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Boilerplate in Contracts ... a Dangerous Thing to Ignore

Written by: Marijo McCarthy

Article Overview: Recently, one of my clients called me in a panic because his company had been sued ... in Texas, no less! He wanted to know why and how and what to do about it. As it turns out, he entered into a contract with a vendor two years ago, never had the contract reviewed by counsel (since it was "just a few pages of boilerplate"), and now, sadly, has to spend time and money trying to protect his rights in a state to which he has never even traveled!

Boilerplate in Contracts ... a Dangerous Thing to Ignore

Recently, one of my clients called me in a panic because his company had been sued ... in Texas, no less! He wanted to know why and how and what to do about it.

As it turns out, he entered into a contract with a vendor two years ago, never had the contract reviewed by counsel (since it was "just a few pages of boilerplate"), and now, sadly, has to spend time and money trying to protect his rights in a state to which he has never even traveled!

"Can they really sue me in Texas?," he squawked in frustration.

After reviewing the contract, I had the unhappy job of explaining what it meant when he agreed to "jurisdiction in the State of Texas" for all matters relating to the contract. Even worse, I had to explain what it meant to have agreed in writing that the "losing party in litigation pays the legal fees and costs of the winning party!" That, my friends, is an example of boilerplate you do not want to ignore.

What can you do to prevent such unpleasant surprises? Well, that's why we "negotiate" contracts.

Sometimes, you can effectively change the outcome of some of these kinds of provisions. Other times, while you can't change the outcome, you can at least be better prepared for the possibility. Sound like typical lawyer waffling? Maybe yes, maybe no (a little lawyer humor here!).

Every deal into which you enter is supported (I hope) by a written contract ... a contract which contains lots of provisions, some of which are negotiable, some of which may not be ... depending upon the relative strength or weakness of the parties, the deal itself, the market into which you sell, the industry, etc. All of these things impact your ability to negotiate.

For example, if you own a two-person consulting firm and you are about to enter into a transaction with Microsoft (now there is a boilerplate contract!), do not expect to negotiate any of the boilerplate. Your review of that contract, under those circumstances, should be limited to the practicalities of (a) confirming the business terms; and (b) understanding how the balance of the contract may affect you in the future.

So, to return to my client's example, if his contract had been with Microsoft, he should have expected to have to resolve all matters in accordance with the laws of the State of Washington, whether within the walls of its courts or through arbitration (another nasty little surprise buried in the boilerplate for those who merely scan contracts before they sign them...egad!). If, however, his contract had been negotiated with a peer, he should have considered which of the provisions were essential to the deal, which weren't, and proceeded to negotiate accordingly.

To summarize, here are a few tips which should stand you in good stead the next time a "boilerplate" contract comes flying through your e-mail:

Do not assume that a contract is always non- negotiable boilerplate. Consider the elements of the deal before you make that assumption and, even then, confer with a more objective voice of experience.

If it is non-negotiable (e.g. Microsoft), understand the ramifications of what you are agreeing to. That is, after all, what you have done when you sign the contract.

If it is non-negotiable, weigh the pros and cons of moving forward with that contract in the first place. Yes, that's right, do not always take that final step if you are uncomfortable with the written contract and the other party is intractable about any revisions. Remember that two parties enter into a contract which, by itself, envisions some compromise by each party (unless you are the 800 pound gorilla in the industry). If you find the other contracting party that rigid at the beginning of the transaction, think about what it will be like to work with them and consider just saying "no!".

Review all contracts thoroughly. Do not give short shrift to the boilerplate ... it may come back to haunt you. And always, always, consider highlighting your areas of concern ... being reasonable and practical as you do so ... and discussing them with the other party. You will be amazed at the result.

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Article Tags: boilerplate, contracts, jurisdiction, law suit, negotiation



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