Boilerplate Provisions: Traps Exposed for the Drafter

• Publication year: 2002
• Pages: 105

31 Colo.Law. 105 Colorado Lawyer 2002.

2002, July, Pg. 105. Boilerplate Provisions: Traps Exposed for the Drafter

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105

Vol. 31, No. 7, Pg. 105

The Colorado Lawyer
July 2002
Vol. 31, No. 7 [Page 105]

Specialty Law Columns
Business Law Newsletter
Boilerplate Provisions: Traps Exposed for the Drafter
by Matthew K. Hobbs

This newsletter is sponsored by the CBA Business Law Section to apprise members of current information concerning substantive law. Subject to author submissions, the newsletter is published eleven times per year, focusing on business law topics for the Colorado practitioner, including but not limited to, issues surrounding anti-trust bankruptcy, business entities, commercial law, corporate counsel, financial institutions, franchising, nonprofit entities, securities law, and small business entities

Column Editors:

David P. Steigerwald of Sparks Willson Borges Brandt & Johnson, P.C., Colorado Springs - (719) 475-0097; Column Ed. for Bankruptcy Law: Curt Todd of Lottner, Rubin, Fishman, Brown & Saul, P.C., Denver - (303) 292-1200

About TheAuthor:

This month's article was written by Matthew K. Hobbs, Boulder, Legal Staff Associate, Office of the University Counsel of the University of Colorado - (303) 492-3740, matthew.hobbs@ cu.edu. The author thanks L. Louise Romero and Thomas Trager for their help in reviewing the article.

This article provides an overview of Colorado case law and statutory laws that govern boilerplate language in contracts.

The sanctity of a valid contract is one well-settled area of the law. If a party enters a contract absent fraud, duress, or incapacity, the courts will not relieve the party of the consequences of the bargain merely because it was improvident.1 As a result, the potential consequences to a party who acquiesces to inappropriate boilerplate language is possibly disastrous. In the event of a dispute, the court's duty is to interpret and enforce the agreement, not to rewrite or restructure it.2 Because courts strive to give effect to the parties' intentions, a fortiori, the drafter plays a crucial role. Once the parties execute the agreement, they are largely stuck with the language. Therefore, to draft effective agreements, attorneys should be well versed in the law controlling the boilerplate.

Different parties often address similar issues with substantial and substantive variations. To be sure, the choice of boilerplate language will depend on the goals of the parties and the purpose of the agreement. Nonetheless, varying goals and purposes do not completely explain the differences among boilerplate clauses drafted to address the same legal issues. Partially at least, the variance may be attributable to overly casual drafting. This can cause serious problems because boilerplate clauses are possibly the most legally significant portion of contracts in their focus on the parties' rights, duties, and performance standards.

This article summarizes much of Colorado law on selected boilerplate clauses. Where appropriate, the article also sets out the majority rule on such clauses. Finally, the article discusses boilerplate provisions where the law and the English language set potential traps for both the inexperienced and sophisticated drafter.3

Analysis of Boilerplate Provisions

This section addresses some of the more common and important areas where boilerplate language is used. Because boilerplate language can significantly impact a contract, care must be taken to carefully craft these provisions.

Authority and Use of
Arbitration Clauses

Arbitration is a form of alternative dispute resolution. Parties insert arbitration provisions into contracts when seeking to avoid the legal waltz of a formal court proceeding. In 1925, Congress enacted the Federal AArbitration Act ("FAA") as a legislative response to the reluctance of courts to enforce arbitration agreements.4 Since the enactment of the FAA, there has been a clear national policy favoring the arbitration of disputes. Many states, including Colorado, have adopted the Uniform Arbitration Act ("UAA").5 The UAA, like the FAA, favors arbitration as a means of dispute resolution. The U.S. Supreme Court and lower federal and state courts now support arbitration without reservation, and a properly drafted arbitration clause is enforceable according to its terms.6

Arbitration clauses are standard in many contracts. In the commercial setting, especially, they are in essence boilerplate. However, given the potentially sweeping nature of these provisions, they deserve close inspection.

The UAA gives legislative validation to written arbitration agreements.7 It establishes that such contract provisions are valid, enforceable, and irrevocable, unless grounds exist at law or in equity to invalidate the clauses.8 Because of the UAA, FAA, and subsequent case law, any doubts about the scope of these clauses are resolved in favor of arbitration.9

Arbitration can drive down the costs of attorney fees and litigation expenses, speed up dispute resolution, and often save a relationship. Although some states require binding arbitration in certain cases,10 in Colorado, the contract sets the scope of the arbitrator's authority and duty.11 Thus, it is important to consider the advantages and disadvantages of arbitration before inserting a boilerplate clause into an agreement. Moreover, drafters should use limiting or expanding language where appropriate. For instance, parties may want to limit the arbitrator's ability to award punitive damages, specify that the arbitrator have certain technical expertise, limit the arbitration to set causes of action, or allow for the collection of attorney fees.

Attorney Fees and...