceptions, the parties also remove the risk that a trier of fact may interpret the SPA in a manner that does support application of the force majeure provision in the manner desired or intended by the affected party.
Applicable Law
In the event of a dispute, a choice of law provision determines which state’s legal rules and laws will be applied in the lawsuit. Choices of law provisions are particularly important when the transaction involves the crossing of state lines, both physically and electronically.
Corporations often favor Delaware law, as it is very well developed and allows for a level of predictability when a dispute arises. However, you should consider the applicable state laws of jurisdictions relevant to the transaction and incorporate the law of the state which favors your client on important issues that might arise should there be a dispute arising out of the business contract.
Dispute Resolution
Parties to contracts are often in ongoing relationships. Immediate court proceedings in the event of a dispute may not be in the best interests of either party. The parties may wish to consider an alternate dispute resolution process that will be managed and escalated by the parties themselves, such as arbitration.
The parties will want to agree on where the arbitration will be held, before what panel, the number of arbitrators, the governing law that will control the arbitration, whether each party will bear their own costs, and what damages the arbitrator can and cannot award, among other issues.
In addition, some parties prefer to include a provision requiring a good faith effort to resolve any dispute between the parties before resorting to legal action or arbitration. Good faith efforts clauses usually require the parties to meet shortly after notice of a dispute is provided, with representatives of each party having authority to resolve the dispute in attendance.
The parties may also want to require an exchange of position papers identifying areas in dispute and each party’s position thereon before they meet to try and resolve any disputed issues. Such clauses have little or no downside and may help avoid the time and costs of protracted litigation if the parties are able to resolve the matter through such efforts.
Waiver
A waiver provision allows the parties to forego the right to sue for breach of a particular provision of the agreement without giving up any future claims regarding the same or any other provision in the agreement. For provisions the parties do not wish to be waivable, counsel should include clauses addressing non-waiver and no variation without written consent.
Entire Agreement
An entire or integrated agreement provision, which provides that the written agreement contains the entire and final understanding between the parties regarding its subject matter, may dissuade a customer from claiming that a pre-contract statement or misrepresentation has been incorporated into the contract and enable the supplier to argue the parole evidence rule applies.
Accordingly, it is important for counsel to ensure that the contract includes all the agreed upon terms, because any terms not expressly set forth in the document will not be part of the parties’ agreement.
It will not, however, assist against a claim of fraudulent misrepresentation.
As part of or in addition to the entire agreement clause, counsel should include a statement that neither party has relied on any pre-contract statement or representation, as it will assist in defending against any claim that the customer relied upon a misrepresentation.
Term
The term provision sets out the amount of time that the agreement will govern the parties’ relationship. Agreements that intend to terminate on the consummation of a one-time transaction may not require a termination provision.
When drafting a termination provision, first define the length of the agreement, which may be time-based, project-based or dependent on a related agreement.
Then, determine whether either or both of the parties have the right to renew the agreement. If so:
- Include any condition to renewal
- Determine if renewal will be automatic or evergreen
- Consider how renewal rights may effect renegotiation of the agreement
- Decide whether to build in automatic price adjustment for renewal periods
Counsel should remember that any provision in a contract is subject to negotiation, including “boilerplate” provisions. Failure to carefully review these provisions can lead to unacceptability risk and liability not otherwise contemplated under the contract.
