0Hopefully you have read our blog titled “Indemnification Clauses,” because indemnification is commonly confused with “hold harmless” provisions, and rightfully so. In fact, many argue that the two are one in the same. A hold harmless provision provides that a party is not liable for certain damages under a contract and shifts the responsibility for those damages to the other party. A common example of a hold harmless provision is Party A agrees to hold harmless Party B for its (Party B’s) negligence, intentional acts or omissions.
The courts that find indemnification and hold harmless provisions as being two distinct clauses follow the reasoning that every word of a contract should be given meaning. The indemnification language provides a party “indemnity” (no liability to third parties) while the hold-harmless clause provides the party exculpation (releasing first-party liability or a wrongdoing indemnitee).
An exculpatory clause is a provision which is intended to protect one party from being sued for their wrongdoing or negligence. Many courts find the terms “indemnification” and “hold-harmless” to be synonymous. However, it is important to confer with a business attorney to understand what the applicable state law provides for the type of contract you are entering into. Mistakes involving these types of provisions can be quite costly.
As a practical matter, it may be advisable to include both an indemnification clause and a hold harmless clause in your agreements so you are protected by whatever definition is applied. It is also important to note that a “responsibility clause” is similar to an indemnification or hold harmless clause, but it is typically less protective. Again, you should consult with a lawyer regarding the type of clause being used in the contract, the state law to be applied, and the right strategy for protecting your best interests.
If you have questions regarding indemnification, hold harmless provisions, or other business law matters, contact us today to schedule an initial consultation. Leslie S. Marell has been practicing business and commercial law for over 25 years. She is established in private practice and has extensive legal experience counseling companies in the areas of business contracts and transactions, purchasing, sales, marketing, computer and technology law, employment law and day to day legal matters. Let us provide your company the advice and guidance you need.
Most contracts contain indemnification clauses, but few parties take the time to read them or fully understand what they mean. Although the language used may appear to be “boiler plate” or standard contract language, an indemnity clause can be a significant part of the agreement that you want to negotiate for your benefit.
An indemnification clause imposes an obligation on one party (or both parties in certain circumstances) to compensate the other party for any loss or damages outlined in the provision. The compensation provided for in an indemnification clause is separate from other contractual damages. A common form of damages provided for in an indemnification clause is the loss associated with one party having to defend a lawsuit filed by a third-party.
By way of example, if Car Seller enters a contract with Part Maker, Car Seller may seek to be indemnified by Part Maker if the part is found to be defective. Thus, if Car Seller is sued by a driver that was injured by the defective part, Part Maker could be held liable for Car Seller’s reasonable attorney’s fees and costs incurred in defending the lawsuit.
Indemnification clauses can be written very narrowly so the indemnification obligation only arises under specific circumstances, or it can be written more broadly so the indemnification obligation arises for any loss that results out of an event resulting from the agreement. Additionally, the parties covered by the indemnification clause can be narrowly or broadly defined. It may state that only the entity is indemnified, or it may include the entity’s officers, directors, trustees, employees, agents and affiliates. Finally, the indemnity may set forth a higher standard of “gross negligence” instead of “negligence.”
There are numerous factors to be considered in indemnity clauses. Don’t assume the clause protects you because it appears to be standard language. Contact Leslie S. Marell to discuss indemnification and to ensure that you are protected before you sign a contract.
It is becoming a common practice for parties to use email to negotiate, review and revise contracts. While the internet makes it convenient and quicker, it can also inadvertently lead to liability. Courtrooms across the country are seeing an increase in the use of “electronic evidence.” You don’t want an opposing party to use your email exchanges as evidence of (or to disprove) the existence of a contract.
Pursuant to the Uniform Electronic Transactions Act of 1999 which has been adopted in all 50 states, a legally binding contract can be formed by use of electronic records. Electronic communications, including email, and even text messages, can be used to form binding legal contracts if the individuals have actual or apparent authority to do so. The essential requirements of a contract must still be met for the agreement to be enforceable, including an offer, acceptance and consideration exchanged between the parties. If the electronic evidence clearly establishes that these basic requirements have been met, it may be sufficient to prove the parties intended to be contractually bound and that a valid contract was formed.
How do you protect yourself when conducting contract negotiations via email? It is imperative that you are clear and succinct in outlining your intentions. All of your employees should receive detailed training regarding your business’s policies regarding electronic correspondence and to be careful in email to avoid terms such as “offer” or “accept” and to avoid unconditional “promises”. If you do not wish certain employees be able to form binding contracts by email, you should require that a prepared, blanket disclaimer paragraph be automatically inserted into every email that is sent from such employees. The disclaimer should include a statement that the sender of the email does not have authority to legally bind the company and any commitments on behalf of the company must be confirmed by either the appropriate department (such as purchasing) or the person’s manager. You should also include a statement that your business does not intend to be bound by an electronic contract and that all electronic correspondence is considered non-binding until the agreement is signed by the parties. Finally, if the other party gives you an indication that they are relying on your emails as forming a contract, you should take immediate action to set them straight. The quicker you clear up any confusion or misunderstandings, the less likely you are to be held liable.
To learn more about electronic contracts and how to protect yourself or how we can assist you with other business-related matters, contact Leslie S. Marell today.
If your business is working with an attorney on an important transaction, there are a few important tips that can help ensure you obtain a successful outcome. Consider the following suggestions:
Choose the “Right” Attorney
Your business lawyer will play a very significant role in the success of your company. It is important to choose an attorney that is not only knowledgeable and experienced, but also one that you feel comfortable working with. The attorney that is the best fit for your friends, competitors or counterparts may not be the best one for you. Follow your gut instinct and retain an attorney that you trust and feel confident handling your business affairs.
Don’t just hand the contract to your lawyer and consider it his or her job to negotiate and finalize it. It is an attorney’s primary goal to eliminate any risk or liability for their client. However, the nature of business involves taking risks. There is some truth to the old saying that “if there is no risk, there is no reward.” Therefore, you should inform your lawyer as to which risks your company is willing to take and which risks are deal-breakers. By understanding the risks involved, discussing them with your attorney and negotiating them accordingly, you will create a situation where the attorney is writing the language for you, NOT negotiating the deal for you.
Keep the Process Moving
Many contract negotiations get bogged down and can take days, weeks or months to finalize. Most attorneys work under different time constraints and have different goals than business people. If you give up control and let the lawyers determine the time constraints and goals, you will likely be frustrated with the result.
If you have questions regarding business law matters, contact us today to schedule an initial consultation. Leslie S. Marell has been practicing business and commercial law for over 25 years. She is established in private practice and has extensive legal experience counseling companies in the areas of business contracts and transactions, purchasing, sales, marketing, computer and technology law, employment law and day to day legal matters. Let us provide your company the advice and guidance you need.
There are four major ways to reduce your risk and limit liability in contracts—disclaimers, limitation of liabilities, indemnification, and “Entire Agreement” clauses. These are discussed in more detail below:
- Disclaimers. Shrewd contract negotiators live by the rule of disclaiming responsibility for anything beyond the specific commitments listed in the contract. The only way a seller can disclaim implied contract warranties is by adding clear, specific language in BOLD, CAPITALIZED TYPE disclaiming the implied warranties.
- Limitation of Liabilities. Breaching parties are automatically liable to the other party for damages as a result of the breach unless the parties have specifically agreed to limit their liabilities. Consider just what you want to limit. For example, a Seller may negotiate that it will not be responsible to the Buyer for incidental or consequential damages. As another example, you might also choose to negotiate your company’s maximum dollar limit on liability.
- Indemnification. Indemnification shifts the responsibility from one party to another in a contract. Indemnity clauses can be drafted to protect your company from any acts, misrepresentations, wrongdoing, or omissions of the other party.
- “Entire Agreement” Provisions. “Entire Agreement” or “integration” provisions in a contract limit the seller’s warranty liability to exactly what is written into the agreement. In other words, adding this type of clause negates any other prior verbal agreements or commitments between the parties. Put yet another way—if it is not in the agreement, it is not agreed to!
If you have questions about limiting liability in your business agreements, attorney Leslie S. Marell can help. Leslie has more than 25 years of experience as in-house counsel and as a legal adviser working with businesses, business people, and business contracts, in the technology, manufacturing, software, and medical device industries. She understands the real-world practicalities of what it takes to draft, review, and negotiate corporate contracts, and has presented her dynamic seminars to Fortune 500 companies and small to mid-sized businesses across the country. Leslie specializes in helping contract analysts, project managers, and department leaders work better with their own internal legal departments and outside counsel. To learn more about Leslie’s seminars, or get expert advice on contracting matters, contact Leslie at (310) 372-8663, or visit her online.