Back To Basics: Perfecting Your Contract Boilerplate Language

As its name suggests, the contract boilerplate part of any commercial financing agreement is commonplace, which can often make it an overlooked part of a deal. Steven N. Kurtz explains why financing providers should frequently update their boilerplate language and provides tips to craft such clauses effectively.

BY STEVEN N. KURTZ, ESQ., LEVINSON ARSHONSKY & KURTZ LLP

While there is no shortage of issues to write about that impact the commercial finance business, it’s time for another back to the basics article. Every so often, it’s important to go over some of the fundamental concepts that we often pass by as we advance into more exotic and esoteric considerations. For example, the contract boilerplate part of a financing agreement is often overlooked and glossed over by lawyers and financial professionals. However, the contract boilerplate is the glue that holds a deal together. It is where language that discusses law and jurisdiction can be found, and it also provides that the four corners of a contract are to govern the entirety of a transaction. In addition, you can often put other provisions that are of benefit to you that practically fit best in the boilerplate.  As the law, technology and methods of doing business change, these shifts should be kept in mind when constructing and/or revising your contract boilerplate language. 

Anyone engaged in providing commercial financing invests a lot of time, energy and money into putting together the best contracts they can. The goal is to have the entire four corners of the contract govern the financing provider’s rights and remedies and keep the other side in check.  In court, once you go outside your contract, unexpected (and sometimes bad) things can happen. An important piece of any contract that can help avoid such pitfalls is the integration clause. This clause is what prevents negotiations, conversations, course of dealings and other outside factors from changing the plain meaning of a contract. The integration clause makes it clear that the parties involved will live and die by the terms and conditions of the contract. Therefore, any contract needs to be as close to bullet proof as you can make it. Then, when you have confidence in your well-drafted agreement, you can live with your integration clause, as things that may or not have been said are irrelevant if they are not within the confines of your written agreement.

Closely related to the integration clause is the modification clause. This clause makes it so your agreement cannot be altered or modified unless there is an executed writing signed by all and an authorized representative that contains the essential terms of the deal. This seems pretty simple and basic; however, given the fast pace of commercial financing, coupled with laws which affect and allow for electronic agreements and more relaxed ways of communications, such as texting, a cleaver litigator can easily cobble together a “writing” which modifies a deal. Uniform Commercial Code Sec. 1-201(b)(43) defines a writing as anything printed, typewritten or other reduction to tangible form.  A person agrees to a writing through “authentication,” which is defined in UCC Sec. 9-102(a)(7) to either be a signature or the present intent to adopt or accept a record, attached or logically associated with the record an electronic sound, symbol or process. UCC Sec. 9-102(a)(70) provides that a record is information that is inscribed on a tangible medium, or which is stored in an electronic or other medium and is retrievable in perceivable form. 

Taken together, a written agreement is not necessarily consummated via a traditional old fashioned wet signature on a piece of paper. It’s possible to create a scenario where a combination of a text, email and voicemail recordings can create the “writing” that sets forth the potential terms and an acceptance, even when there was no actual intent to create the modification.  The traditional modification clause may not protect against casual communications resulting in a contract modification. Therefore, your modification clause should specify the form of the writing. In addition, while it’s easy to send text messages, it’s best not to use them at all if you can. First, text messages are usually outside the normal scope of a company’s communications system and are usually not stored in regular records.  Second, the owners of the private phones may leave the company, change out the device or not keep the messages, all of which can create litigation headaches.  If you use texting in your business — which I advise against — it should be limited solely to scheduling. 

The next boilerplate clause which dovetails with the integration and modification provisions is the section addressing waivers. Frequently, there will be occurrences that can be considered a breach but will be let go by you or your business. There’s nothing wrong with that and the reality is that you maximize your profits by keeping the good deals going, earning your fees and keeping your default related expenses (i.e., legal fees) down.  This is where a well drafted no-waiver clause comes in.  You have every right not to enforce your contract if you do not want to and making that business decision should not be construed as a waiver of the same breach later on or a different breach. The waiver should have to come in formal writing. 

The boilerplate is also a good place to put in other provisions that may not go well in other parts of your agreement. Among the items I like to put in the boilerplate are a one-way statute of limitations limiting the time and manner in which claims can be brought by the other side against the financing provider, destruction of documents within a short time frame, indemnity provisions, damage waivers and a usuary saving clause. This is also where you may want to have the right choice of law, venue, jurisdiction and attorney’s fees clauses. 

A well-drafted boilerplate is the anchor of a commercial finance agreement. However, it is often the most neglected and overlooked part of your contract.  A good boilerplate clause can limit the other side’s claimed damages, give you a home court advantage and eventually be the factor that keeps your rights intact, or blows them up if not drafted right. Given the current economic climate in which we are experiencing inflation, high interest rates and a looming recession, your portfolio is bound to hit some bumps, so it is probably time to review your contracts and make sure your boilerplate language is rock solid.