Boilerplate Language in Contracts: Understanding the Importance of Key Terms

It would be tedious and complicated if businesses had to draft every contract from scratch. As such, a standard form of contract is usually used as it includes all the essential terms of a contract that can be used as a base for every business transaction. One set of clauses you are bound to encounter within these standard contracts is boilerplate terms, a set of standard clauses that appear towards the end of every contract. Boilerplate terms are legal terms and conditions which help protect your rights in business transactions. While they do not change from contract to contract, they are nonetheless very important as they pertain to essential rights and are needed to make contracts enforceable.

What are boilerplate terms?

Boilerplate terms are a standard set of clauses that appear at the end of every contract. They can be modified to be in favour of one party over the other.

If you have a standard form of contract which includes boilerplate terms that can serve as your go-to document when you wish to enter a contract with another party. It will help expedite the contract negotiation process, protect your rights in every transaction, and ensure there are no loopholes in the contract.

The most important boilerplate terms in a contract are:

1. Indemnity

2. Limitation of Liability

3. Confidentiality

4. Notice

5. Dispute Resolution

6. Governing Law

7. Jurisdiction

8. Amendment

9. Assignment

10. Force Majeure

11. Severability

12. Attorney Fees

13. Warranty

14. Conditions

15. Termination

16. Interpretation

17. Announcement/Publicity

18. Other Miscellaneous Provisions

Why are boilerplate terms important?

Boilerplate terms are often overlooked because they are dull to read and complex to understand. People, therefore often tend to focus on the operative terms of the contract such as the scope of service, payment terms, late fee charges, responsibilities of both parties, etc. However, it is important to review the boilerplate terms as they can have a significant impact on your business.

Are you drafting a contract? Confused about what to include in the contract? Or worrying if you're missing any important clause in your contract? Here is a list of all the important clauses with a sample template that will ensure your contract/agreement does not have loopholes:

1.     Indemnity

An indemnity clause is an important provision in a contract because it transfers the risk of loss, damage, or liability from one party to the other. It enables you to require the other party to pay for the damages suffered by a third party. Therefore, when negotiating a contract, you must clarify who is responsible for the loss or damage suffered by a third party. You might want to be even more specific and set out who is to bear the damages in case of third-party claims for IP infringement.

How do you write an indemnity clause?

Indemnity is one of the most negotiated provisions in business contracts. The clause must outline:

• the scope of indemnity, i.e. it should be limited to third-party claims;

• a maximum cap on the damages;

• definition of the indemnifiable acts;

• the procedure for making claims, hiring counsel, making payments, etc.

2.     Limitation of Liability

The limitation of liability clause limits the number of damages one party must pay the other party for breach of contract. It enables you not only to put a maximum cap on the damages that can be recovered but also exclude liability for certain events and consequences.

How do you write a Limitation of Liability clause?

The terms of this clause must be carefully drafted and negotiated due to its significant impact on the business. It must outline:

• the scope/applicability: the terms can be very broad to cover any claim arising from the contract or narrow to cover only certain types of claims arising from the contract;

• a reasonable cap on the number of damages that can be recovered in case of claim; and

• the exclusions to limitation of liability such as consequential losses

3.     Confidentiality Clause

Confidential information will inevitably be exchanged between you and other parties while conducting business. Therefore, you must bind the other parties with confidentiality obligations to ensure that the exchange of confidential information does not lead to unauthorized use/disclosure.

The confidentiality clause prevents any unauthorized disclosure of confidential information to a third party and restricts the use of disclosed information to the purpose agreed to by the parties in the contract. Simply put, it protects the information exchanged between you and the other party during a business transaction from unauthorized use/disclosure. 

You have two ways to protect your confidential information: either by executing a non-disclosure agreement or by including a confidentiality clause along with other terms and conditions in the contract. The latter choice is preferable when the disclosure of confidential information is not significant. For instance, if you are selling a product to a customer, then the exchange of confidential information is minimal, and a confidentiality clause in your ‘contract for sale’ would suffice.

How do you write a confidentiality clause?

A confidentiality clause identifies:

• What constitutes confidential information?

• What information is excluded from being confidential information?

• In what circumstances can the confidential information be disclosed to a third party?

• What is the intended use of confidential information?

• Duration of the confidentiality obligation

• Confidentiality obligations of the parties

• Remedies are available to both parties in case of breach of the confidentiality provisions.

4.     Dispute resolution

A well-drafted dispute resolution clause sets out the mechanism for the resolution of disputes between the parties to a contract. Generally, this clause gets less focus compared to the commercial terms of the contract like payments, the scope of service, etc. However, it is vital to consider the process for resolving disputes between you and the other party despite it being unforeseeable in the early stages of contract negotiation.

How do you write a dispute resolution clause?

There are several options for dispute resolution, such as litigation, negotiation, mediation, or arbitration. Each option has its advantages and disadvantages. You can choose the option that suits your business needs.

Here is a quick breakdown of each option. Litigation requires going to court for resolution; however, it is expensive, time-consuming, and more public. Negotiation and mediation are comparatively less contentious processes. Arbitration is a popular choice as it is private, fast, and informal. It enables the parties to stipulate details like the number of arbitrators, arbitration procedure, the format of the award, the duration of the trial, etc. Unlike traditional litigation, arbitration gives the parties more flexibility and control over the dispute resolution process.

5.     Notice

The notice clause lays out the mechanism for giving and serving notices by one party to the other.

How do you write a Notice clause?

A notice clause provides:

• if the notice can be oral or written;

• for the delivery mechanism, i.e. deliver personally, fax or registered post or any other manner agreed by the parties; and

• when the notice is deemed to be received.

6.     Choice of Law/Governing Law Clause

The governing clause reflects the parties’ agreement on which law will govern the contract in case of a dispute.

Generally, it is wise to maintain consistency between the governing law and jurisdiction clause, i.e. if the parties choose to submit disputes in Indian courts, then they opt for the application of Indian laws to adjudicate the dispute. However, you can technically choose any governing law based on the location of the parties or the type of transaction involved.

How do you write a governing law?

The governing law is used to interpret the terms of the agreement by the court. It must be expressly stated in the contract to avoid any issues later that may delay the litigation proceeding.

7.     Jurisdiction clause

The jurisdiction clause indicates which court will have the jurisdiction to resolve disputes arising from or connected to the contract. It must be expressly written in the contract. In the absence of a jurisdiction clause, the court will decide for you, which results in additional fees and a delay in litigation proceedings.

How do you write a jurisdiction clause?

Generally, the jurisdiction clause can be:

• Exclusive. This means that disputes should be submitted to the exclusive jurisdiction of a particular court; 

• Non-exclusive. This means that disputes should be submitted to the courts of a particular jurisdiction without prejudice to the right of the other party to commence legal proceedings in the court of any other jurisdiction.

8.     Amendment

A provision for an amendment is an essential element in every contract. It enables the parties to modify the contract through the addition or deletion of the terms and conditions. The changes, however, can be subjected to the consent of the other party to ensure they are mutually agreed upon.

How do you write an Amendment clause?

The clause sets out the process for making a valid amendment to a contract. Generally, it requires that the proposed changes must be in writing and signed by both parties. This ensures that neither party can modify the terms of a contract without the consent of the other party. 

9.     Assignment

An assignment clause states whether you can transfer your set of contractual rights and obligations to a third party.

How do you write an assignment clause?

Contracts generally provide for the assignment of contracts with the consent of the other party. In this case, the contract must state:

• whether the agreement can be assigned in whole or in part;

• consent and notification requirements; and

• conditions for assignment of duties, if any.

If an assignment is not permitted, you can include a non-assignment clause to prevent both parties from assigning the agreement in any circumstance whatsoever.

10.  Force Majeure

What is a force majeure clause?

Force majeure clauses exempt a party from performing their contractual obligations due to reasons beyond their control, such as natural disasters, floods, and other ‘Acts of God’. The provision usually provides an exhaustive or non-exhaustive list of events that qualify to be force majeure events.

How do you write a force majeure clause?

Typically, a force majeure clause stipulates the following:

• definition of a force majeure event;

• exemption of liability for the party unable to perform its contractual obligations;

• for issuing a notice of an occurrence and anticipated duration of the force majeure event; and

• action is taken to avoid or mitigate the event.

11.  Severability

What happens in the circumstance where part of the agreement becomes invalid or unenforceable? With the severability clause in the contract, if part of the agreement becomes invalid, then the rest of the agreement remains unaffected and continues to be valid. This clause, therefore, ensures that the terms of the agreement exist independently of each other and that the invalid provision can be severed from the rest of the agreement.

How do you write a Severability Clause?

The clause must reflect the intention of the parties regarding whether the contract is severable or not. Further, it should clearly state what is to happen if any clause of the contract is found to be invalid, i.e. whether the remaining part of the contract will continue to be enforceable or not.

12.  Attorney Fees

Litigation can be a long and expensive affair for dispute resolution. Many times, the cost of pursuing litigation exceeds the number of damages that can be recovered. Therefore, a provision for attorney fees becomes essential when negotiating a contract. It gives the right to recover reasonable costs and attorney fees that you a party incur in enforcing the contract.

How do you write an attorney fee clause?

Simply put, the clause provides that the losing party must pay the attorney fees and all costs incurred by the winning side to pursue the legal dispute. The cost can include filing, court, and serving summons fees, etc. 

The attorney fee clause can be unilateral or mutual. If unilateral, it will allow only one party to recover the attorney fees regardless of the party winning the dispute. However, a reciprocal provision allows the winning party to recover the attorney fees from the losing party.

13. Warranty

A warranty is an assurance or a promise given by one party to another regarding the condition of a product. It also provides the remedies available in case of breach of the warranty such as repair or replacement of the goods.

How do you write a warranty clause?

The warranty clause states where the responsibilities lie for repair, replacement, or refund for a breach of warranty. It should be carefully drafted and reviewed since it can result in liability for the party in breach. If you are giving a warranty for your products, you must exclude your liability for damages caused by normal wear and tear or negligence of the other party; you should also reserve the right to investigate any claim for breach of warranty.

14. Conditions

Traditionally, contracts have differentiated between terms of a contract which the courts have described as "conditions" and those which the courts have described as "warranties". Note that "condition" in this sense is different from a condition that has to be satisfied before a contract exists or a particular obligation becomes enforceable. Warranty in this sense is also different from the way it is used to describe a representation in the contract, for example, that the vendor is the legal and beneficial owner of the goods to be sold.

If one party to a contract is in breach of a term which is a condition, this entitles the innocent party to choose not to perform his obligations under the contract and claim damages for loss as a result of the breach. Alternatively, the innocent party can decide to proceed with the contract. If a party to a contract is in breach of a term which is a warranty, the innocent party can only claim damages for breach of warranty, but cannot treat himself as discharged from the contract. Terms are sometimes described as "intermediate terms" (breach of these may, depending on the nature and consequences of the breach, entitle the innocent party to treat himself as discharged from the contract) and "fundamental" terms (which go to the heart of the contract, where the substance of the agreement is destroyed if the term is not met). A representation (i.e. a statement made before the contract is entered into) can become a term of the contract and can then be a "condition", a "warranty" or an "intermediate-term".

15.  Termination

This clause allows the parties to end a contract for a specified reason such as breach of contract, force majeure, solvency, etc. 

How do you write a termination clause?

Termination clauses have two essential parts:

• grounds of termination  i.e.describing the circumstances in which the party is entitled to terminate a contract

• notice of termination i.e. a formal notice to the other party that the contract will terminate on a certain date.

16. Interpretation

The interpretation clause sets out the rules for interpreting all the clauses of the contract in the manner intended by the parties. It deals with the general interpretation of the agreement.

In absence of an interpretation clause, the courts will interpret the contract based on the common-law principles and not in the manner intended by the parties.

How do you draft an Interpretation clause?

In comparison to the other core clauses of the contract, the interpretation clause is mostly standard and similar to commercial contracts. Generally, the clause sets out the rules for construing the heading, references to statutory provisions, gender, and other different terminologies in the contract to avoid any ambiguity.

17. Announcement/Publicity

The announcement/publicity clause sets out rules on a press release, announcements, and communication with the media about the contract. It ensures control over public disclosure of any information relating to the contract.

How to draft an announcement/publicity clause?

The clause expressly prohibits the parties from making any public announcements relating to the contract without the consent of the other party. The prohibition can be unilateral or mutual.

18. Other Miscellaneous clauses

Other clauses are fairly standard in contracts:

• Waiver: it implies that if a party fails to exercise a legal right or enforce a part of the contract, they can still do so in the future and such right is not deemed to be waived. If a party fails to exercise a right, for example, to charge a late payment fee, it does not qualify as a waiver of such right.

• Filings: it sets out the rules regarding registration, filing, and submission of any documents required by law.

• Further assurances: it provides that the parties will carry out any additional acts that may be necessary to fulfil their obligations under the contract.

• Competition co-operation clause: it describes the process of notifying the agreement to the relevant authority for authorization.

• Counterparts: it provides that parties need not sign the same copy of the contract i.e. permitting the parties to sign different but identical copies of the contract. A copy of the contract with only 1 signature is enforceable in the same manner as a contract that has the signature of both parties.

• Remedial cumulative: it provides that the remedies are cumulative in the event of a breach of contract i.e. the non-breaching party is entitled to avail any remedies available under the facts of a dispute even if some remedies are inconsistent with each other.

• Legal Relationship/Relationship of the Parties: it describes the nature of the relationship between the contracting parties so that neither of them is considered an agent or partner of the other party.

• Entire Agreement: This clause specifies that this agreement constitutes the whole agreement and supersedes any other written or oral agreement between the parties.

DOWNLOAD IN WORD OR PDF: General boilerplates Agreement for any situation (transactions, products, goods, or services). This is drafted as a standard form of contract/agreement.

Please note that this is a general guide on the different types of leave that a leave policy must include. This does not constitute legal advice. As each business, may be different, you may want to speak to your local lawyer.