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Important Boilerplate Contractual Provisions (Part 2)

Last week we looked at some standard boilerplate contractual provisions, and became aware of some little known pitfalls that could come to those who use them in their business contracts without knowing what they really mean. This week, in part 2, we’ll look at some additional standard language that you may see in your business contracts that may lead to significant problems if you don’t pay attention.

Choice of Venue – With companies doing business all over the country and the world, many businesses want to ensure that if they get sued, they aren’t stuck litigating a case far from where their business (and lawyers) are. As such, almost every contract has a provision that chooses venue. A venue provision answers the question of where any lawsuit will be filed, if one is needed.

Courts strongly enforce venue provisions, and they’re enforceable even if you’re the one suing. So if someone in California breaches your agreement, and you’re here in Florida, but the contract chooses California as the venue, you’ll have to file a lawsuit in a California court—even though you’re not the one that breached the agreement.

Choice of Law – Not only does the venue need to be determined, but the law that the court will apply must be determined as well. Your agreement may have been reviewed by a Florida lawyer, using Florida’s laws. But if the agreement says California laws will apply, you may have no idea what your rights are under the agreement.

Indemnification – Indemnification generally means that one party will pay for the damages incurred by the other party as the result of any lawsuit against them. The indemnifying party is, in practicality, becoming an insurer of the other party.

Let’s assume that you have agreed to indemnify your distributor from any suits against it. You supply a product to your distributor, which turns out to be defective. The distributor’s customer sues the distributor. The distributor will, in turn, look to you to satisfy the lawsuit (or settlement).

Indemnification provisions can be very dangerous, and you should always be very careful signing them. Questions arise with indemnification provisions. Since you are indemnifying, do you have the right to settle the lawsuit or dispute between the other parties? Indemnification can easily put someone else in the driver’s seat to settle a case that you have to pay, without your involvement. Does indemnification cover the cost of legal defense? Do you only have to indemnify if there’s a judgment? Are you obligated to indemnify for anything, or only for claims or suits that arise from something you did?

These are only some provisions that are standard in many contracts, and that can have far reaching implications. Don’t assume that because something is “standard” that it’s harmless, or that it can’t be negotiated.

Don’t leave success to chance. Make sure your contracts are complete and don’t leave you at risk. Contact Tampa business attorney David Toback to discuss your needs and review documents to make sure your business transactions go as planned, without problems.

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