Springfield Business Journal Articles


Why Boilerplate Matters

When presented with a contract, do you ever look at the last page or two? In the unlikely event that you do, you might be surprised at some of the provisions to which you are consenting. All too often boilerplate provisions contained in many contracts are skipped over. If you actually do ask questions, more than likely the response is that "it's just standard." One dictionary defines boilerplate as "inconsequential, formulaic, or stereotypical language." In the legal world, however, nothing could be further from the truth because so-called "boilerplate" is likely to have serious implications, particularly if a contractual relationship turns adversarial.

One typical provision may be titled "Choice of Law and Venue." Choice of Law, as the name suggests, sets out what law governs the contractual relationship. If your contract is with an out-of-state party and that party drafted the contract, it's likely that the contract will be governed by some other state's law. This may be important if that state has laws that are different than those of Illinois and that, more likely than not, are favorable to the other party.

Venue means the location where litigation will take place. Venue other than in central Illinois federal or state courts means that if you are sued, or want to sue, under the contract you must do so elsewhere. In that event, you will likely have to hire lawyers you don't know, you will have to suffer the inconvenience and expense of traveling to another location, and you will have to face the possibility of getting "home-towned" by a foreign court. Many clients have come to me in this situation only to realize that the prospect of litigating in, for example, New York City makes it cost prohibitive to enforce their rights, leaving them few options other than settling.

A related form of boilerplate deals with arbitration. Arbitration is a method of resolving differences without going to court. In general, an independent arbitrator or arbitrators hear evidence and then rule. However, there are many variations – including whether the arbitration is binding or non-binding. And, in many instances, some arbitration methods may actually result in more legal fees than would be incurred in traditional litigation, especially if the contract states that the arbitration is to take place outside of Illinois. Before agreeing, make sure you know exactly how the process works.

Another boilerplate clause is sometimes titled "Entire Agreement" or "Integration." Typically, these clauses state that the contract embodies the entire agreement between the parties and that it supersedes all previous agreements. In real life, this means that any side-agreements or oral promises not included in the contract are of no force. For example, if the other party induced you to enter into the contract with oral representations that weren't incorporated into the contract, the court will refuse to consider that evidence. The lesson: if it's important to you, make sure it's in the contract itself.

One very common boilerplate clause deals with "Attorney's Fees." The general rule, at least in Illinois, is that the prevailing party in litigation is not entitled to recover its attorney's fees and costs unless the contract states otherwise. In some cases these provisions are one-sided – that is, only one of the parties to the contract is entitled to recover attorney's fees. Needless to say, that hardly seems fair. But, unless you actually read this so-called standard language you will likely be held to the agreement. Again, this fact alone may be enough to dissuade you from proceeding with otherwise meritorious litigation.

The last boilerplate I'll mention is usually titled "Not to Be Construed Against the Drafter." In practice, most contracts are prepared almost exclusively by one of the contracting parties. Absent such a provision, any ambiguity in the contract will be interpreted in the light most favorable to the party who did not prepare the contract. Litigation often turns exclusively on this one issue. However, the inclusion of this type of boilerplate eliminates that type of protection.

Many people view such boilerplate as immutable, innocuous and non-negotiable. This viewpoint is untrue and can produce dire and unwanted results. First, the savvy business person should take the time to read boilerplate or to have legal counsel review it. Armed with knowledge about what the boilerplate means, that same business person can request changes – everything is negotiable. For example, even if the other party won't agree to venue in Illinois, that issue may be left silent – meaning that either side can file litigation in whatever forum they decide. Likewise, in many instances arbitration clauses may be modified or eliminated in their entirety depending on the scope and economics of a given contract. Boilerplate has its purposes, but all too often the same language appears in contract after contract no matter whether it makes sense for that particular transaction. The time you spend deciphering those last few pages might pay large dividends down the road.

by Thomas C. Pavlik, Jr.
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