When negotiating contracts, the parties often focus on the “substantive” terms – who pays whom how much, when products will be delivered, and similar issues – as opposed to “boilerplate” legal terms. But these “boilerplate” terms can be critical: they include what law governs, where lawsuits will happen (venue), and whether one invalid part of the contract defeats the rest of it (severance). Other common boilerplate terms include entirety clauses, notice, counterparts, attorneys’ fees, amendments, waivers, and assignments. You should consider all the risks these terms cause before agreeing to them. This article provides a brief overview of some of these critical terms.
Where Your Contract Comes From and Goes: Governing Law and Venue
Governing law and venue clauses are critical for similar reasons: they dictate what state’s law and courts (respectively) will govern this contract. Governing law is critical because your attorney will (usually) only be familiar with his or her home state’s law. Without local knowledge, that attorney might misinterpret a boilerplate term that local courts ready a certain law. Agreeing to apply the law of another state can thus force you to hire a local attorney to ensure you can enforce your contract as intended.
Meanwhile, venue is critical because it determines where you sue – and how far you need to travel if you ever sue (or are sued) on that contract. While there are legal limits on when these provisions apply, courts usually enforce them. I have seen courts send Texan contract cases to Delaware because the drafters used boilerplate Delaware venue – and ignored the cost in both money and time to travel there. What’s more, some state courts have different rules for discovery. For example, the Delaware chancery courts do not let parties do discovery without the court’s prior permission. This is the opposite of Texas courts, which let the parties handle discovery and only weigh in when they absolutely have to. Venue-specific rules like these can greatly hamper your ability to sue – be aware of them before agreeing to venue.
What’s In Your Contract: Entirety Clauses
Most people view the “entirety clause” as a non-critical boilerplate provision. However, an entirety clause becomes critical if you have made or plan to make other agreements on the same subject (such as intellectual-property deals or employment agreements). This is because entirety clauses state what other agreements become part of the current contract – and which don’t. Normally, these clauses eliminate prior verbal agreements or promises (like those made in negotiations) so that only the written contract governs. However, if an entirety clause claims to be the “complete and final agreement with regard to the subject matter hereto,” but does not list other agreements associated with that “subject matter,” it will destroy those prior agreements. This can have devastating effects if your rights depend on those prior agreements – effects that you may not learn about until it’s too late to stop them.
Where the Contract Changes: Amendment, Waiver, & Assignment
Amendments, Waivers, and Assignments all boil down to one issue: THIS AGREEMENT CANNOT AND WILL NOT BE CHANGED UNLESS ALL PARTIES AGREE TO IT. This is common sense for amendments, but is incredibly critical with regard to waiver. After a contract is signed, parties often ignore contractual procedures and use easier or informal paths to get the job done. Without an anti-waiver clause, those “informal” methods can defeat the contract – which means that when the “informal” ways stop working, the party looking to enforce the contract loses the right to enforce the “formal” way. An anti-assignment provision – which stops parties from “assigning” their duties to some third party, or at least requiring notice and/or approval before doing so – is equally important. Without that provision (or notice plus the ability to terminate for convenience), the other party can assign their “duties” to a shell entity, or assign their “rights” to someone – both of which lead to legal trouble if the other party then skips town or breaches the contract.
Beware “Obvious” Omitted Boilerplate!
One final note: ignore any argument from another party that the law already covers the boilerplate term you want in your contract. Why spend the time and money drafting a contract just so have a judge or jury determine your rights like you didn’t have one? Putting everything in the clear, plain language of your contract ensures no one needs to litigate the issue and risk having “obvious” law gut your contract. If you need an attorney to review, draft, or negotiate your next contract, you can contact us by email or call The Spencer Law Firm at (713) 961-7770 today for a free consultation with our attorneys.