Legal Guide

What Entrepreneurs Should Know About Boilerplate Contract Provisions

Don’t be fooled by the innocent looking boilerplate provisions at the end of your contract–they are more important than you might think.

Nearly every contract concludes with a set of standard boilerplate provisions (sometimes called the miscellaneous section). These provisions deal with the interpretation of the contract’s terms and enforcement of the contract. And the slightest little change to any one of them could result in contract-wide effects that might place too much risk on your startup or small business.

In this post we’ll look at 12 common boilerplate provisions that are used to help the parties interpret the contract.

(Related: What is a Contract? Learn the three critical elements of a contract in this guide.)

 

1. Entire Agreement

When negotiating a contract, you’ll likely have a lot of side documents, email communications, redline agreements, and similar documents that lead up to the final draft. This provision says that none of those documents are to be used to change the meaning of the final draft.

 

2. Amendment

It is usually best to state that the contract cannot be amended without the written consent of all parties. This one’s pretty simple, however sometimes it will only require the written consent of the main stakeholders to the contract.

 

3. Waiver

Sometimes a party will choose not to enforce their rights under a contract (for example, they may choose to continue a contract rather than terminating it when payment is just a few days late). However, to prevent that waiver from modifying the terms of the contract (and thus permitting the paying party to pay late again in the future without consequence), most contracts will contain various provisions stating that one waiver shall not be effective unless it is in writing and shall not be used to permit future breaches of the same type.

 

4. Severability

If a judge rules that a certain provision of your agreement (an overly broad non-compete for example) is not enforceable, you probably don’t want the judge to throw out the entire agreement. That’s why you include a statement that all provisions are separate from the others and that if one is thrown out, the others shall remain enforceable. Additionally, you might include a provision instructing the judge to modify the provision to make it enforceable (for example, narrowing the scope of a non-compete).

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5. Assignment

In most situations, you don’t want the other party to a contract to have a right to assign the agreement to someone else (for example, if you hire Bob to cook burgers at your wedding, you don’t want him to be able to assign his obligations to cater to his son Gene). However, sometimes you’ll see an exception that says one party can assign their rights whenever they want, or sometimes only if there is a merger or other change of control.

 

6. Notices

If formal notices are contemplated in the agreement (such as early termination notices), then you might include a provision outlining how notices must be delivered (for example, in-person, overnight courier, email, etc.), where they must be delivered (the exact address that must be used), and when delivery is effective (for example, one day after being properly sent via overnight courier).

 

7. Counterparts, Digital Signatures, & Copies

Many contracting parties don’t meet in person to sign contracts. Rather, they each sign a separate copy of the contract (a “counterpart”). This provision says that, collectively, all signature pages are to be placed together to form one contract. Additionally, while not technically required, we like to include a statement that digital signatures are permitted and that a party may rely on a photo copy of the agreement. (Related: Learn how to properly identify parties and use the right signature formats in this guide; and learn how to use e-signatures in this guide.)

 

8. Governing Law

Many non-lawyers don’t realize this, but just about any court in the country can apply any other state’s laws. So a court in Missouri can use Delaware law to settle a dispute between two contracting parties. As a result, it is important for the parties to agree which state’s laws will govern their contract using a governing law provision.

 

9. Jurisdiction

Some contracts will also spell out which court must be used to resolve disputes arising out of the contract. For example, a small company in Missouri contracting with Facebook in California will likely have to agree to use San Mateo County courts (where Facebook is located) to resolve any subsequent contract disputes. Sometimes you won’t have enough bargaining power to change that provision, but whenever possible, don’t agree to a jurisdiction far away from your office unless there is some benefit to doing so.

 

10. Waiver of Jury Trial

Judges decide issues of law. Juries decide issues of fact. Unfortunately, juries can produce unexpected results. That’s why many entrepreneurs choose to waive their rights to a jury trial in favor of allowing the judge to decide issues of fact for disputes arising out of the contract.

 

11. Attorneys Fees

You should always give an attorneys fee provision careful consideration. Typically, what it says is that the losing party in a subsequent dispute between the parties that arises out of the contract will have to pay the winning party’s attorneys fees and court costs. However, you should give thought to how likely it is that you will be the one suing the other party. If it is unlikely you would want to sue the other party, and more likely they would want to sue you, then including an attorneys fee provision might give an unwarranted benefit to the other party.

 

12. Indemnification (and Insurance)

When a party agrees to indemnify the other, it is agreeing to pay for the other party’s legal defense and any assessed damages resulting from a lawsuit if the other party is sued because of the indemnifying party’s negligence. Often, indemnification isn’t very helpful without a requirement that the indemnifying party maintain insurance (because many parties don’t have enough money to pay for litigation and damages without insurance) so you’ll see a requirement to obtain and maintain insurance next to the indemnification provision. As with the attorneys fees provision, it is very important to consider whether you are ok indemnifying the other party, whether you need the other party to indemnify you, and what the scope of the indemnification should include.

(This article is general in nature and is not legal advice.)

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