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What does contractual boilerplate mean to you?

By Michael R. Burke, Esq.

Physicians encounter in their day-to-day practice the need to sign many different types of agreements, such as employment agreements, shareholders agreements, office leases, hospital contracts, managed care contracts, etc. Physicians often focus on the key substantive terms, such as compensation, termination and restrictive covenants, and pay little attention to the remainder of the document. This article will focus on the important terms in the remainder of the document, many of which are contained in the so-called “boilerplate” language.

A provision that is often overlooked in the boilerplate language at the end of an agreement is the “entire agreement” provision. An example of such language is as follows: “This Agreement constitutes the entire agreement between the parties and supercedes any prior or contemporaneous agreements related to its subject matter.” This provision is basically encapsulating a basic provision of contract law, which states that any discussions of the parties prior to the written document are merged into the written document. As such, when one party to an agreement promises to the other that it will comply with a certain term or condition and such a term or condition is not actually contained in the agreement, there would be no legal obligation on the part of the party to comply with such an oral promise.

“Notice” provisions are another type of boilerplate provision that are important to recognize. Notice provisions generally set forth the manner in which formal notices must be provided by one party to the other under the agreement. In many instances, notices will have to be made in writing and delivered by a specified method (overnight mail, certified mail, personal delivery, first class mail, etc.). These provisions are designed to insure that the parties to a contract actually receive correspondence that is provided by one party to another under the agreement. It is very important to send formal written notices pursuant to the terms of the written agreement; for example, if an employee were to give notice of the termination of an employment agreement without complying with the terms of an agreement that requires serving notice by overnight delivery, the employer could argue that notice was not given properly and, if no receipt can be produced, the employee could not prove that the agreement was followed in this regard.

Waiver provisions are also common provisions in physician contracts. An example of such a provision is as follows: “The failure or any delay on the part of any party to exercise any right, remedy, power or privilege under this agreement shall not operate as a waiver thereof, nor shall any single or partial exercise of any right preclude any other or further exercise of the same or of any other right, nor shall any waiver of any right with respect to any occurrence be construed as a waiver of such right with respect to any other occurrence.” Essentially, a “waiver” clause provides that the waiver of a breach of an agreement by one party to the agreement in one instance is not a further or continuing waiver of such a breach in a later instance.

Many contracts contain boilerplate provisions related to the “assignment” of an agreement, often prohibiting the assignment of the agreement by either party to a third party without the consent of the other party to the agreement. Contracts with hospitals and health systems often attempt to have more leeway to assign their agreements to other hospitals or purchasing entities. Limiting the ability of one party to assign the agreement to another party may be important because the parties may not want to contract with anyone other than the party that signed the agreement.

Many contracts define the law of the state that will govern the terms of the agreement. These provisions are often known as “controlling law” provisions. This is generally not an issue in a contract between local providers (such as an employment agreement or a hospital agreement), but could be an issue for a physician practice that enters into a computer agreement with a company that is in Florida, as the form agreement used by the out-of-state company will often have that a provision stating that the law of the state in which the bigger company is located (here, Florida) controls. In addition to provisions in which the controlling law is selected, boilerplate provision may select the venue in which any legal action is to be brought (e.g., any legal proceeding must be brought in the courts of Montgomery County). Again, this can be a concern where the venue to bring a legal action is out of state. Parties may also agree to arbitration in lieu of settling the matter in court; even in such cases, the parties often agree as to the County in which such an arbitration will be held.

Many agreements today contain a “change of law” provision. Such a provision provides that if any statute, regulation or interpretive decision changes a law upon which the nature of the agreement is based, the parties will negotiate for a period of time to modify the agreement in accordance with the law. Most change of law provisions also include the ability for the parties to terminate the agreement if they are unable to agree upon an acceptable alternative arrangement resulting from the change of law.

Parties sometimes execute an agreement with knowledge that further documents will need to be executed in the future. Contractual provisions detailing this obligation are often referred to as “further assurances” clauses. An example of such a provision is as follows: “Each party hereto shall cooperate and take such actions as may be reasonably requested by the other party in order to carry out the terms and purposes of this agreement and any other transactions contemplated herein.” This provision is useful in fleshing out the details of an agreement that may (or may not) have been conceived at the time the original agreement was entered into.

In conclusion, the language at the “end” of an agreement, which often consists of contractual boilerplate, should not be ignored. While seemingly benign, these provisions can serve to trap the unwary when they are not recognized and complied with. In some instances, understanding the meanings of the “boilerplate” provisions is as important as certain of the substantive provisions contained in the agreement.

Michael R. Burke, Esq., is a shareholder in the health care law firm of Kalogredis, Sansweet, Dearden and Burke, Ltd., located in Wayne, Pa.

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