Business Contracts and Agreements
Contracts are part of everyday business, whether
it’s the minuscule print on the back of a credit card bill or
an agreement to buy office furniture. With your customers, contracts
can be letter agreements, or 6-page documents, depending on whether the
deal is simple or complex.
But no matter what you’re agreeing on, one
side is going to be liable if something goes wrong. And parties to a
contract usually try to bat this liability back and forth like a tennis
ball during a killer match.
Aside from being careful in your transaction, making sure customers are
satisfied and carrying adequate insurance, you can avoid winding up in
court by legally declining to be responsible if certain things go
wrong.
There are two protections your attorney might include when drafting
contracts:
1. Disclaimers:
The Negative Side
One time-honored way of reducing your exposure is by using disclaimers.
Basically, they say: “I’m happy to do business with
you but I can’t guarantee that nothing will go wrong. And if
certain things do go wrong, you’re on your own.”
A disclaimer lists things the provider is not responsible
for. For example, many companies disclaim the accuracy of links on
their Web sites.
Let's say you operate a consulting firm that does feasibility studies
on commercial real estate sites. A customer wants to put up a
five-store strip mall and comes to you to examine the location and
write up an analysis report about the site. A disclaimer sets out the
negatives.
For example: “Our company has gotten a team together to
examine and evaluate the site. We’ve done a professional job
and uncovered facts that will help you decide whether or not to go
ahead with the center. The final decision is up to you and we
can’t be responsible if these problems arise . . .”
2. "Hold-Harmless"
Provisions: The Positive Side
Disclaimers are similar to another legal protection known by a more
cumbersome phrase — the “hold harmless”
provision. Basically, they are two sides of the same protective coin.
But while a disclaimer lays out the negatives, a hold-harmless clause
sets out the positives. In the above example about the strip mall, what
will a customer do for you if someone attacks your company's report and
tries to use it as the basis for a lawsuit? You want to make it clear
that the customer is voluntarily relying on your feasibility report and
you refuse responsibility for anything except gross negligence.
Here's an example of what a provision might sound like:
“Although we have used our best professional efforts to
deliver a complete and accurate report, you agree to indemnify us and
hold us harmless for any loss, damage or liability (including
reasonable attorney’s fees) to either yourself or a third
party, which may be based on using the information contained in the
report.”
A hold-harmless provision transfers responsibility differently than a
disclaimer by having the user positively assume the risk. The
"indemnity" part shifts financial responsibility to the user if the
provider gets sued.
Consult with your attorney about the wording of disclaimers and hold
harmless provisions. Here are some of the items your attorney might
include in a contract:
-What the protection extends to (such as damage or monetary losses).
-Whether the protection extends to others (beyond the customer) who
rely on the information.
-Mistakes or omissions that are specifically not guaranteed.
-Positive actions for the customer to take (for example, check local
laws with an attorney to determine their impact on the
report.)
Disclaimers and hold-harmless provisions are part of the
larger picture of risk management. While working to make your business
the best it can be, call us at
(856) 665-2121 to get legal advice to consider what could
go wrong. To help keep your company out of the courthouse, do your best
to prevent problems and cover your bases as completely as possible.
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