Webster’s dictionary offers the following as an alternative definition of the term boilerplate: “tightly packed, icy snow.”
No one would knowingly pay little heed to such a potentially treacherous condition, yet every day in contract negotiation parties devote the vast majority of their efforts to the business terms, while glossing over the “boilerplate” provisions.
Oftentimes, the assumption is “if it ain’t broke, don’t fix it”—that is, those standard (read: boilerplate) terms you used in past contracts will work just as well for you on your latest contract. However, in the event of a dispute, the boilerplate provisions could not only decide the rules of the game, but ultimately who wins or loses.
Two of the most often underemphasized subjects of contract boilerplates are forum selection and governing law. The forum selection provision may specify a location for the dispute resolution that is convenient only to the party who drafted the agreement. This can result in a major expense for a party to travel to the chosen venue to resolve the dispute. The choice of governing law provision is usually friendly to the drafting party and can substantially impact the parties’ rights. For example, differences in two states’ case law or statutes of limitations could strongly favor one side if not carefully considered during the drafting phase.
In the event of a dispute over the meaning of an unclear contract provision, the general rule is that any ambiguity will be resolved against the party that drafted the agreement. In other words, the fact-finder will essentially penalize the drafting party by interpreting the ambiguous provision against it. A boilerplate provision addressing construction of the agreement can level the playing field for the parties on this point by stating that, in the event of an ambiguity, the contract will be considered to have been drafted by both parties, and thus not construed against either.
It is common for small businesses to specify in their contracts that disputes will be resolved by some method of alternative dispute resolution (“ADR”), such as arbitration, rather than litigation.
But is arbitration the better choice? While arbitration can, in theory, be less costly and time-consuming than litigation, there are pros and cons for both that should be weighed at the drafting stage.
Arbitration can lead to a quicker resolution. The parties can select their own fact-finder and can control more of the resolution process than they would in the courtroom. One drawback of arbitration, however, is that the parties must pay for the fact-finder’s time and these fees can be significant. Judges are free to the parties and most court systems push mediation to help settle disputes when possible. Also, some courts are known for speedy resolutions– e.g., the “rocket docket” of the Eastern District of Virginia. If the venue for the resolution of your dispute is such a jurisdiction, litigation may be a better choice for you.
Arbitration may be a downside to some. Since decisions can be virtually impossible to obtain, parties may have to go through a second process in court to enforce an arbitration award and the arbitrator may not issue a written opinion or an explanatory document. Thus, on balance, litigation may be the better option for you, because it is infrequently as simple and cost-effective expected.
A surprising number of contractors fail to consider the impact of a contractual attorneys’ fee provision until it is too late. It is common for a drafter of the contract to include in the boilerplate a provision stating that the loser pays not only for its own attorneys’ fees but the fees of the prevailing party as well. If such a provision is omitted, it is unlikely that either side will have to pay for the other side’s attorneys’ fees, under what’s known as the “American Rule.” Therefore a “loser pays” provision can not only affect but deter litigation, if carefully drafted.
There can be many such “standard” provisions in contracts that may substantially affect the parties’ rights in the event of a dispute.
So, in conclusion, give your contracts a check-up before your next negotiation and don’t just roll out the same boilerplate you have relied upon in the past, or else that “tightly packed, icy snow” might result in a very expensive slip-up.
About the Author: Paul Mengel is counsel with PilieroMazza and leads the Litigation Group. He can be reached at [email protected].