Almost all contracts contain standard provisions which are frequently ignored by the parties and attorneys.
Most provisions in a contract reflect specific terms of the transaction to which the parties have agreed. Contracts But, there is often included a set of standard “boiler plate” provisions that a reader would find in most contracts. These boiler plate provisions are more often than not ignored by counsel and the parties, themselves.
Their purpose is sometimes obscure but they, nevertheless, can serve an important function in mitigating, if not eliminating, a series of common risks, which, if ignored, can lead to costly disputes.
These are six most common components or provisions of contracts:
1. Severability Provisions
The purpose behind a Severability Provision is to address the circumstance where a court or tribunal has found a contract to be, in part, unenforceable. This provision clarifies that should a provision of an agreement be found invalid or unenforceable that the remaining provisions of the agreement shall, nevertheless, continue to be valid and enforceable. Most often this provision, by party agreement, also provides that the court or tribunal be empowered to limit an offending provision in such a fashion as to avoid it invalidity.
2. Assignment Clauses
These provisions clarify that the obligations and duties assumed by the parties under their agreement cannot be assigned to third parties that are strangers to the transaction. But these provisions should be considered with some care, especially in situations where there is a prospect that one party, or the other, may be merging with another company or selling a substantial portion of its assets to a third party, or desires to have the contract undertaken by a parent company, subsidiary or affiliate. As such, in drafting provisions intended to restrict assignments, one should not ignore possible changes in corporate relationships that may require one.
3. Integration Provisions
All contracts, generally, contain “integration clauses”, which provide that the agreement entered into by the parties constitutes the “entire agreement” between them with respect to the matters addressed and supersedes all previous agreements entered into by the parties. This provision precludes the prospect of one or the other party attempting to vary the terms of their agreement by referencing previous agreements which may have contained different, but comparable terms. Integration provisions are rarely litigated, but should, nevertheless, not be taken for granted since it may not always be the case that the parties actually intend prior agreements to be superseded. For example, in one case, a caterer had entered into an agreement with a landlord concerning the use of facilities for certain specified events.
In a subsequent contract concluded by the same parties, the catering price term had been altered, which created a dispute as to whether events scheduled under the terms of the first contract, but which took place after the second contract came into force, were governed by the new price term. In the latter scenario, the earlier agreement should have been carved out as an exception to the second agreement’s integration clause.
4. Interpretation Provisions
In many jurisdictions, local law provides that ambiguities in drafting are construed against the drafting party. Interpretation provisions serve to circumvent this Common-Law rule by providing a representation that the agreement was jointly drafted by the parties.
5. Modification and Waiver Provisions
These provisions allow the parties, without the need to exchange new consideration, the authority to modify an agreement so long as both parties agree in writing.
Waiver provisions provide that a party’s waiver of a breach of terms shall not serve as a waiver of any subsequent breaches. An example of this circumstance would be if a party were to waive the second party’s due date for payment by affording it an additional period to cure.
A waiver provision would provide that such waiver of what otherwise would have been the breach of a payment term would not constitute a waiver of a subsequent breach of that term.
6. Counterparts Provisions
Traditionally, the parties engaged in a contract closing at which the agreement was signed by all the parties at one time. But, in recent years, where it is often the case that parties are not in physical proximity to one another, drafters have inserted provisions allowing the parties to execute the agreement in separate parts.
Sometimes added to these provisions is the option to allow the parties to exchange signature pages by facsimile, PDF, or by electronic signature, the critical phraseology being that such reproductions shall be considered to be as valid as original signatures for all purposes.
The Take Away:
Boiler plate provisions are ordinarily not the subject of negotiation and so are not, generally, uppermost in the consciousness of parties desiring to complete a transaction. But, these provisions should not be ignored and, under certain circumstances, may need to be modified to address special types of risks associated with the business relationship.
Related content:
Limitation of Liability Provisions in Contracts
More Contracts for Small Business Owners
Non-Disclosure Agreements- Protecting Business’s Proprietary Information
