It’s a total contract myth that there are ‘standard’ contracts or contract terms. I’ve even heard other attorneys improperly stating that parties can not agree to terms because it’s not ‘standard.’ The truth is that contracts are living, breathing documents that can be changed to suit people’s needs and as long as the courts or law do not prohibit certain clauses, the parties can agree to it. On the flip-side, just because a contract term is ‘standard’ does not mean a court will or not will not enforce it and that you can’t negotiate the terms. The purpose of this article is explore what people mean by ‘standard’ contracts, how and when to negotiate those terms, and what happens in court with ‘standard contracts.’
What is a ‘Standard Contract’ or ‘Standard Term’?
I typically people refer to ‘standard’ contracts in two contexts: 1) a company telling a customer to sign terms that ‘just standard’ and 2) when parties negotiating a contract and insist on arbitrary ‘standard’ terms. There is in fact no such thing as a ‘standard’ anything in contract. There are terms common and typical to a specific industry, there may be industry standards that are in contracts, legal requirements for certain transactions, and there are ‘boilerplate’ terms, but from a legal standpoint, there is no law that requires parties to contract to certain terms. Common industry standards include requiring parties to carry certain types of insurance or expect a certain quality of work, but they are not legal requirements for a contract. There are also legal requirements required by statute, but this does not need be in the contract to be applicable. For example, certain employers are legally required to provide health insurance to their employees. This does not need be included in the contract for it to be effective. Lastly, there are ‘boilerplate’ terms, which is really just another term for ‘common terms.’ As I will explain later, using boilerplate terms without consulting a business lawyer or contract lawyer can be a very bad idea.
Further, one wrong way to negotiate ‘standard’ terms, as I witnessed recently, was when an attorney and I were negotiating a contract, the attorney insisted that certain intellectual property terms that my client wanted were not ‘standard.’ The fact of the matter is, intellectual property rights can be negotiated as the parties want. Again, there may be common terms that parties prefer to license their intellectual property rights, but ultimately, these are rights that can be contracted as each party sees fit.
What if I Use a Standard Contract?
It’s easy to find template contracts or boilerplate clauses online or find contracts you can recycle. But this can lead to big problems later on. Let’s take a step back and first ask what the purpose of contracts are? Contracts are meant to dictate the terms of a relationship and when one party breaches the term, the wronged party take the breaching party to court to enforce her rights. But if that contract is not enforceable in court, it’s no good. Contract law is always changing and just because two parties agree to something, does not mean a court will enforce it. One commonly used boilerplate clause is a ‘no oral modification clause’ which states that ‘this contract can only be modified in writing.’ Unfortunately, courts do not uphold that clause and contracts can be modified orally, even if a contract says otherwise. On the other hand, some terms are outright illegal such as violating certain employee rights. In other words, if the law says employees have a certain right (such as minimum wage), a court will not only not enforce a clause that denies the employee those rights, but the employer could also get sanctioned for violating the law. Lastly, consider that terms were enforceable 5 years ago may not be enforceable to day as the law is constantly changing. This is why it is really important to ensure that you update your contracts on a regular basis and consult a business lawyer or contracts lawyer.
The bottom line is not that ‘common’ contracts are not the same thing as ‘standard’ contracts. Just because a contract terms are common, does not mean you have to agree to them. Further, just because contract terms are common or non-negotiable, again, does not mean you have to agree to the contract. Further, just because contract terms are common or boilerplate, does not mean a court will enforce the terms. It is important to always ensure that your contracts are up-to-date and that courts will enforce it. Otherwise, the contract is not worth the paper it is written on.