THE VALUE OF GOOD BOILERPLATE

Commercial contracts, when properly drafted, set forth the essential terms of the contract, including the products to be sold or the services to be rendered, the purchase price and the other key terms of the transaction. In addition to these deal-specific matters that vary from contract to contract and receive the main focus from the parties, contracts almost always include general boilerplate. Although sometimes viewed as unimportant legal details, boilerplate can make or break a deal in terms of delivering the expected benefits to the parties.

A recent Utah Supreme Court case highlights the importance of good boilerplate. At issue in Mounteer Enterprises, Inc. v. Homeowners Association for the Colony at White Pine Canyon,[1] was the enforceability of a boilerplate non-waiver clause. A non-waiver clause says that just because a contract party accepts non-conforming performance once (or many times) it does not waive the right to insist on conforming performance in the future. A homeowners association hired a snow removal contractor. The contract required that the contractor carry $7 million of insurance. The contractor only had $5 million of insurance. The HOA knew about the contractor’s failure to have the required insurance amount, and still accepted and paid for the contractor’s services for several years. Later, when a dispute developed between the parties, the HOA exercised its right to terminate the contract because of the contractor’s failure to have the right amount of insurance. The contractor objected that the HOA had waived its right to terminate by accepting non-conforming performance previously during the contract term. The HOA pointed to the non-waiver boilerplate to allow it to terminate, which the contractor argued had also been waived by the repeated acceptance by the HOA of the contractor’s services without being insured in the required amount.

The main issue in the case was whether the HOA had waived not just its termination right, but also the non-waiver clause by consistently and repeatedly ignoring the contractor’s failure to have the right amount of insurance. The Utah Supreme Court sided with the HOA, concluding that the non-waiver boilerplate was enforceable and had not been waived and therefore the HOA could terminate the contract despite its history of looking past the contractor’s failure to have the required amount of insurance.

It may seem unfair for a contract party to be allowed to waive, even repeatedly, individual contract breaches and then later insist on full performance. On the other hand, non-waiver boilerplate exists to give contract parties flexibility to not be forced to terminate the contract or seek other remedies each time the contract is breached, but to still have the right to enforce it when it may matter more in the future.

To maximize the value of their commercial contracts, businesses and their lawyers should make sure that the boilerplate in their contracts is correctly drafted, meshes with the deal-specific terms, and is enforceable.

[1] 2018 UT 23 (June 7, 2018).

N. Todd Leishman’s is a shareholder at Durham Jones & Pinegar whose practice concentrates on corporate and business law.  Mr. Leishman frequently negotiates and drafts complex commercial contracts such as manufacturing, licensing, lending and distribution agreements. He also advises clients about governance issues in entities, and he often works closely with the firm’s litigation department in connection with corporate-governance lawsuits.

 

 

 

Chris Bennett is an associate at Durham Jones & Pinegar in the Business & Finance section focusing on complex business transactions, mergers, acquisitions, public and private securities offerings, public company representation, stock exchange rules and requirements and advising businesses on various aspects of corporate governance, and tax. 

 

 

 

 

 

2018-06-22T17:40:07+00:00