Why the "Fine Print" may Actually be Your Business' Life Line
If you've ever skimmed a contract and thought, "This is just boilerplate, I don't need to worry about that," think again. Boilerplate clauses—the standard, often-overlooked sections at the end of agreements—might not make for thrilling reading, but they could save your business (or cost it dearly) when the unexpected happens. Let's dive into why these clauses are so essential.
What is "Boilerplate"?
The term "boilerplate" comes from the 19th century when
steam boilers were made from standardized steel plates. These
plates were stamped out uniformly and used universally, just like
certain contract clauses are today. Over time, the term came to
refer to pre-set, standard language in legal documents. So, next
time you see "boilerplate," imagine lawyers hammering
away on steel plates... and if one is out of place . . . boom! But
seriously, the idea is that boilerplate in contracts provides a
sturdy, necessary set of terms, widely applicable, but tailored to
the specific contract to ensure the contract "operates"
as intended.
The "Fine Print" That Packs a
Punch
Here are some key boilerplate clauses, in no particular order, what
they mean, and why they matter to your business:
- Waivers
What it means: A waiver clause states that if one party forgives a breach of the contract or other action or non-compliance, it doesn't mean future breaches or similar acts or omissions are automatically excused.
Example: You're a vendor, and your client fails to pay on time. You let it slide this month, but without a waiver clause, they might argue that late payments are now an acceptable approach under the contract, and there goes our cash flow and forecast. . . whoa! No thank you.
Why it matters: A waiver clause ensures that forgiving one breach or action doesn't mean you've waived your rights forever.
- Severability
What it means: This clause ensures that if one part of the contract is found invalid or unenforceable, the rest of the contract remains in effect. Sometimes these clauses go so far as to provide that if a portion of the contract is found unenforceable, then it should be deemed automatically modified (or require the parties to modify it) so it becomes enforceable.
Example: A single clause in your contract turns out to be unenforceable (say, a non-compete clause in California). Without a severability clause, the whole agreement could be thrown out in the case of a dispute. Yikes!
Why it matters: Severability keeps the rest of the contract intact if one part is invalid, thus maintaining the benefit of the bargain (and all your hard work in putting the contract in place).
- Choice of Law and Forum
What it means: This clause specifies which jurisdiction's laws will govern the contract and where any disputes will be resolved.
Example: Your company in New York signs a deal with a Texas partner. Suddenly, there's a dispute. Do you really want to fight it out in a Texas courtroom under Texas law?
Why it matters: This clause ensures you're litigating disputes in your preferred jurisdiction under predictable, well-established legal rules. Failure to specify either the applicable law or the forum can open you up to multiple different potential laws and locations depending on where the parties are located and where the services are provided, putting the enforcement of your contract in jeopardy, as well as causing you to incur unnecessary travel and local counsel expense.
- No Third-Party Beneficiaries
What it means: This clause makes it clear that the contract only benefits the parties who signed it, and can only be enforced by those parties, not outsiders.
Example: As a wholesale seller of sledgehammers, you sell to a sledgehammer reseller, who in turn, sells to various customers in need of sledgehammers. Without this clause, in the case of a dispute with your reseller due to a defect in the attachment of the sledgehammer head to the handle (whoa, careful there), your contract with the reseller could unexpectedly permit their cousin Vinny who "purchased" a defective sledgehammer to bring a claim against you directly for breach of contract seeking damages, even though Vinny was not a party to your contract. We don't want this result. Of course, you may still want to be wary about what Vinny may do with that defective sledgehammer . . . just sayin.'
Why it matters: It prevents uninvited guests with whom you did not knowingly or willingly do business with from crashing your legal party, seeking damages or other remedies against you.
- Force Majeure
What it means: This clause excuses a party from fulfilling their obligations if extraordinary events beyond their control (e.g., natural disasters, war) occur. These clauses are intended to cover significant and extraordinary events that are generally (i) unanticipated, (ii) beyond the parties' control, and (iii) of such a nature that they make it virtually impossible for a party to perform under the contract. So, Force Majeure is intended to cover impossibility not added difficulty.
Example: A hurricane shuts down your factory. Without this clause, you might still be on the hook for failing to deliver supplies to your customer even if doing so is effectively or actually impossible. Conversely, if a consultant is expected to travel from Florida to New York and the airlines go on strike weeks before the date services are to be delivered, the consultant still could potentially take a train or drive in order to perform. In this latter case, while performance is made more difficult, it is not effectively impossible and likely would not be sufficient to excuse performance. During the Covid pandemic, these clauses came under scrutiny as parties debated whether government-imposed restrictions, which in many cases limited travel and an ability to generate income, triggered force majeure clauses in residential and commercial leases (as well as many other contracts). You can bet that such clauses started to specifically include language related to pandemics thereafter. Real impacts.
Why it matters: It excuses performance due to events beyond anyone's control, like natural disasters or zombie apocalypses, that make it effectively impossible to perform. Remedies can include temporarily excused (delayed) performance or even termination of the contract without penalty. Often, these provisions include obligations to mitigate the impacts of the Force Majeure event if possible and can impose time frames for the excused performance.
- Independent Contractor Relationship
What it means: This clause clarifies that the parties are independent contractors and not employees, partners, or agents.
Example: You hire a freelancer to write ad copy for a campaign, and they later claim they are entitled to employee benefits, such as health insurance. Without this clause, you could potentially be in murky waters if the freelancer is working in a way substantially similar to your employees (there are legal tests for this which I will not address here), resulting in the freelancer being deemed an employee and you having to provide benefits and pay employment taxes.
Why it matters: It clarifies the relationship and protects you from potential unintended financial and other obligations, such as needing to pay employment taxes on behalf of a freelancer. Note, that this contractual provision is not enough on its face. The parties actually have to be working as independent contractors in accordance with applicable law.
- Assignment Clause
What it means: This clause controls whether and how the rights and obligations under the contract can be transferred to another party.
Example: Your client sells their company during the contract and assigns your contract to the new owner without asking you. Are you okay with that? Maybe...
Why it matters: An assignment clause sets forth the rules as to whether and how rights and obligations under the contract can be transferred by either party. There are many permutations of this clause, so it is very important to pay attention to these provisions in your contracts. You would hate to find yourself in a position where you have sold your company in part on reliance that the buyer would be receiving the benefit of your key client contracts, only to find that you must get your clients' consent (which they may not give) to assign the contract. No bueno!!
- Compliance with Laws
What it means: This clause obligates both parties to adhere to all applicable laws in performing their duties under the contract.
Example: You sign a deal with an overseas partner who is making facilitation payments to a local government agency in order to help win the contract under which you will be providing services. While this practice may be "acceptable" or even legal in the local jurisdiction of the partner, such payments violate the trade or bribery laws in the jurisdiction where you are located. Without this clause, you might unintentionally be on the hook for both civil and criminal liability because the partner violated the law where you are located.
Why it matters: It ensures both parties promise to play by the rules of all applicable jurisdictions. While these clauses often read as generic, they actually should be drafted in a way tailored to the parties' businesses and locations, as well as the services being performed, so it is very important that you and your lawyer carefully review such provisions.
- Integration Clause (Entire Agreement)
What it means: This clause states that the written contract represents the entire agreement between the parties, superseding prior discussions or agreements.
Example: During negotiations, you promised a client free cookies at every meeting. If it's not in the contract and there's an integration clause, guess what? No cookies required (although you should probably bring them anyway because everyone loves cookies).
Why it matters: It ensures only what's written in the contract counts, so if during negotiations, one of your employees said something that appeared to obligate the company (e.g., the free cookies, or maybe more importantly, that the company always pays invoices early, such representation arguably will not actually legally bind your company).
- Amendments Clause
What it means: This clause specifies that any changes to the contract must be in writing and signed by both parties.
Example: Your business partner emails you a "quick update" to your contract terms indicating that their payment policy has changed and they now have to pay you on net45 days instead of the net30 days agreed in the contract. Without this clause, that casual email might actually modify the deal and become binding on you, particularly if you don't object and/or accept payment within 45 days.
Why it matters: It ensures changes to the contract are reviewed, agreed to, formalized and signed. No surprises!
- Negotiated Agreement Clause
What it means: This clause confirms that both parties had the opportunity to review and negotiate the terms before signing, engaging legal counsel as necessary or appropriate.
Example: After a contract is signed, one party later claims they didn't understand that their liability was limited to 3 months of fees, or that your duty for a breach of warranty was only to repair or replace the product with a new or refurbished unit at your discretion, and argues that because of their lack of understanding, those terms are not binding on them.
Why it matters: This clause states that both parties had the chance to review and negotiate the contract terms, so no one can cry foul later and argue they didn't understand something or didn't know a certain provision was in the contract, providing certainty in the enforcement of all contract terms as written.
- Cumulative Remedies Clause
What it means: This clause allows a party to use multiple remedies, as available under law or the contract, if the other party breaches the contract, rather than being limited to just a certain remedy (unless of course the contract specifies that only a certain remedy can be used).
Example: Your customer breaches the contract, and you want to sue for damages and terminate or rescind the agreement. Without this clause, they might argue you have to pick only one remedy (i.e., you can sue for damages but need to continue to perform under the contract).
Why it matters: It ensures the parties have access to all available remedies under the law to provide the necessary flexibility to make the right business decision given the facts and circumstances.
- Counterparts Clause
What it means: This clause allows the contract to be executed in multiple copies (i.e., each party does not have to actually sign the same piece of paper), each of which is equally valid and together form a binding contract.
Example: You and a partner sign different copies of the agreement in different cities, so no one copy shows both signatures. Without this clause, someone might argue later that there is not a valid contract and thus the deal is unenforceable.
Why it matters: It considers the realities of today's virtual and remote world and allows contracts to be executed, including by electronic means or PDFs, in separate but equally enforceable copies, which will be viewed under the law as one single agreement.
So, as you can see, while boilerplate clauses might not seem glamorous, they really are the unsung heroes of contracting, and should be considered by business stakeholders and not just left to the lawyers. Think of the boilerplate as the safety net under a tightrope walker: you might never need it, but if you fall, you'll be glad it's there, and you will want to ensure it is strong enough to catch you and keep you safe. So next time you're tempted to skip the fine print, be sure to read carefully (or listen to your lawyer carefully). Your business's future might depend on it.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
