Legal Boiler Plate Is Important

Commercial contracts have standard clauses regarding such matters as venue for legal disputes, the state law governing the contract, and odd clauses such as integration clauses that do not seem important at the time that the contract is being signed.

For consumers, such standard clauses are often unenforceable since the parties don't have equal bargaining power.

Not so in commercial contracts. The courts will enforce them even if they seem very unfair. Many business owners have contempt for such clauses and refer to them as boiler plate. However, such standard clauses can be critical.

If you get into a dispute with the other party, you may have to litigate that dispute in a county or state that may make it difficult or even impossible to successfully resolve the dispute. Many standard clauses are also are critical in interpreting the relationships between the parties.

The clause that states that the contract contains the entire agreement between the parties means that no other agreements or negotiations between the parties can be introduced to show the parties' intentions. That can be very harmful if two companies enter into a series of related transactions. The point is that business owners must pay attention to these clauses when they enter into commercial contracts.

The courts hold businesses to these clauses in commercial contracts and they can be very destructive. They can also be very helpful. In the video portion of this blog entry, I mention the case of City of Hope vs. Genetech. This was a very complex case in which the defendant Genetech was sued for several things having to do with patent licenses and contracts between the parties. The City of Hope obtained a huge damage award at trial including punitive damages for breach of fiduciary duty.

On appeal, the punitive damages were struck down on the grounds that the standard clause of the parties contract contained a clause that stated that the parties did not intend to create a joint venture, partnership or similar relationship between them. The court held that that clause showed that the parties did not intend to create a fiduciary relationship between them. Genetech was saved by boiler plate from having to pay millions in damages.

Don't say boiler plate isn't important.