“Miscellaneous”, or “General” Provisions

You’ve read and signed lots of contracts in your business, either your own company’s or ones sent by the other side to a transaction.  Maybe you’ve been puzzled by those provisions that seem to be at the end of every contract, sometimes under the heading “Miscellaneous”, or “General.” The paragraphs have headings like severability, assignment, force majeure, and other obscure sounding names. What are they and why are they there, you ask?  What effect do they have on the contract?

In this post we will explain in general terms what many of these provisions do, and why they are important (and therefore why they are in so many contracts.  In a later post we will talk about other “boilerplate” provisions, including indemnification and limitation of liability, as these can have important consequences.

Assignment: This provision usually says something like “neither party may assign any of its obligations or duties under this agreement without the prior written consent of the other party.”  This means that a party cannot transfer (or sell) the contract, and all of the obligations and rights that come with it, to someone else without consent. That prevents the other party from waking up one day to find it is doing business with someone it did not agree to contract with.  There can be many variations to assignment provisions, such as a requirement that the other party will consent to assignment in the event the other party sells its company or assets, or allowing transfer to an affiliated company.

Choice of Law: You may often enter into contracts with parties in other states, and the contract may contain a provision stating that the contract will be “governed by the law of the state of ‘X’.” While contract law is very similar from one state to another, there are differences. It is always preferable to have the state where your company is located be the governing law, since you and your attorney are familiar with your own state law. If you are dealing with a larger company from another state, they will often insist that their state’s law be applied, and if they refuse to budge on this point, I have found that you may be able to use it to extract concessions elsewhere in the agreement.

Venue/Choice of Forum: This provision limits what court the parties can file a lawsuit in.  For example, the contract may state that suits may only be filed in state courts in a certain county, or in federal court, if the requirements for filing in federal court are met.  If you are entering a contract with a party in another state, and they insist on a choice of forum, it is better to be in federal court in that state, rather than state court, as the federal court may be less inclined to favor a local party.

Dispute Resolution: This provision may require the parties to use some method other than filing a lawsuit to resolve a dispute, such as arbitration.  A lot of people think that arbitration is less expensive than litigation, and it can be.  Arbitration is also a private proceeding, while litigation is public.  However, arbitration can be just as uncertain as litigation, and usually there is no appeal to a higher court if you lose; you are stuck with the arbitrator’s decision even if you think it is wrong or unfair.

These are just a few of the many boilerplate provisions that you will see in contracts.  In the next couple of posts, we will review more common provisions, so that you know what they mean and why they can be important.