Boilerplate Clauses in Commercial Agreements

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In this article we discuss a small selection of “boilerplate” clauses that regularly appear at the end of commercial contracts. Often, boilerplate clauses are glossed over or ignored. As we will see, these boilerplate clauses have specific purposes that can significantly change the nature and effect of the agreement.

This article contains a general summary of certain boilerplate clauses and is not a substitute for legal advice. There are many more boilerplate clauses than the ones listed here. If you have questions about a commercial contract or about boilerplate clauses, please contact a lawyer.

Entire Agreement

A typical entire agreement clause may look something like:

This Agreement is the entire agreement between the parties with respect to its subject matter. This Agreement supersedes all other understandings, agreements and negotiations between the parties in respect of its subject matter.

The entire agreement has a specific purpose: to make it clear that the terms of the agreement have been reduced to writing in this particular contract, and that there are no other discussions, negotiations, emails, agreements or otherwise about the subject matter of the contract. The purpose of the entire agreement clause is to create certainty by excluding (and make non-binding) any outside emails, discussions and other negotiations between the parties.

If a contract is disputed, the entire agreement clause can prevent both parties from bringing outside evidence about the terms of their agreement – instead, the wording of the contract itself governs. It is vital to ensure that all negotiated terms are included in the written contract itself, even if the terms have been confirmed elsewhere by email or in person.

Governing Law and Jurisdiction

A typical governing law and jurisdiction clause may provide:

This agreement is governed by the laws of British Columbia and the federal laws of Canada applicable in British Columbia, without giving any effect to conflicts of laws principles. In litigation arises from this agreement, the courts of British Columbia have exclusive jurisdiction with respect to such litigation.

The purpose of the governing law and jurisdiction clause is to prevent either party from making a case that the laws of a jurisdiction outside British Columbia apply to the contract, and to specify that any lawsuits over the contract are to take place within British Columbia’s courts. In legal terms, the purpose of the governing law and jurisdiction clause is to prevent either party from making use of the legal principle of conflict of laws.

If both parties are wholly located in British Columbia, choice of law and jurisdiction may not be a significant issue.  However, where parties or subject matter of the contract cross over into different jurisdictions (such as different provinces, or different countries), the issue may become much more important and sometimes, far more contentious.

Time of Essence

The time of essence clause is often short, but it can have significant consequences. A typical time of essence clause states:

Time is of the essence of this agreement.

The purpose of this clause is exactly as stated: time is of the essence. In practice, this means that a deadline of 5:00 p.m. in a contract is an absolutely hard deadline, and that missing the deadline by even one minute could be a breach of contract.

Legally, the effect of a time of essence clause is to describe some or all of the time sensitive clauses in the agreement as conditions. If a court determines that a contractual term is a condition, then a breach of the condition can relieve the other party of all of its liabilities under the contract.

It is easy to see that a time of essence clause can have significant implications on either party. Where a time of essence clause is included, all time sensitive clauses in the contract must be carefully noted and followed.

Assignment

A typical assignment clause provides:

Neither party may assign any of its rights or obligations under this agreement without the prior written consent of the other party.

The assignment clause describes under what conditions a party may transfer its contractual rights and duties to another person, whether by sale, subcontract or otherwise. An assignment clause gives the parties certainty about who they are contracting with, and who will perform the terms of their agreement.

In many cases, an assignment clause will also cover a change of control of a company or change of a significant portion of its shares. This is commonly seen in commercial leases, franchise agreements, and technology agreements such as software licenses, for example. The purpose is to ensure that a corporate party cannot in effect assign its rights and duties by way of a share transfer without the prior written of the other party.

Conclusion

We hope to have taken some of the mystery out of the above boilerplate clauses. Just as any other clause in a contract, boilerplate clauses can be (and often are) modified to favor one party’s interests over the other. Just because the term “boilerplate” implies that the wording is standard, that is in fact far from the case. For this reason, it is always important to read the boilerplate in every contract.

Taylor & Taylor Law Corporation’s lawyers review boilerplate every day. If you have questions about your commercial agreement, please don’t hesitate to contact us.

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