Contract drafting Featured

7:00pm EDT December 26, 2008

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 vwoodrick@bakerdonelson.com.