Standard-Form Contracts: What Every Business Should Know

Content

• What is a Standard-form Contract?
• What are the characteristics of a Standard-form Contract?
• Are Standard-form Contracts legally enforceable?
• Why are Standard-form Contracts significant?
• What are the limitations of Standard-form Contracts?
• Dock 365 for Standard-form Contracts

Not every commercial transaction involves negotiation. There are situations when parties have to sign on the dotted line without giving any room to change the terms and conditions. Consumers don’t have the agency to dictate the stipulations when buying software or signing up for a service. Businesses prefer to use stand-form contracts in these questions. 

They are easy to generate and execute at scale. If done right, they can speed up the contract lifecycle and help companies close deals faster. However, there are certain things to consider while handling these take-it-or-leave-it contracts, which we’ll be discussing in today’s blog. From essential elements to limitations to best practices, here’s all businesses should know before adopting standard-form contracts effectively.

What is a Standard-form Contract?

A standard-form contract is a pre-written legal agreement in which one party establishes non-negotiable terms, and the counterparty must accept or leave them. Also known as boilerplate or adhesion contracts, these are applicable for diverse commercial purposes, including rental agreements, service agreements, NDAs, etc.

They leave little to no room for customization by the party accepting the contract. The primary purpose of standard-form contracts is to streamline the contracting process. They work well when the terms and conditions are uniform and relevant to numerous transactions. Businesses can save time and money using a standard-form contract instead of negotiating separate contractual agreements with each client or customer.

What are the characteristics of a Standard-form Contract?

In traditional settings, both parties are part of setting the terms of the contract. They have the bargaining power to put forward stipulations that protect their interests. But that’s not the case with standard-form contractual agreements. When you sign up for software, subscriptions, or merchandise, you must accept terms and conditions without dialogue. It is one of the defining characteristics of boilerplate contracts.

• Lack of negotiation

Unlike traditional contracts, where terms and conditions are discussed, negotiated, and tailored to the specific needs of each party, standard-form agreements come with pre-written terms. It means that one party, usually the party with more bargaining power, dictates the terms, leaving the other with no room to negotiate. 

• Take-it-or-leave-it approach

There’s no space for compromise or middle ground in standard-form contracts. They often employ a take-it-or-leave-it approach, where the contract owner presents the legal agreement to the other party on a "take it or leave it" basis. Thus, the party receiving the contract must either accept all the terms as they are or walk away from the deal entirely. It can put the party in a disadvantaged position, especially if they have little to no bargaining power compared to the other party.

• Used in mass transactions

Standard-form contracts are convenient for mass transactions where the same terms and conditions apply to multiple parties. These contracts are efficient for businesses engaging in frequent transactions with customers or clients. Examples of standard-form contracts include insurance policies, software licenses, and rental agreements.

• Boilerplate language

Boilerplate language typically includes terms and conditions essential for the agreement but may not be specific to the parties involved. While boilerplate language helps to create consistency and efficiency in contract drafting, parties must review and understand these terms before signing. Businesses can customize the boilerplate language to reflect the specific needs of each party and accelerate the drafting process.

• Signature requirements

In most cases, parties must sign the contract to indicate their acceptance of the terms and conditions outlined. They can aid in enforcing the terms of the agreement in the event of a dispute and serve as a sign of the parties' consent to be bound by it.

Are Standard-form Contracts legally enforceable?

From software licenses to insurance policies to rental agreements, pre-drafted contracts streamline transactions and save time for both parties. But are they legally enforceable? Yes, standard-form contractual agreements are legally binding. However, they must include the essential elements, including offer, acceptance, consideration, capacity, awareness, and legacity. Some other concerns regarding standard-form contracts are the following:

Unconscionability

Unconscionability refers to a contract clause that is so one-sided or unfair that it shocks the conscience. In legal terms, a contract is considered unconscionable if one party has significantly more bargaining power than the other, and the contractual terms are oppressive or unjust. Courts are generally reluctant to enforce contracts that are found to be unconscionable.

If a standard-form contract contains clauses that are deemed unconscionable, the court may refuse to enforce those specific terms or even invalidate the entire contract. Businesses must ensure that their standard-form contracts do not contain any unconscionable provisions to avoid potential legal challenges.

Unfair terms

Standard-form contracts may also face scrutiny for unfair terms. Unfair terms are clauses that create a significant imbalance between the rights and obligations of the parties. Common examples of unfair terms include clauses that limit liability, restrict remedies, or impose excessive penalties. 

To determine the enforceability of standard-form contracts, courts will examine the fairness of the terms included in the contract. If a court finds them unfair or unreasonable, they may declare those terms unenforceable. Businesses need to review their standard-form contracts regularly to ensure fairness and legality. 

Why are Standard-form Contracts significant?

Every time, having to start from scratch with a new contract can slow down business operations. Companies trying to onboard clients on a large scale require the quick and competent generation of contractual agreements. Standard-form contracts can expedite the process in these circumstances without sacrificing quality.  

• Efficiency in contracting

For businesses, reviewing terms and conditions with counterparties is an expensive and time-consuming process. That’s where boilerplate contracts become convenient. Instead of negotiating every detail of a contract from scratch, parties can rely on standardized terms and conditions to address common issues and scenarios. This efficiency saves time and resources, allowing companies to focus on their core operations rather than getting bogged down in contract negotiations.

• Consistency and uniformity

A company may generate contracts for several purposes, including sales, procurement, and human resources. The contractual agreement must uphold legal, industrial, and organizational standards regardless of the goal and parties involved. Standard-form contracts promote consistency and uniformity in business transactions. 

Standardized language and provisions enable parties to ensure that their agreements are clear, unambiguous, and legally sound. When parties employ customized or ad hoc contracts with different terms, miscommunications, and disputes may occur. This consistency helps avoid these situations. 

• Reducing transaction costs

Standard-form contracts are pre-drafted templates with standard terms and conditions popular in similar transactions. By using a standard form, parties can save time and resources negotiating individual contract terms. It can be especially beneficial in industries with frequent transactions and similar terms.

For example, standard-form contracts can come in handy when purchasing and selling properties in the real estate industry. These contracts include standard clauses regarding the sale price, closing date, and contingencies, which can help expedite the transaction process. By minimizing the time and effort spent negotiating contract terms, parties can focus on other aspects of the transaction, ultimately saving costs and increasing efficiency.

What are the limitations of Standard-form Contracts?

When it comes to entering into contractual agreements, standard-form contracts have become a common practice in various industries. These pre-drafted contracts are convenient and efficient, saving time and resources for both parties involved. However, it is essential to understand the limitations that come with using standard-form contracts to avoid potential risks and pitfalls.

• Absence of tailoring to specific situations

One of the primary limitations of standard-form contracts is their generic nature. These contracts are designed to be one-size-fits-all, lacking the flexibility to address specific circumstances or unique requirements of individual parties. As a result, important terms and conditions may not adequately reflect the intentions of the parties involved, leading to sour relationships.

• Imbalance of power

Standard-form contracts are frequently written by one party, usually the one with greater negotiating leverage, like a major service provider or corporation. Due to this power dynamic, the drafting party may obtain terms and conditions that greatly benefit them, giving the opposing party little negotiating power. Consequently, the less powerful party might have to agree to unfair conditions or else forfeit the chance to make a deal.

• Limited legal remedies

Another limitation of standard-form contracts is the limited legal remedies available to the parties in case of a breach or dispute. These contracts often include boilerplate language and standard provisions that may restrict the ability of parties to seek specific remedies or damages. As a result, parties may find themselves unable to fully protect their rights or recover losses in the event of a contractual dispute.

Dock 365 for Standard-form Contracts

The primary purpose of standard-form contracts is to accelerate business processes. They incorporate widely accepted terms and conditions to ensure quick approval and execution. Moreover, parties will clearly understand their rights and obligations from the outset. It can help prevent miscommunication and disputes, as each party knows what to expect and how commercial relationships will play out. 

That is why boilerplate contracts are perfect for digital contract management settings. If you use contract management solutions like Dock 365, you can automate the entire contract lifecycle without constant intervention. Here are some features that can help you streamline the contracting process:

Template and clause libraries: Dock 365 enables businesses to set up pre-written dynamic templates for standard-form contracts. All users must do is customize specific fields, such as party name, dates, costs, etc. They can also add essential and standardized clauses from the library as per the specific requirements.

Custom workflows: The automated workflows will route the contract through relevant reviewers, approvers, and signatories. These internal and external workflows ensure there are no unnecessary delays in the process.

Electronic signature: Dock 365 seamlessly integrates with DocuSign, Adobe Sign, and Sertifi, enabling users to execute contracts within the contract management platform. They are workflows and alerts to keep the contract on track throughout the signing process.

Schedule a demo today to learn more about Doc 365’s advanced features.