In last week's blog, I discussed how to make your company's contract bulletproof by examining how clauses involving attorney's fees, assignments, conflicts, and compliance with the law affect the viability of your company's contract. In this article, I will be looking at some other contract provisions that absolutely need to be in your company's contract in order to safeguard you from litigation or, if you end up in litigation, to have a better chance of prevailing. The following areas for review are as follows: Choice of law or governing law, choice of venue, indemnification, and notice.
A. Choice of Law. By including this provision in your company contract, the law of the state where your company has a principal place of business is used to interpret the agreement in the event of a legal dispute with a customer. In order to be effective, the state law your company designates in the contract must have some relationship to the parties to the contract or a relationship to the agreement. If your company is in Massachusetts you do not want to have Alaska law apply. The reason is simply that no one knows much about Alaska law and, furthermore, the application of Alaska law maintains no connection to your principal place of business (unless, of course, you are in Alaska). Most companies that I have worked with designate the state where their home office is located in order to establish the choice of law provision in the contract. The benefits of designating the laws of the local state where your company does business are several including familiarity with state laws and having local counsel who is familiar with them. Having a choice of law clause in your contract reduces the risk of having another state's laws apply to any later interpretation of the contract that might produce results that are not in your company's best interests.
B. Choice of Venue. The selection of choice of venue should be consistent with the choice of law that you select. For example, if your company is headquartered in Massachusetts and then applies Massachusetts to be the choice of law then it only makes sense, then, that in the event of litigation, Massachusetts be selected as the venue or place where any controversy will be litigated. For the same reasons that were provided to support the choice of law, and as applies in this case, Massachusetts would be the best choice as this would then allow a Massachusetts state or federal court interpreting Massachusetts law. A choice of venue clause also may contain a jury waiver clause. I would highly recommend that such a clause be included in order to limit your company's liability exposure.
C. Indemnification. This is a critical provision for inclusion in any company contract. What it essentially does is allow your company to be indemnified by your customer for any error committed by the customer that comes back to you. The basic indemnification clause reads that "Each party shall indemnify, defend and hold the other harmless from and against any lawsuits, claims, actions, demands and so forth alleged or having arisen out of any acts and operations conducted between the parties in the course of doing business."
What this simply means is that the indemnifying party will pay the damages, claims, expenses, and other types of payments listed in this provision. In fact, I currently represent a national retailer who had a customer get injured after purchasing the same at the national retailer's local store. The toy was to be used outside and it contains a slingshot mechanism. As a result, the customer got injured and has brought suit against both the manufacturer of the toy and my client the retailer. As a matter of good business and industry practice, my client had an indemnification clause in its contract with the manufacturer that if any customer of my client was injured using this product then the manufacturer would indemnify my client against all losses and take over the defense of the case as part of that indemnification. And, that is exactly what happened in this case. Having had this clause in place, my client has passed the entire risk to the manufacturer who will now defend and pay all fees associated with the defense of this case.
D. Notice. Why does it matter what kind of notice is provided? Isn't a text or email enough? In many situations, probably not. For example, if the other party to the agreement is in breach of contract you want to have a notice provision in your contract that requires communication to be made in a certain way in the event of a problem. If, on the other hand, the agreement fails to have a workable notice provision a dispute could arise concerning whether notice was provided at all. This is just the kind of situation you want to avoid. More often than not, notice provisions in contracts set out the requirements for how and when a notice must be made to be legally valid. It requires that the notice is sent in a certain manner( formal written notice by letter) to a designated person at a designated address and by a designated means (certified mail or overnight delivery, as examples).
This completes the second round of our look at some very important contract provisions and how the inclusion of these provisions can really work to ensure that your company's well protected. At the Katz Law Group, we make sure that your contract can be comprehensive and vital with and always with an eye toward always protecting your business' legal and financial interests. Call us at 508-480-8202 to discuss how we can assist your company in this area.