There are all kinds of sample contracts available online, and most of them seem like they follow an authoritative and standard pattern with all the language one might expect in a formal agreement.
“Standard,” however, doesn’t mean that a contract is truly useful (or valid). In many instances, those boilerplate contracts that you can find online are full of clauses filled with legal jargon, obscure language and long sentences – all of which can have incredible significance for the future.
What are boilerplate clauses?
Essentially, the term “boilerplate” largely refers to pre-written, fill-in-the-blank contracts with clauses that are used in many similar agreements within a given industry. In other words, they are not customized to the specific needs and intentions of the parties using them but are reliant on industry norms.
While these kinds of clauses can streamline the contract-drafting process and are cheap (or free) to use, the danger lies in assuming they are universally fair – or even that the clauses are “filler” and merely technicalities. When a dispute arises, a single poorly worded clause can end up tilting the legal scales rather dramatically in one party’s favor.
Common boilerplate clauses include:
- Choice of law and forum selection: These clauses ultimately control which state’s law governs the contract and where any legal disputes must be adjudicated. If your business operates in Cleveland but the contract you sign with an out-of-state company says that your disputes must be resolved in California according to California’s laws, you could be forced to spend a lot of time and money traveling across the country to assert your rights or defend yourself.
- Arbitration: Many boilerplate agreements include mandatory arbitration clauses, which sound like they are reasonable and designed to resolve issues quickly and privately. However, they remove your ability to take a case to court when you believe that would favor your side, can limit (or eliminate) your appeal rights and force you to accept an out-of-state arbitrator or one that is chosen by your opponent.
- Indemnification: These clauses require one party to compensate the other for certain specified losses. Unfortunately, unclear clauses can lead to disagreements about scope, or they can be so broad that one party may be stuck with the financial liability for any and all damages – even if they were not at fault for the losses.
- Limitation of liability: These put a cap on the damages that one party can recover in a breach or other situation. That can lead to some shocking outcomes, where an aggrieved party is unable to recover significant losses simply because they are, for example, restricted to the cost of a product rather than the cost of a product and any associated lost revenue by the business.
- Integration clauses: These clauses say that what is found in the contract is the full agreement – regardless of any other discussions or promises. That means, for example, your reliance on the other party’s oral promise over the phone that they’d warranty their product means nothing if it isn’t in that document.
- Third-party assignment: These provisions can permit or prevent one party from transferring its obligations or rights to another. That means your vendor or business associate could farm out their obligation to someone you don’t know and haven’t vetted.
There’s a great deal of danger in assuming that these boilerplate clauses are fair because they’re common. It is important to remember that all contracts and clauses are negotiable, and they can be altered to balance each party’s interests and risks – but only before they are signed.
It is far wiser to have an experienced eye draft the contracts you plan to use and review any you are presented with. A few extra steps upfront can save a lot of trouble, time and expense in the long run.