Why hire a lawyer to draft a contract when so many forms are available on the internet? Because “boilerplate” — standard clauses, usually found at the end of contracts – offer many pitfalls for unwary parties who don’t fully understand what these clauses mean.
One classic problem we often see with boilerplate in contracts drafted by non-lawyers – even form contracts prepared by inexperienced lawyers – is that these clauses may be ambiguous (for example, “Venue may be proper in New Jersey” could be ambiguous if the contract takes place in Colorado). Or, boilerplate clauses may be unambiguous but unfairly favor one side over the other or contain clauses that are not enforceable in Colorado.
In these cases, courts may refuse to enforce these boilerplate clauses. Others might enforce a particular bit of boilerplate that other state or federal courts would not because they may interpret contract language more strictly. We call the courts’ power to interpret contracts “judicial interpretation.” It’s one reason why boilerplate clauses in form contracts can create pitfalls for business owners.
Whether or not boilerplate terms are appropriate and enforceable in a contract dispute depends on a number of factors, such as:
- Whether the contracting parties are both businesses (or “merchants” under the Uniform Commercial Code)
- Whether one or both parties are consumers
- The sophistication of the parties
- Whether consumers had a choice in whether or not to accept the contract
- Whether the parties are represented by attorneys in drafting the contracts
- Whether the clause is enforceable in the jurisdiction (for example, some clauses saying that consumers waive certain rights may not be enforceable)
- The value of the contract – especially when evaluating the validity of liquidated damages clauses
- Whether the clause, buried in boilerplate, is clearly unfair to one side or the other
In a nutshell, when judges review contracts, they get to exercise their right of judicial interpretation and for various reasons may not enforce a contract as written if a clause appears ambiguous or unfair. The potentially uncertainty about the meaning of boilerplate clauses usually surprises people who didn’t use a lawyer but instead signed a form contract.
The other major pitfall with boilerplate in form contracts is that people too often don’t read or understand it. Often we consult with people who didn’t read all the boilerplate in a contract and signed it without realizing that they agreed to – for example – go to court in New Jersey, not Colorado in the event of a dispute.
Having the right choice of forum (that is, the right court where you’d file a lawsuit to enforce the contract) is critical to successfully enforcing a disputed contract. Make the wrong choice – say, New Jersey instead of Colorado – and you may not be able to easily and affordably enforce your contract. These options are usually part of the boilerplate. Read it carefully – don’t fall into a boilerplate pit!
If you’d like an attorney to review your contract, please contact our Business Law Group partner, David A. Closson at [email protected].