At first glance, contracts almost always seem too long. They go on for pages and pages—and seem designed to sap the reader’s attention. If the length doesn’t do it, the legalese will.
There’s a good reason for this near-universal condition. It’s the boilerplate—the seemingly interminable legal stuff that usually appears after the business terms, which are the main reason for the contract. In consumer transactions, contracts may seem to be nothing but boilerplate.
“Boilerplate” inevitably has a negative connotation. The word is derived from outmoded technology. It literally refers to iron or steel plates from boilers but came to describe printing plates with standardized text distributed to newspapers for filler. Boilerplate is the standardized language or “fine print” many people, including aspiring lawyers, don’t read. A survey of contracts students in law school indicated only 4% generally read beyond the price and product terms in contracts for their own online transactions.
Boilerplate, however, may include the most important parts of a contract, the provisions that anticipate disputes. These provisions establish (1) the rules for interpreting the contract, (2) procedures for resolving disputes and (3) remedies in the event of disputes.
Although the law provides default rules for courts to apply if the agreement does not specify them, it is often best to have the certainty of rules spelled out. This may minimize wrangling over the preliminary rules that will apply to decide the dispute, and the party drafting the agreement may attempt to tilt the playing field for its benefit. According to some legal scholars, the proliferation of boilerplate is part of a shift in the law from reliance on government (and particularly courts) to resolve disputes to letting the parties establish their own rules. Courts determine the meaning of contract provisions and whether to enforce them, but what is in the contract will usually govern, unless it is overridden by a specific statute or public policy, or is unfair or “unconscionable” given the parties’ relative strengths or how they dealt with each other.
Even if there is a dispute, boilerplate might not be applied. A party which would benefit from a contract provision may usually decide whether to hold the other side to its requirements. In other words, the party has discretion to determine which contract provisions to strictly enforce and which to waive. But if the provisions aren’t in the contract to begin with, the party won’t have the flexibility to waive or enforce what might be critical.
Here are some common provisions in boilerplate and reasons for them:
- Interpreting the Contract Choice of Law.
If a contract involves parties from different states, one of the first issues that usually has to be decided in a dispute is which state’s law should be used to interpret the contract. The parties may avoid a dispute on the issue by designating the governing state law in their agreement. Their designation will usually be enforced if it is reasonably related to the parties or the transaction. The law of the state that is chosen is used for interpreting the contract, and the statutes of that state (which are likely to establish significant rights and remedies) are likely to apply.
Integration and Merger Provisions.
A contract often follows extended negotiations and the parties might have reached preliminary understandings and exchanged information during that process. The contract may provide that it is the parties’ entire agreement and that, for example, preliminary understandings, comments during negotiations and drafts of documents should not be considered part of the final agreement.
- Procedures for Resolving Disputes
Alternative Dispute Resolution.
The agreement may specify procedures for resolving disputes instead of or in addition to going to court. Binding arbitration, in which a private individual (or a panel of individuals) designated by the parties will decide a dispute, may be designated as the sole procedure for resolving disputes. As an alternative, the agreement might require that before filing a lawsuit or commencing arbitration, the parties must attempt to resolve their dispute through discussions with a mediator designated by the parties.
In a multistate transaction, there might be a number of states and courts in which a party may attempt to file a lawsuit. To avoid or minimize the vagaries that may result (and the costly litigation just to decide where the case should proceed), the parties may agree in their contract to an “exclusive” jurisdiction or venue for a dispute, which will be the only place they may file a lawsuit or conduct arbitration or mediation concerning their agreement. A party might also consent to jurisdiction in a particular court or location and so will not challenge proceeding there.
Parties are entitled to a jury trial in many types of civil disputes, but a contract provision waiving the right to a jury will usually be enforced.
- Remedies in the Event of Disputes
Boilerplate provisions often bar significant relief that otherwise might be available. For example, punitive damages or damages based on lost profits might not be available because they were waived in the contract. As an alternative for situations in which actual damages would be difficult to calculate if there is a breach, a contract might specify “liquidated damages,” which are the amount of damages that can be recovered or a formula for computing them.
Under the so-called American Rule, each party to a lawsuit usually is responsible for the attorneys’ fees and costs it incurs for a lawsuit, but that can be changed by contract or statute. A contract provision that the party prevailing in a lawsuit may recover its reasonable attorneys’ fees and litigation expenses is usually enforced and may make a significant difference, provided that the judge can determine who among the plaintiffs, defendants or other claimants are really the prevailing parties. Although boilerplate makes a contract longer, there are times when it is important. Brevity is a worthy goal, but one might regret a contract that is too brief.