6 ‘Boilerplate’ Clauses That Are Important In A Contract

One of the things that make entrepreneurs so great is they love to be able to figure out how to do things on their own. One of the things they do is to draft their own contracts. There are probably a number of reasons for this including they know what they want and would rather not pay an attorney. While this may seem to be a way to save a few dollars, in the end, it may end up costing more.  

A common way this happens is the entrepreneur turns to Google and searches for the type of contract they want. For example, searching for “supply contract” will bring up a number of websites that offer to provide a “free” contract. Keep in mind that you get what you pay for. Here is a little inside baseball. Attorneys use these “free” forms, too. But, there is a difference. While the entrepreneur will download the free form and use it, “as is,” the attorney will use this form as a starting point.  The attorney will want to see certain types of language or clauses relating to the purpose of the contract.

Beyond that, there are going to be certain sections of a contract that attorneys will include in virtually all contracts that they draft that may not be in the free forms. Here are a few:

1.                 Attorney’s fee provision. If you need to sue a company for failing to comply with the terms of the contract, you will need to hire an attorney. Who pays for the attorney? Under the American rule of law, each side is responsible for their attorney fees unless there is a statute or contract that provides for the payment of fees. So, one of the things you will want to include is an attorney’s fee provision. In an ideal world, you will have this drafted so that your side gets the fees paid, but not the other side. Note a few things. If the other side has drafted the contract and has a one way attorneys fee provision, you need to make sure it is reciprocal, that the winning side gets their fees paid. Another thing to keep in mind is that the attorney’s fee provision should not be limited just to a lawsuit, but to anything your attorney will need to do to protect your interests, including sending letters demanding payment. An attorney’s fee provision may even be able to keep you from needing to file a law suit. If there is an attorney’s fee provision, you can have your lawyer write a letter to the other side, saying “if you don’t pay and we have to sue, not only will you owe the money under the contract, but you will also have to pay my legal fees as well.” Often this is enough to get the other side to pay. 

2.                 Venue and Jurisdiction. Let’s say you are in New York and the other party is in California. If there is a lawsuit you will want the case to be in New York, not California. That is called “venue.” Your contract should include a venue provision that says the place where a lawsuit will have to be filed. This provision is valid, so long as there is a connection between the parties and the venue. In other words, if your company is in New York and the other company is in California, you can’t say that a lawsuit needs to be filed in Illinois (unless there is a connection to Illinois). Jurisdiction means that the court has the authority to hear a case. There are two types of jurisdiction, subject matter and personal. Subject matter means that the court can hear the type of lawsuit being brought. For example, the subject matter of a federal court exists only if there is a federal statute or “diversity” among the parties. Personal jurisdiction means the court has that ability to make a decision regarding the parties. While you can’t create subject matter jurisdiction where it doesn’t exist, you can get the other party to agree to personal jurisdiction.

3.                 Choice of Law. Similar to venue, the contract can say which state law will govern. This is important as even though most contract law is the same everywhere, there may be important differences. You are going to want the law of your state to be the law that is used.

4.                 Arbitration or Law Suit. If there is a need to sue on the contract, do you want to go to court or go through binding arbitration? If you want to go to court, do you want to see if you can do it without a jury (you can have a waiver of the right to a jury trial included in your contract).

5.                 Integration. An integration clause is one that says the four corners of the contract are what govern and any earlier discussion means nothing. In other words, all of those discussions you had before the contract was signed? Irrelevant (other than in certain, very limited, circumstances).

6.                 Severability. A severability clause is one that says if one or more portions of the contract are knocked out for one reason or another, the rest of the contract is still good. This is important because you don’t want to be in a position where the entire contract is eliminated just because one clause is no good.

As you can see, these seemingly small clauses can have a major impact on your contract. Bottom line, while you can certainly write your own contract, you should consider contacting a contract attorney to do the drafting. This is a small investment that can result in large savings.  

Rob Bovarnick is the managing partner of Bovarnick and Associates, www.rbovarnick.com, a Philadelphia-based business law firm representing businesses and entrepreneurs in general corporate and business matters; litigation; and business bankruptcy. Rob can be reached at rmb@rbovarnick.com.