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An Introduction to Contract Boilerplate

The Huffington Post The Huffington Post 21/03/2016 Brad Reid

"Boilerplate" is standardized language used in common documents to reduce the time spent in negotiation and document preparation. However, it is a mistake not to analyze boilerplate as it may vary. This comment provides a brief and incomplete educational overview of some forms of boilerplate. Always consult an experienced attorney to prepare and review specific documents.
As a preliminary matter:
1.Boilerplate will vary according to the type of document: general contract, employment agreement, sale of property, or credit agreement, for example. Copying boilerplate from one type agreement into another will create problems. Consumer protection legislation or judicial decisions may restrict or require certain language in a particular contract. Don't overlook this review.
2.The nature of the parties: corporate, individual, agent, or partnership will impact their responsibility for implementing the boilerplate. Individuals may or may not have personal liability, depending upon the overall structure of the transaction. Exactly what person or entity is entering into this agreement and has responsibility for its provisions?
3.Carefully review the signature line. Is a party signing individually (personal liability), in a representative capacity only on behalf of a business entity, or as a surety or guarantor. Be cautious if an agreement attempts to obligate a to-be-created future entity. After creation, the entity typically must agree to be bound by the agreement.
4.Read the entire agreement, carefully looking for ambiguities and contradictions. This may occur when pieces of several documents are cut and pasted together.

5.Frequently there is a contract provisions that captions or headings are provided for convenience and are not part of the agreement. A practical impact is that language concerning a particular captioned topic is not contained in one section only.
6.Carefully review the grammar and tense throughout the contract. What provisions should be past, present, or future?
7.Near the beginning of the agreement there may be a section labeled "Recitals" or "Intentions." These almost always should be expressly stated to be part of the contract as Recitals or the Intention of the Parties will serve as an aid to interpreting the agreement. Courts attempt to interpret an agreement to carry-out the lawful intentions of the parties.

8.Statements of consideration, indicating the form or amount, as well as delivery and receipt, are necessary to create a legally binding contract. Occasionally contracts are invalidated because there is no evidence of the delivery or receipt of consideration. Consideration is an essential element of a binding contract.
9.A glossary or dictionary of technical words "as used in this contract" is appropriate.
10.Is this agreement international or domestic (U.S.)? International sales of goods agreements are governed by a treaty, the United Nations Convention on Contracts for the International Sale of Goods (CISG). In several respects, the CISG differs from the Uniform Commercial Code (UCC) commonly applicable in the U.S. to sales of goods. One must affirmatively opt out of the CISG with a specifically worded statement if it is not to apply. The following language is typical: "The parties hereby agree that the United Nations Convention on Contracts for the International Sale of Goods will not apply to this contract." Expert analysis is required to determine the best course of action.
Choice of Language provision:
While one might automatically designate American English as the official language of the contract, perhaps a foreign nation will require the contract to be in its native language. Investigate. What language is "original" and what language is a "translation." Define in both languages technical terms in the contract to avoid confusion. Slang or commonly understood phrases by a native speaker may create ambiguities when translated.
Dispute Resolution provisions:
A.The parties may choose the governing law for the contract, subject to CISG opt out language mentioned above and the laws of a specific nation. If litigation is to occur in a foreign nation, will that nation recognize this provision?

B.Venue refers to a specific court located within a jurisdiction. State law may limit the flexibility in selection.

C.Forum selection provisions typically involve placing both jurisdiction and venue in another state or nation.
Arbitration or Mediation provisions:
Arbitration is understood to be binding and mediation involves a third party making suggestions. There are, of course, many varieties of alternative dispute resolution. What do the parties desire? It is important to state the scope of the arbitration or alternative dispute resolution. Is it "any and all disputes" or a limited range of specifically named disputes? What original parties and third parties or affiliates are subject to arbitration? Will the arbitration or mediation be administered by an institution such as the American Arbitration Association (AAA) or the London Court of International Arbitration, etc.? How many arbitrators will there be and what are their qualifications? How are arbitration or mediation expenses to be paid? Where will the arbitration occur and will this location enforce an arbitration award? What is the official language of the arbitration? Are depositions and other discovery methods to be part of the arbitration?
Waiver of a jury trial:
Some jurisdictions do not allow a jury trial to be given up (waived) and others require that a jury trial waiver provision be conspicuous (bold type). Research this question.
Amendment and Anti-waiver language:
This language specifies the ways in which the contract may be changed. Typically a writing signed by a designated individual is required to amend a contract. An anti-waiver provision essentially states that a failure to enforce a provision in the contract does not make that provision unenforceable in the future. One must be careful as many states will allow an oral amendment or waiver, contract language notwithstanding, or allow the contract to be modified by the conduct of the parties under the agreement (course of dealing). The more parties or entities that are involved the more complex it becomes to create fair and appropriate language.
Notice provisions:
What is the official means of communicating between the parties? Shall it be hand delivered, certified mail, email, or fax, for example? One may wish to include "deemed received" phrasing so that a notice being duly sent is considered received.
Time is of the essence:
This language indicates that deadlines and due dates are to be strictly enforced. This is significant in construction and occupancy situations or rapidly changing commodity markets.

Assignments and Delegations:
Parties may wish to prohibit the transfer of rights and duties to third parties without written consent. This provision should be broadly worded to include mergers, consolidations, and indirect transfers. State that such transfers are void and that the contractual obligations are binding on the original parties and their permitted successors, assigns, and heirs.

Third Party Beneficiaries:
Language may be included that no third party, not an original signatory, shall have any rights under the agreement. If some third party rights are allowable, state "except as otherwise provided."
Force Majeure:
This provision describes situations, such as floods, storms, terrorism, wars, that excuse a party from performing an obligation. There has been conflicting litigation concerning the definition of "terrorism" and "war" so those words need a precise definition. These clauses may be brief or lengthy and may be tied to a bonding provision that attempts to make whole financial losses.
Relationship of the parties:
Typically one specifies that the transaction and agreement is "arms-length" and that no employment, agency, or fiduciary relationship exists between the parties. Neither party is authorized to act on behalf of the other, etc.

Transaction Costs:
How are costs to be divided? Does each party pay her or his own costs? Are costs shifted to one party in specified situations?
Publicity and Confidentiality:
Think carefully concerning what information will be disclosed by whom and what information will remain confidential. Will confidentiality and non-disclosure provisions survive the end of the agreement? This needs to be carefully and specifically stated. What practical remedies are available for violations?
This provision states that if a particular provision in the agreement is invalidated, the remainder of the agreement shall be enforceable as if that provision did not exist. In other words, one unlawful clause does not void the entire agreement. This issue frequently surrounds non-competition provisions related to time, geographic area, and type of business or employment. Some states will totally invalidate an unreasonable non-competition provision and other states will revise it to make it reasonable.
Integration Clause:
This language states that the written agreement and attached exhibits and schedules constitute "the entire agreement and understanding of the parties," and "supersedes all prior agreements and understandings, whether written or oral." Carefully reference by name all prior documents, such as non-disclosure agreements and letters of intent. However, if attempting to specific list all prior documents, do not overlook one or utilize catch-all language such as "including but not limited to." This provision may be expanded into a non-reliance clause that will limit a party's ability to sue for alleged fraud or misrepresentation. In essence it may state that this is the only information that has been provided and that a party relies upon.
Problem Words:
There are numerous potentially ambiguous or vague words that may appear in an agreement. Attempt to clarify them or better yet indicate what specific duties that they impose. The following are a few common examples. "Best efforts" or "reasonable efforts" are often litigated. Many understand "best efforts" as imposing an obligation to utilize all available options, regardless of the cost. "Reasonable efforts" considers factors such as difficulty and cost. State precisely what obligations are imposed. "Material adverse change" or "material adverse effect" is used to excuse a party from being obligated or acting. Better practice is to identify specific objective conditions that excuse performance. "Knowledge" or "notice" to whom in what manner and medium needs to be precisely written. Be cautious when using the terms "shall" or "will." "Shall" creates an unrestricted duty to act and "will" creates a contractual obligation within the framework of the entire agreement. "Good faith" is another phrase requiring precision. Of course, an "agreement to agree" or to "negotiate in good faith" just creates future problems after time and resources have been invested in an endeavor.
Defend, Indemnify, and Hold Harmless provisions:
This brief comment cannot adequately discuss the many legal issues produced by this boilerplate. The very definition of these words is disputed and litigated. What actions trigger these requirements? What party is allowed to undertake what actions and when? What party becomes an agent? What claims are or are not included? Do these provisions have any financial limitations? Are some remedies exclusive or are remedies cumulative? Is this language tied to insurance or separate from insurance?
This brief comment provides an incomplete introduction to a complex topic and is not intended to provide legal advice. Always consult an experienced attorney in specific situations.

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