This article is written by Chetna Agarwal, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.
Contracts are entered between the parties so that the terms and conditions mentioned in the agreement is duly complied by both the parties but sometimes in future there can be certain situations where dispute or differences may arise between them. At such a point of time, boilerplate-clauses gain a lot of importance. After discussing the commercials between the parties, the Boilerplate clauses are generally placed at the end of the agreement. Boilerplate clauses give direction to the parties to handle a situation that can arise in future.
These clauses address a range of things such as what happens if a document is declared unenforceable, how disputes will be resolved, which laws govern the contract, and more.
For example, A and B enter into a marketing service agreement. A shall provide marketing services to B and B shall in return make monthly payments to A. If both the parties are complying with their obligations perfectly without any hassle then it’s a win-win situation, however, if any one party defaults in performing its obligation as mentioned in the agreement then boilerplate clauses specific to such issue is referred in the agreement and the parties take further steps in the same manner.
Lets have look at certain important examples of boilerplate clauses and how they can be useful to the parties:
- Parties clause: In this clause, the details of both the parties are mentioned. For instance, in case of individual- name of the party, father’s name, age, address, PAN no. In case of legal entity, name of the legal entity, name of laws under which it is incorporated, registered office. Also a particular term is denoted to each party which is used in the entire agreement for referring to such a party.
- Background clause: This clause provides the commercial intention/ purpose of the parties to enter into an agreement.
- Definition and interpretation clause: Certain terms which are technical in nature or such words whose explanation is important to avoid confusion are defined under this clause to give clarity in interpretation of it.
- Costs and expenses clause: This clause helps to determine -who shall pay for the expenses and for which all activities? whether it shall be shared between parties proportionately?
- Dispute resolution clause: If in future a dispute arises between parties, how shall it be resolved? by mediation or arbitration? how many the arbitrator shall be appointed? Everything should be specified for speedy redressal of dispute between parties.
- Force majeure: If the dispute resolution clause is not mentioned, then this clause gains importance when an uncontrollable event occurs and hinders performance of party/parties. Under this clause, the parties decide if in future any unforeseen situations take place and parties are unable to perform their obligations then whether there will be termination? Within how much time the non-performing party has to inform the other party about such non-performance? Any maximum period upto which non-performance can be beared without terminating the agreement?
- Governing laws & jurisdiction clause: This agreement shall be governed by which laws of which country (in case of international contracts)? Parties also need to see whether the terms which are agreed in the agreement is permissible under the governing laws? Governing laws helps to give direction to the parties under which relevant acts and provisions an action can be taken by the party in case of disputes. Jurisdiction- in case of disputes, which courts shall have jurisdiction to entertain the case? It is recommended to provide exclusive jurisdiction with regards to convenience of the parties (the residence of parties, place of business, etc.).
- Entire agreement clause: This clause states that both the parties have understood the terms and conditions of the agreement. No other terms and conditions in whatsoever manner shall be considered to be accepted other than what is mentioned in this agreement.
- Variation clause: The parties can decide to insert such a clause to avoid any confusion in future in case any changes are made in the agreement, such changes shall be valid only if both the parties have reduced the same in writing.
- Severance clause: If in future any part of the agreement is considered invalid, such clause prevents the entire agreement to be considered invalid.
- Prevalence clause: This clause mentions the overriding effect of this agreement in comparison with any other agreement or document made in writing by the parties. It means that if any other document or agreement is in conflict with this agreement then clauses of this agreement shall prevail.
- Notice clause: The specific procedure to be followed for a valid notice is mentioned in this clause. It mentions the name, address, email ID of the parties for sending any notice to one another. This clause also mentions the mode of sending a notice.
Importance of Boilerplate clauses
- Boilerplate clauses are often considered to be of less importance but its importance is however recognised when there is some hindrance in the smooth functioning of obligations by the parties.
- Boilerplate clauses are life-saviour when there exists difference between parties.
- Boilerplate clauses give parties a roadmap to move forward and complete their obligations as mentioned in the agreement in compliance to all the rules and regulations when there are disputes or differences between the parties.
- A well drafted boilerplate clauses results in smooth functioning and execution on the contract between the parties.
- Since a well-drafted boilerplate clauses helps execution in a smooth manner, it saves lots of time and litigation costs.
Consequence of Overlooking Boilerplate clauses
- In case of difference/disputes, parties often regret inserting a practical and favourable boilerplate clause.
- Neglecting the boilerplate clauses can lead to unintended legal consequences.
- Lack of clarity at the time of dispute or differences between parties.
- On many occasions finding relevance in the standard boilerplate clauses wastes a lot of time.
- Often standard boilerplate clauses copied from other generic agreements fail to solve the dispute/difference between the parties.
Generally, parties are ignorant to take a glance at boilerplate clauses and modify it according to their satisfaction. The importance and legal consequences has to be emphasised by the lawyer who is assisting the parties to draft and execute the final contract.
There are various boilerplate clauses existing but one needs to understand which all clauses are necessary for your agreement keeping in mind the facts and subject matter of the agreement. Lawyers play a very important role in determining suitable boilerplate clauses for an agreement and drafting it in best interest of the parties.
Boilerplate clauses have an important place in a contract and one cannot afford to overlook them. These boilerplate clauses often gain its importance when parties are in a dispute. Therefore, it is recommended that one should not just ‘cut and paste’ them from other standard agreements.
There can be no doubt in saying that boilerplate clauses are as important as operative clauses of contract such as representations and warranties of parties, consideration, term, scope, condition precedent, condition subsequent, etc.
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