DEALINGS WITH CONTRACTS AND INDEMNIFICATIONS Joseph J. Ortego, Esq. New York City/ Long Island Nixon Peabody LLP DEALINGS WITH CONTRACTS AND INDEMNIFICATIONS

GENERAL ISSUES IN CONTRACTS

WHAT LAWYERS SEE IN CONTRACT DEALINGS… Business people are not lawyers Listen to the contract language, it means what it says Cheaper to avoid a problem than correct it Only lawyers pay attention to the language of the contracts Parties have selective memories Your lawyer can anticipate the future, but not predict it

SAVE YOURSELF A HEADACHE: MISTAKES TO AVOID Not understanding the agreement and signing anyway Vague language in the agreement Negotiating after the contract is signed No liability clauses, deadlines, or penalties Not making sure the deal described in writing is the deal you approved Only having one contracting party sign the agreement Is there a condition that must be fulfilled?

PROTECT YOUR COMPANY, PROTECT YOURSELF Read the contract, and read again Never assume, ask for clarification Anticipate contingencies What is it you need from this contract, and is the need satisfied? Look to alternative wording Provide recommendations, and only sign when you agree, and are clear on the terms

PROTECT YOUR COMPANY, PROTECT YOURSELF Only begin contractual obligations when the contract is actually executed Make sure language is specific to spell out contemplated services

THE INDEMNIFICATION PROBLEM!

THE INDEMNITY CLAUSE What should the clause say? What shouldn’t the clause say? Are you protected against the customer’s own acts of negligence?

NEW JERSEY CAUSING TROUBLE: PA and MICHIGAN FOLLOW

THE NEW FOCUS The analysis focus shifted to the “arising out of the delivery of the product” instead of “acts or omissions”

BAD INDEMNIFICATION CLAUSE SUPPLIER hereby agrees to defend, indemnify, and hold harmless Customer's system…from and against any and all actions, claims, suits, losses, damages, obligations, liabilities, and/or expenses (including reasonable attorneys’ fees) of every kind whatsoever which MAY ARISE IN whole or in part, directly or indirectly, from or be connected with (a) the breach of any warranty, express or implied, and/or any accident, occurrence, injury to persons or property which may occur before or after acceptance of the Products by any of them which SHALL ARISE FROM, be caused by, or connected with, in whole or in part, directly or indirectly, the preparation, processing, manufacture, completion, delivery, operation, consumption, and/or use of the Products…

PROTECT YOUR LIABILITY FROM INDEMNITY REPLACE: “MAY ARISE” WITH “CAUSED BY” THEN ADD: Notwithstanding the foregoing, SUPPLIER, does not agree to defend and, indemnify, or hold harmless a particular Indemnified Party for any claim, suit, loss, damage, liability, or expense to the extent arising from the negligence or willful misconduct of the Indemnified Party in the operation, consumption, use or sale (but not the acceptance or approval) of the Products.

NOT ALL NEW BUSINESS IS GOOD BUSINESS!

NEGOTIATING YOURSELF TO YES

RECOMMENDATIONS: Make sure language used in clause is not broad: Substitute “arising out of” with “caused by” Delete broad language, such as “without limits” Keep language simple