They say no one ever reads the “fine
print.” But when it comes to boilerplate,
attention is necessary.
Boilerplate refers to those miscellaneous
provisions that appear at the end of most of
a business’s contracts or written agreements. According to Valerie Woodrick, associate with Baker, Donelson, Bearman,
Caldwell & Berkowitz, PC in Atlanta, a boilerplate provision shouldn’t be dismissed as
“legalese” but should be viewed as important
information that could become the subject
of litigation.
Smart Business spoke with Woodrick on
what boilerplate terms consist of, some key
boilerplate provisions and why businesses
need to draft them carefully.
What is boilerplate?
Boilerplate is the colloquial term for all of
those miscellaneous provisions that typically appear at the end of most contracts or
other written agreements. Common examples include: notice provisions, governing
law, severability, assignment and counterparts. If pressed, most transactional lawyers
will admit that, when drafting an agreement,
they copy and paste most, if not all, of this
section from another recently (or sometimes not so recently) drafted document.
Why should companies pay attention to boilerplate?
Contrary to the belief held by many
clients, boilerplate is not just a bunch of
‘legalese’ designed to confuse the parties to
a contract. Admittedly, some typical boilerplate provisions either reinforce points that
are covered by statute anyway or simply
reflect common sense. For example, typical
language regarding gender and pronouns
states that ‘for purposes of this agreement,
when the context so requires, the masculine, feminine and neuter genders may be
used interchangeably and the singular may
include the plural and vice versa.’ Most
readers probably could figure this out without such an express assurance. However,
most boilerplate contains real, substantive
terms that not only are important to the parties but may become the subject of heated
litigation.
What are some general considerations to
keep in mind when drafting boilerplate provisions?
First, a contract drafter should think about
whether his or her client is likely to be a
plaintiff or defendant in any litigation arising
from the contract at issue and tailor certain
provisions accordingly. For example, provisions addressing who will pay attorneys’ fees
and which sections will survive the closing
tend to favor one party to a transaction.
Next, the drafter should strive for boilerplate consistency across documents. If the
attorney starts with form or template documents drawn from various sources, the end
result may be a set of transaction documents
with differing boilerplate terms. At a minimum, this doesn’t look good to a client who
actually reads all of the boilerplate and questions why similar provisions contain variations. At worst, inconsistent boilerplate
between documents designed to work
together in a transaction could provide fertile ground for litigation.
Finally, despite the significant freedom
granted to contracting parties, the drafter
should be aware of limitations on drafting
flexibility. One notable example: A contract
can specify the preferred governing law and
venue, but it cannot confer subject matter
jurisdiction on a court (e.g., federal district
and circuit courts may only hear certain
types of cases).
What are some key boilerplate provisions?
As just mentioned, governing law and jurisdiction may be specified to a large extent.
The obvious choices for governing law are
either the home state of the party (and often
the attorney, who therefore will be familiar
with the relevant statutes) or a state such as
Delaware, which has a well-developed body
of corporate case law. However, choosing a
state with law that favors your case may not
always be possible, particularly if there’s no
connection or nexus between the parties
and the desired state.
Another important provision involves arbitration as the designated means for settling
disputes between the parties. Transactional
lawyers often include this type of boilerplate
because it seems like an attractive alternative to potential litigation in that it avoids a
jury trial, minimizes lengthy waits on court
dockets and is usually less expensive for the
parties. However, arbitrators operate under
different rules of procedure than do courts,
making the avenues for appeal more limited,
so arbitration may not always be preferable.
A third example is the ‘merger’ or ‘integration’ clause, which typically states that the
contract ‘constitutes the entire agreement
between the parties and supersedes any and
all prior agreements, whether written or
oral, between the parties with respect to its
subject matter.’ The benefit of this provision
is that it clearly identifies the final version of
the main contract between the parties as the
definitive embodiment of their negotiated
terms. However, the drafter should be sure
that this statement is true. Particularly in a
complex transaction, ancillary documents to
the main agreement may contain additional,
or even conflicting, terms that nevertheless
remain part of the overall deal, and existing
documents may cover related issues that are
not intended to be superseded.
VALERIE WOODRICK is an associate with Baker, Donelson, Bearman, Caldwell & Berkowitz, PC who concentrates her practice in business law, corporate transactions, mergers and acquisitions and securities. Reach her at (404) 589-3418 or [email protected].
