Boilerplate, Part Three, Forum Selection Clause

23 01 2012

Another clause you almost always find in a contract is a Forum Selection Clause.  This clause specifies the place where disputes will be resolved.  It will say that disputes under the agreement will be resolved in the courts of a certain jurisdiction, and that, by signing the contract, you grant jurisdiction over any resulting dispute. The clause may even require you and the other party to consent to service of process in a specific manner.

THE RISK: By signing an agreement with such a clause, you are agreeing to the forum provided. If the jurisdiction selected in the contract is not your state of residence, you risk the time and expense required to fight a lawsuit in a distant state (or even country!). This can cause you great inconvenience. If a distant jurisdiction is listed in the forum selection clause, it is important to specify what law will apply to the contract. This is usually included in a Governing Law Clause (discussed in the previous installment).

THE REWARD: You can structure this clause in a way that is convenient for you, ensuring that a dispute will be resolved in your state of residence. If you are entering into a contract with an individual or entity located outside the United States, this clause can place the contract firmly under United States jurisdiction, and allow you to resolve disputes in the US. You can also use this clause to state the method of service in case of a dispute, which is valuable when your potential adversary is not local.


Boilerplate, Part Two, Governing Law

19 01 2012

Another clause you should find in your contract is a “Governing Law” clause. It will say something like “this contract shall be governed under the laws of _____.” The blank space in that sentence can be a state or even a country.

If you are entering into a contract with another party who resides in your state, the contract will probably be governed under the laws of your mutual home state. In some cases, however, you will enter into a contract with a party from another state, or with a company that has offices across the country, or even with a foreign party that wishes to govern the contract under the laws of another country. Those parties may wish to have the law governed under the laws of a state you do not live in. Some considerations when deciding whether to agree to that arrangement:

– Is there a forum selection clause which requires me to resolve disputes in another place? If so, am I willing to take on the inconvenience and expense?

– Do the laws of the other place differ from the laws of my state in a way that negatively affects my rights?

– Are the laws of the other place more favorable, or more appropriate, for the resolution of a dispute under this type of contract?

In order to answer those questions, you should consult with a lawyer who practices in the other place, and you should consult with your regular lawyer regarding the enforceability of the governing law clause.

Next installment – the Forum Selection Clause

Boilerplate, Part One: Entire Agreement Clause

9 01 2012

If you’ve ever negotiated a contract, you’ve probably heard something like this: “Don’t worry about it – it’s all boilerplate.” Variations on this theme include, “These terms are standard in the industry,” and “This is just legalese, you don’t have to read it.” The implication is that the terms on the paper in front of you are formalities, and don’t have any affect on your agreement.

Of course, this isn’t the case. Every word in a contract is important, because those words govern your relationship with the other party. But there are certain clauses that appear in almost all contracts, and are often referred to as boilerplate. Understanding these clauses is important. Boilerplate clauses can be included, left out, and varied to meet your individual needs, just like any other contract terms. This is the first in a series of blog posts, where we will explain, one at a time, several of these clauses so you have a better understanding of them the next time you find yourself staring at a long, boring contract.

First up: The Entire Agreement Clause:

The entire agreement clause is a good place to start, because you will almost always find this clause in a contract. It usually goes something like this:

“This Agreement constitutes the entire and final agreement between the Parties and supersedes any and all prior oral or written agreements or discussions. This Agreement may not be modified in any respect except in a writing which states the modification and is signed by both Parties hereto.”

The entire agreement clause is included in the contract so that neither party can say, after signing the contract, that it agreed to terms which are different from those in the contract. This is good for you, as a party to a contract, because it makes your obligations certain. Before you sign a contract that includes a clause like this, you must make absolutely sure that everything you agreed to is in that document, because anything that you agreed to in negotiations or in another document evaporates the moment you put your signature on that piece of paper. Of course, ensuring that your entire agreement is included in your contract is something you should always do before signing.

There are situations, however, where the standard “entire agreement” clause is not appropriate. For example, some contracts depend on other, outside documents which contain certain terms of the agreement. In that case, those documents should be incorporated into the contract, and to be safe, they should be specifically excluded from the entire agreement clause so that they remain in effect after you sign the contract. In other cases, the parties are involved in multiple, unrelated contractual relationships. In that situation, the entire agreement clause should reflect the fact that it is the entire agreement with respect to the subject matter in the contract, and that it does not affect other agreements between the parties.

Another thing to look out for is the second part of the entire agreement clause, which usually states that your contract can only be modified in a writing signed by both parties. This term is not essential to the entire agreement clause, but often appears there. If this sentence is not included in the entire agreement clause, check for it in the rest of the contract and consider including it if it isn’t already there; it protects you from uncertainty if one party wants to change the terms of the agreement. If it is included, make sure that you and the other party intend to abide by it. Do you want to require a signed writing to change the terms? That’s the safest option, but some arrangements require for more flexibility. You can use whatever procedure you want to, but if you plan to allow less formal contract modifications (for example, by email), you should include that in this clause.

Next Installment: Governing Law