Why Boilerplate Is Not “Just Boilerplate”

What is boilerplate? Stephen Pinker wrote that “what distinguishes legal boilerplate is its combination of archaic terminology and frenzied verbosity.” The term boilerplate originated in the late 19^th century newspaper industry, where pre-cast iron plates similar to those used in steam boilers were used to print pre-selected articles. In contracts, “boilerplate” means default terms that are not drafted or modified for a particular agreement.

Many people assume that boilerplate can be safely overlooked. Most boilerplate terms are recycled, come near the end of contracts, and don’t affect fundamental issues like price, liability or timing. Overlooking boilerplate can be a big mistake. This post looks at a few boilerplate terms that—depending on how they are drafted—can affect a party’s fundamental rights:

1. Governing Law/Dispute Resolution. Governing law can affect parties’ substantive rights. Dispute resolution can affect where the parties must litigate or arbitrate. The choice of arbitration versus litigation can affect what evidence is admissible. This clause is so essential that we would argue—and have argued—that it is not boilerplate.
2. Assignment. Companies often wrongly assume that a contract won’t be assigned. Businesses are treated as going concerns. It thus becomes easy to overlook an assignment clause only allowing one party to assign or requiring prior approval from the other party. This can cause difficulty if a company is acquired or restructured. If the other party has veto rights, this can often be used as leverage to charge a breakup fee or early termination penalty. Be careful with assignment rights and don’t treat them as mere fluff.   
3. Amendment. Amendment terms often fall short. Many boilerplate amendment terms state that a contract can’t be “amended without a writing signed by both parties.” Note that this clause does not specify what kind of writing or who must sign on behalf of the parties. This ambiguity is often used to justify approval of substantive changes by junior employees over chat or email. A well-drafted amendment clause requires approval by authorized representatives only.
4. Entire Agreement/Merger Clause. If you’ve ever negotiated a contract, you have probably been promised something not included in the written document. Merger, or integration, clauses state that the written contract is the final and complete version of an agreement. But not all merger clauses are created equal. Some exclude only prior statements, but not contemporaneous statements. Many merger clauses are limited to the agreement’s subject matter—meaning they don’t apply to subjects on which the agreement is silent. Don’t assume from the heading that a merger clause is fit for purpose.
5. Third-Party Rights. This clause is frequently overlooked. This is particularly true in the U.S., which lacks a national equivalent to the U.K.’s Contracts (Rights of Third Parties) Act 1999. Third-party rights clauses clarify that no third party has rights under a contract. The absence of this clause can often be used to justify affiliate rights. Most frequently, it is used to argue that there is an implied license for use of IP rights (e.g., allowing a retailer to use materials licensed by one of its suppliers). A solid third-party rights exclusion clause can help mitigate this risk.

By the time we reach the bottom of a contract, we are ready to wrap things up. In so doing, we frequently overlook landmines. While the above is only a partial list, the point is to be skeptical and approach boilerplate terms with caution. “Boilerplate” is often not mere boilerplate.

Disclaimer: This blog is for informational purposes only and does not constitute legal advice. Reading or interacting with this content does not create an attorney–client relationship. You should consult a qualified attorney for advice regarding your specific situation. Mehaffy, PLLC disclaims all liability for actions taken or not taken based on this blog.