They’re in almost every contract. In boilerplate. Written in legalese, making it worse. Glazing over your eyes from reading and trying to make sense of the parties to the contract, their obligations, and responsibilities. Peppered throughout, but more heavily at the end when you’ve read enough, there’s these handful of terms you’ve seen before in boilerplate. So instead of reading them carefully, and paying close attention you skim. A single change to these boilerplate clauses can have significant impacts to your rights under the bargain. When you come across these contract terms, read them carefully, and know what they mean.
A purpose of a contract is to reduce and allocate risk. Indemnification clauses allocate risk. For example, an indemnification clause might read; if Party A breaches the contract, and injures Party B; Party C is to pay for Party B’s losses. There are may reasons companies enter into these arrangements. It’s important you understand these clauses so you’ll know what you’re responsible for and to whom.
Non-Violation clauses make certain the parties signing the contract are not breaching someone else’s rights by doing so. Companies want reassurance in writing that you are not violating the rights of any other party. Hence the, non-violation clause. As your business grows you’ll need to organize your files in a database.
Since more than 1 in 10 Americans workers are subcontractors or 1099 filers. And since businesses make more profit from these arrangements, subcontracting clauses are ever present. If your business is dependent on subcontracting, make sure your contracts allow you to do so.
Dispute resolution clauses say what happens if there’s a conflict. Not all disputes have to go to court if something goes wrong. Some might go to arbitration or mediation. These are separate legal procedures with different remedies. By law, Colorado parties are required to go to some form of mediation before having a trial. Going to small claims mediation is way less expensive than going to arbitration. For instance, several Colorado judicial districts provide free small claims court mediators immediately before trial. On the other hand, arbitration can be expensive. Know what the mediation or arbitration process and costs are before signing.
Governing Law and Venue
This one is so important, but so overlooked. Since, no two state’s laws are the same if you’re signing a contract which is applying laws from a state other than Colorado, and is claiming legal jurisdiction other than Colorado, a red flag should go up. For instance, a contract in Colorado stating the laws of New Jersey apply, you can expect New Jersey law to apply even if the matter is litigated in Colorado. Moreover, if the contract states all matters will be litigated in New Jersey, then you’ll have to find a lawyer in the Garden State. If governing law and venue clauses are outside of Colorado, make sure you have access to legal expertise, in the out-of-state jurisdiction, as well as Colorado.
Order of Precedence
Pay attention to order of precedence clauses. If you have many agreements relating to one another such as; a master services agreement, purchase orders, statements of work, and amendment letters, a clause should exist to specify which agreement governs if there happens to be a dispute. Confirming this in the beginning could save you time and money.
Force majeure is a French phrase meaning “superior force.” It’s also a common boilerplate clause, which has the effect of excusing a party’s under a contract when a certain event beyond the party’s control happens. These clauses are often at the end of contracts. Be sure to include in its list of force majeure events references to epidemics, pandemics, contagions, and government orders relating to them. You may even want to reference the COVID-19 pandemic and include examples of events related to the COVID-19 pandemic, such as travel restrictions or business closings. The more specific you can tailor the contract, the more likely it is that the force majeure clause will be effective.
Some contracts state who the authorized signatory is in a clause; whereas in other contracts the person implied has their name appearing under the signature line. Check to see who exactly who the person is, and make sure the person actually has legal authority to sign on behalf of their company. Often, contracts are signed by someone without the legal power to do so, may result in the contract being void.
Little things make all the difference. Be sure to read your contracts carefully and pay particular attention to these boilerplate contract clauses. Remember the devil is in the details, and small changes in the language could have grave results.
This article is for educational purposes only, and does not constitute legal advice about your case or situation. There may be exceptions to the information outlined above. Please consult an attorney if you have specific questions about your business.