Why Boilerplate Can Be Your Best Friend
Originally published: 11.01.11 by Mike Coyne
That gobbledygook at the end of contracts matters greatly when disputes arise.
Rarely does a month go by without a client ribbing us about the boilerplate language included at the end of so many contracts. One client insists that we must think we are paid by the word to include so much extra verbiage. Another client suggested that the gobbledygook at the end of the contract is no more than some secret form of communication between the lawyers representing the parties. The fact is that most boilerplate provisions are not only important but also very powerful when disputes arise.
Black’s Law Dictionary defines “boilerplate” as: “Language which is used commonly in documents having a definite meaning in the same context without variation; used to describe standard language in a legal document that is identical in instruments of a like nature.” This definition explains why boilerplate is so important — it is language having a definite meaning, without variation. Thus, when a dispute arises, courts are likely to give the boilerplate provisions great deference. Here is an example: Let’s assume that you purchase a piece of equipment from an out-of-state supplier. The purchase order includes a provision stating that the law of the manufacturer’s state controls any disputes, and any disputes must be submitted to the jurisdiction of a court within that state. If a problem arises with the equipment, the manufacturer has great leverage. It can force you to go to its state court to resolve your dispute. Thus, provisions regarding governing law and jurisdiction can provide one of the parties with significant leverage. Let’s look at some other common boilerplate provisions: Arbitration: Some contracts require disputes to be submitted to arbitration rather than to a court. Arbitration does have its advantages. It is frequently (though not always) faster and less expensive than traditional litigation, and it is a private rather than a public affair. On the other hand, often there is no right of appeal, and some arbitrators tend to make decisions based more on a sense of “rough justice” rather than application of the law. Generally, if a contract has an arbitration provision, you will not be allowed into court to settle your dispute. Costs and attorneys’ fees: A contract could require that, in the event of litigation over the contract, the losing party is responsible for the costs and legal fees incurred by the winning party. The advantage of the provision is that it makes one cautious about bringing a lawsuit, unless the prospects of winning are overwhelming. Of course, many business disputes are not black and white. Often litigation is the first step toward a reasonable compromise. Like many boilerplate provisions, this provision is good or bad, depending upon your perspective. Integration or “entire agreement”: This provision generally states that the contract represents the entire agreement between the contracting parties regarding the subject matter of the contract and supersedes all prior or contemporaneous written and oral agreements, promises, representations and/or understandings between the parties. Absent this type of provision, aggrieved parties frequently argue that the written contract does not reflect the entire deal that was contemplated and that there were additional promises made that should be considered by a court. If the contract includes an integration provision, those arguments go nowhere. Assignment: An assignment provision describes the extent to which the rights and obligations of a party to a contract can be transferred to a third party. If you are signing a contract with a consultant or a subcontractor for that individual’s special expertise, you may want to prohibit the consultant or subcontractor from assigning his duties under the contract to another person. On the other hand, you might want to retain the right to assign a contract to a third party, particularly if you decide at some point that you do not want to perform the obligations required of you under the contract. Indemnification: Although indemnification provisions frequently are included with a contract’s boilerplate language, they always demand the closest of scrutiny. A recent California case really brings home the lesson. A subcontractor was providing windows to a contractor who was constructing a large residential development. The subcontractor’s contract required it to pay the contractor’s legal defense costs against any homeowners’ claims, insofar as those claims concerned the windows provided by the subcontractor, regardless of whether the subcontractor was ultimately found to be negligent. The contractor and subcontractor were sued with regard to an issue regarding the windows. Even though the subcontractor was found not to be negligent, it was nevertheless required to pay all of the legal defense costs of the contractor due to the boilerplate language described above. Therefore, respect the boilerplate! Drafted properly, boilerplate provisions can be your best friends. n Michael P. Coyne is a founding partner of the law firm, Waldheger Coyne, located in Cleveland, Ohio. For more information on the firm, visit: www.healthlaw.com.
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