how to draft a contract

Boilerplate Contract Clauses and What They Mean

In Blog, Contracts 101 by Shannon Montgomery

You may or may not have heard the term boilerplate before. It’s just another fancy word used by attorneys to describe the standardized language used in contracts. And although not all contracts contain the same boilerplate language, many do and I think it will be helpful for you to know what the heck some of those things mean.

If you Google a basic service agreement, or maybe a website terms of service, you’re going to see some of this language in there. And, if you start utilizing contracts within your business (like you should) and drafting them on your own, maybe you will want to include some of these things. Let’s take a look at the most standard clauses found in the majority of contracts.

Alternative Dispute Resolution or Arbitration Clause

These are thrown into almost all contracts, and yes, I put them in a lot of the ones I draft as well. An ADR provision or arbitration clause states that any dispute arising from that contract must be resolved outside of court. The mechanism for solving this dispute is known as arbitration. Arbitration clauses range from 2 sentences to 4 pages depending on how detailed the person drafting the contract wants to get. Some will explain how many arbitrators will be involved, what rules will apply (because there are more than one) and where the arbitration will take place. This is a pretty brief overview if you want to find out more about them.

Severability

You will undoubtedly see a severability clause in any contract you sign. This is important because this is the clause that allows a court to sever (or take out) an invalid provision from the contract, and still keep the rest of the agreement in place. This is helpful for obvious reasons. For example, if an employment agreement contains a non-compete in a jurisdiction that does not allow non-competes, but there is a severability clause, the court will allow the remainder of the contract to stay in place so that the employment relationship can be preserved and the issue can be solved.

Force Majeure

Personally, this one makes me feel smart just saying it. But the reality is, it isn’t that cool. All this clause states is that if an “Act of God” prevents either party from complying with the agreement, then the agreement will be suspended until that event is over and both parties can continue with the agreement. Think unforeseen disasters such as hurricanes and major floods. If you live in the Southeast having one of these in your contracts can be important during hurricane season!

Indemnification

Sounds scary right? It isn’t. This clause is put in just about every single contract no matter the industry or purpose of the agreement. In this clause, one party agrees to cover the costs of certain disputes brought by a third party. In other words, if someone outside of the agreement sues one party the other party to the agreement will take the hit. These are used for a variety of reasons and are good practice to include in your agreements.

Choice of Law and Jurisdiction

This one is easy to understand. It literally just says what state’s laws will apply, and where a dispute or claim can be brought. So, if you’re drafting the agreement, you will likely want this clause to reflect where you and your business are located because that will be the easiest for you.

Costs and Attorney’s Fees

Having this clause in your agreements will make it much easier for the winning party of a dispute to get the losing party to pay their legal fees. If you don’t have this clause in place, you may spend considerable time in court just trying to decide whether or not the other side that lost should have to pay your legal fees. Include one if you can!

Waiver

A waiver clause allows both parties to forego suing for breach of a certain clause or provision of the contract without giving up all future claims regarding that same provision. I have also seen them written to reflect the failure to sue or decision not to sue for breach of one clause, does not render the entire contract waived.

Finally, this isn’t necessarily a contract clause but, this word pops up in many contracts and a large handful of my clients don’t seem to know what it means so here we go.

In Perpetuity

This means forever! I see this most often in relation to sponsorship agreements, or brand deals. The sponsor or brand, will often claim rights in the sponsored person or influencer’s name and likeness “in perpetuity” so for the rest of time. Now, sometimes in perpetuity is a good thing. But, sometimes it isn’t. So make sure you know the context of what is happening forever before you agree to anything and sign your life away!

I am going to stop there. Of course, this is not an exhaustive list, in fact, there are probably five to eight more clauses that I could discuss, but for the most part, what you see there are the ones used most often. I encourage you to do some research on boilerplate language and find out when and if you should use that within your agreements. If you have questions or need help reviewing or drafting a contract don’t hesitate to email me at Shannon@montgomerypllc.com.

 

 Please note that this is not meant to be legal advice for you or your situation, this is merely some legal research and knowledge on the given topic.