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Beware the Contractual ‘Boilerplate’
h, that’s justboilerplatelanguage.”I hear thiscomment far too often frombusiness clients when negotiating contracts. Yes, I understandthere are often provisions in contracts that look like lawyers creating vague and wordy provisionsjust for the sake of consideringevery conceivable risk known tohumanity.
But I’m going to let you in on adirty little secret . . . these legaleseparagraphs typically have specificintentions behind them and canblindside your credit union if notproactively clarified and negotiated. As an example, consider the“force majeure” provision, whichcan postpone, extend or even excuse contractual performance dueto acts reasonably beyond yourcontrol, such as government actions or pandemics. You probablysee where I’m going with this inlight of pervasive business disruption issues involving COVID- 19.
There are plenty of form con-
tracts used by credit unions in
loan and other settings, many
of which can be found online. A
quick search for agreements used
by three different credit unions re-
vealed the following differentiated
“force majeure” language:
• Force Majeure: If either party is
unable to perform any of its ob-
ligations under the Agreement
or to enjoy any of its benefits be-
cause of . . . actions or decrees
of governmental bodies not the
fault of the affected party . . . the
Agreement shall be immediately
• Force Majeure: Except for your
obligations to pay the Credit
Union hereunder, neither party
will be liable to the other party
for any failure or
delay in perfor-
mance caused by
reasons beyond its
including . . . orders
or other govern-
mental directive . . .
• Force Majeure: TheCredit Union shallnot be responsiblefor liability, loss ordamage of any kindresulting from anydelay in the performance of or failure to performits responsibilities hereunderdue to causes beyond the CreditUnion’s reasonable control.
Now, let’s turn attention to the
COVID- 19 pandemic, which will
likely trigger the language of each
version above, with potentially dif-
• In the first version, both the
credit union and its contrac-
tual counterpart are explicitly
authorized to suspend all per-
formance as a result of the gov-
ernment shutdown, including
any payment obligations to the
• In the second version, there isgenerally no liability for any failure or delay of performance dueto the government shutdown,although this would not extendto the counterpart’s paymentobligations (which would technically still need to be made in atimely manner).
• In the third version, the language would not authorize anyfailure or delay of performanceby the counterpart due to thegovernment shutdown, including any payment obligations.
Keep in mind, with the sec-
ond and third versions above, the
counterpart may still be able point
to other contractual
provisions such as
early termination and
surrender – or equi-
table defenses such
as impossibility of
performance – to back
out. In the context
of commercial lease
agreements, your par-
ticular state governor
may have also imple-
mented an executive
order suspending any
terminations or evic-
tions on the basis of non-payment
during the emergency period.
Long story short, talk to yourpreventive lawyer before takingany aggressive steps. What youinitially may have dismissed as“boilerplate” language could havesignificant consequences as far asperformance obligations in light ofCOVID- 19.
Now, let’s expand this analysis
to the remainder of the contract
and outside the scope of pandemic
events. Aside from differing ver-
sions of force majeure language,
other “boilerplate” provisions may
have you assuming unanticipated
obligations and liabilities on be-
half of your counterpart. You may
also find that recourse against
your counterpart in the event of a
breach or default is severely lim-
ited . . . and further that you may
even be required to indemnify
your counterpart for some unex-
pected claim by a third party.
In order to minimize thiscontractual exposure, considerdeveloping your own set of “procredit union” contracts that canbe tailored across multiple business functions and deployedproactively. Needless to say, the“boilerplate” provisions should befocused toward protecting yourinterests to avoid being blindsidedand taking on unforeseen risks.
A process should also be developed to be flexible enough toaccommodate having to react tothe other side’s forms when necessary. Keep in mind, some businesspartners will demand their formsbe used. That’s OK – you shouldn’tsimply blow up relationships overinitial stubbornness.
Instead, if this occurs, simplyrequest and receive a copy of thecontract in Word (or another edit-able) format. Reasonable businesscounterparts should expect thatyou will want a copy to redline ifthey demand use of their one-sided form. And if they refuse to doso, this should be seen as a red flagwarranting consideration of otherbusiness partners (hint: If they aregoing to be this difficult in these initial negotiation stages, just imagine how problematic they couldbecome if there are any issues withregard to contract performance).
Contract negotiation and development may not be the sexiestpart of operating a credit union,but it is one of the most important.Preventive law practices like thosediscussed above can ensure “boilerplate” language in contracts isappropriately considered and addressed with prospective businesscounterparts well in advance ofany potential landmines. n
Chris KeeferPrincipalKeefer StrategyPortland, Ore.
‘In order to minimizethis contractualexposure, considerdeveloping your ownset of “pro credit union”contracts that can betailored across multiplebusiness functions anddeployed proactively.’
The Case forAdditional CapitalDuring COVID- 19
Olden Lane’s Michael Mac-chiarola details the headwinds to capital CUs arelikely to soon encounter.
ManagingVulnerability to RiskDuring M&As
NetSPI’s Nabil Hannanaddresses the concern ofcyberattacks during theM&A process.
MaintainingMembers’ Trust in aCrisis
The Bradford Group’s JeffBradford shares contentmarketing strategies for theCOVID- 19 era.
Supporting the FrontLines
Melissa Pomeroy of St.
Mary’s Bank discusses theimportance of a strong dataculture behind the scenes.