Don’t Get Caught with the Boilerplate Blues
By Maggie Lourdes, Esq.
In medicine, they say an ounce of prevention is worth a pound of cure. It is why our healthcare providers urge us to get regular doctor checkups and make routine visits to our dentists. Law is similar. Seeking an attorney’s help before a problem occurs can avoid costly court battles down the road. For example, negotiating a complex contract, or even what seems to be a simple agreement, can open Pandora’s box if disagreements arise later. The difference between a simple word such as “and” versus “or” dramatically changes the obligations of parties to an agreement. A trained, legal eye won’t let subtleties in the fine print slip by.
However, what good is legal counsel when you encounter boilerplate agreements? A boilerplate is a pre-printed form contract. Lawyers carefully draft boilerplates so blanks for things such as names, addresses and sales prices can simply be filled into a detailed agreement. For example, a purchase agreement for the sale of real estate is generally boilerplate. You may negotiate certain items, such as the price, earnest money deposit and a closing date, however most clauses are pre-printed.
When you enter into a contract with a large company, your ability to negotiate out of boilerplate terms is nearly impossible. For example, if you lease a piece of construction equipment from a large distributor, you can be sure a fleet of expensive lawyers tilted the language most favorably to their company. Terms for exorbitant late fees may appear, or arbitration clauses that force disputes to be filed in the state where the company resides are common.
So, with such “take it or leave it” contracts, what good are attorneys whose hands are tied from negotiation? I receive requests from clients regularly to review boilerplates which I know in advance cannot be changed simply by virtue of the party on the other side. I still encourage clients to have a legal review to ensure they understand the ramifications of what they are signing.
Boilerplates are traditionally written in complex legalese, not plain language. A lawyer can help by translating the legal terms into an easily understood memo. If you understand the confusing jargon, you are less apt to inadvertently violate a term of an agreement. For example, one of my clients signed a loan without an attorney review. Buried in the fine print was a clause stating he had to submit yearly financial statements and tax returns to the bank. The client, who was making all payments on time, suddenly found himself in breach of the loan. The bank threatened immediate repossession of his business equipment if the documents were not submitted. It made little sense, considering the client was making timely payments. However, the bank lawyer took a stubborn position that the borrower was in default and repossession would occur if the documents were not forwarded. If an attorney had read the agreement before signing, the client would have understood the document submission requirement and avoided a major headache.
In law, this is called “strict enforcement.” It means even if enforcement of a term appears to make no sense, you may be held to the term anyway. Even when enforcement of a boilerplate term is at clear odds with the overall purpose of the contract, courts can declare you in violation of an agreement. Strict enforcement is sometimes manipulated to deliberately force people into default in bad faith. In situations involving larger institutions, they may strictly enforce because they flatly do not have time to micromanage every agreement. Therefore, they adopt a hard line policy requiring that all terms must be strictly adhered to in all circumstances.
The key benefit of having counsel review “take it or leave it” contracts is you may decide after careful consideration that leaving it is your best option. After you weigh the risks and benefits, if you determine the terms are unmanageable, you can shop around for a better contracting partner. The only sure way to know if a long, complex contract is worth the risk is to have an attorney review it before signing. Keep in mind, the costs of legal reviews are not “take it or leave it.” Therefore, negotiate a reasonable rate with your attorney to offer you that ounce of prevention to avoid needing a pound of cure later.