By Chris Bennett and N. Todd Leishman
Most contract clauses fall into one of two classifications: 1. Deal-specific clauses, or 2. Boilerplate clauses. Deal-specific clauses, such as pricing, receive the primary focus of most parties when drafting a contract and will substantively differ from contract to contract. In contrast, a boilerplate clause, often referred to as “fine print” or “boilerplate,” is contract language that is substantively uniform from contract to contract.
However, although “boilerplate” may not define minutiae of a particular transaction and may be substantively uniform from contract to contract, the terms are extremely essential because they govern how contract disputes are resolved and how a court will enforce the contract.
A recent Utah Supreme Court decision reaffirmed the essentiality of “boilerplate” and its role in governing contract disputes and enforcement. In this particular case, Mounteer Enterprises Inc. v. Homeowners Association for the Colony at White Pine Canyon, 2018 UT 23, the boilerplate in contention was a contract clause colloquially known as an “anti-waiver” clause. An anti-waiver clause is a provision that allows a party to accept goods or services, deficient in adhering to the terms of the contract, without such party losing their right to a remedy of the deficiency. Without the aforementioned anti-waiver clause, a party who accepted deficient goods or services could possibly lose their right to seek a remedy of the deficient goods or services. Consequently, rather than lose their rights to a remedy both parties would likely cease to continue performance under the contract in order to retain such legal rights.
Particularly in contracts with a continual provision of service and goods, any halt to performance would lead to a disruption of both parties’ businesses. Therefore, including an anti-waiver clause allows both parties to continue working under the contract and not disrupt their businesses without losing their legal rights.
In Mounteer Enterprises, the Homeowners Association for the Colony at White Pine Canyon (HOA) entered into a contract with Mounteer Enterprises Inc. (Mounteer) in 2006. The contract required Mounteer to maintain a minimum amount of liability insurance and contained an anti-waiver provision to the effect that the HOA’s failure to request evidence of compliance or failure to identify a deficiency of compliance would not be considered a waiver of Mounteer’s obligation to maintain such insurance. During the term of the contract, Mounteer never maintained the required minimum of insurance yet the HOA continued to pay Mounteer for its services despite the coverage deficiency and despite Mounteer submitting evidence of the coverage deficiency to the HOA. In 2010, the parties renegotiated the contract on similar terms but three months into the contract the HOA discovered the insurance coverage deficiency and terminated the contract.
During litigation, Mounteer argued the HOA had lost its right to enforce the termination due to insufficient insurance because the HOA had been receiving evidence of Mounteer’s breach and yet continued to accept the deficient performance for an extended period of time. The HOA counter-argued they had not lost their legal right to a remedy because the anti-waiver clause precluded such loss of right. Upon review, the Supreme Court of the state of Utah ruled because of the anti-waiver clause the HOA had not lost its legal right to a remedy despite its acceptance of the deficient performance by Mounteer and despite having evidence of the deficiency for a long period of time.
Practically, this case underscores the importance for all parties to use properly drafted commercial contracts which include much more than deal-specific terms. In addition to deal-specific terms, a properly drafted contract must include an appropriate selection of “boilerplate” which is essential to build the governing framework upon which all contracts work.
N. Todd Leishman is a shareholder at Durham Jones & Pinegar in Salt Lake City whose practice concentrates on corporate and business law. He frequently negotiates and drafts complex commercial contracts such as manufacturing, licensing, lending and distribution agreements and advises clients about governance issues in entities. Chris Bennett is an associate at Durham Jones & Pinegar in the Business & Finance section focusing on complex business transactions, mergers, acquisitions, public and private securities offerings, public company representation, stock exchange rules and requirements and advising businesses on various aspects of corporate governance and tax.