What is all that lawyer language in the contract? Businesses enter into a variety of contracts in the course of their operations to address diverse matters including financing, purchasing, employment, real estate, and intellectual property ownership. Certain provisions are common and essential to most of these agreements, but often appear in nearly incomprehensible “boilerplate” clauses that parties chose not to read. Boilerplate provisions are often very similar, but care should be taken in understanding what they mean and how they operate in the context of a particular agreement. Some of the most common boilerplate clauses and their particular nuances under California law are discussed below.

Attorney’s Fees. The general rule in litigation is that parties must pay their own attorneys’ fees and costs, unless there is an applicable statute or contract that requires the losing party to pay. This may come as a surprise to the parties when a dispute arises. For this reason, contracts often provide that in the event of a legal dispute, the losing party must compensate the prevailing party for incurred legal expenses. This may include attorneys’ fees, expert fees, and court charges for filing documents, process server charges, transcription services, and other allowable costs. Such contractual provision, however, should not be automatically included in every contract, and there are good reasons a party may want to negotiate to exclude such provision and/or receive some consideration for agreeing to include it in the agreement. Interpretation of these provisions has been a hotly litigated subject resulting in certain limitations and restrictions. For example, some contracts have “one-way” provisions that stipulate that only one party may be reimbursed for attorney’s fees. Recognizing the inequity of such clauses, certain states, including California, automatically interpret these one-way clauses to be mutual in their operation. It is prudent to consult with experienced legal counsel to understand the implications of how a fee/cost provision affects a particular contractual relationship.

Choice of Law. The contract’s choice of law provision dictates which jurisdiction’s laws will be applied in the event of a dispute. California’s Commercial Code includes a provision that allows parties to mutually agree to choose California law to govern the dispute whether or not the contract has any relationship to the state when the transaction involves an amount exceeding $250,000. The purported purpose of this clause is to promote California as a destination for dispute resolution for major commercial contracts. Other considerations may impact the parties’ agreement to apply the laws of a particular jurisdiction. These considerations often relate to selection of a particular forum for resolution of a contractual dispute. Where a contract is to be performed, where the parties and potential witnesses, documents, etc., are located, and whether the parties agree to arbitrate disputes are examples of considerations of where a dispute should be handled and under what governing laws. Experienced legal counsel can help you understand the interplay of these often included and misunderstood provisions.

Integration. A contract that specifically states that it constitutes the entire agreement between the parties is interpreted to integrate all of the parties’ negotiated terms into a single final agreement. An integration clause typically states that the terms of the written contract includes the total agreement between the parties, and supersedes any prior discussions, negotiations or agreements, whether written or oral. Integration language is enforcable in California to limit a court’s review or reliance on evidence of matters not contained in the contract. There are a few exceptions to this rule which may have an important impact on how a court interprets a contract. For example, a dispute may arise in connection with an integration provision when one party claims that the counterparty has not performed an obligation that was orally agreed to, but not contained in the final written contract by mistake or fraud. Therefore, integration clauses should be carefully drafted and reviewed thoroughly.

An attorney experienced in business law and litigation is the best protection against becoming a party to inadequate or unenforceable contract clauses. To ensure that you understand the terms of your contracts and that your interests are well protected, contact Shane Coons at 949-333-0900 or visit www.ShaneCoonsLaw.com.