This is the second post in a series about the innocent looking boilerplate provisions at the end of your contract that are more important than you might think.
In the first post, we explained seven boilerplate provisions related to the interpretation of your contract and in this post we’ll explore five common legal provisions that impact your rights if a dispute arises out of the contract.
Many non-lawyers don’t realize this, but just about any court in the country can apply any other state’s laws. So a court in Missouri can use Delaware law to settle a dispute between two contracting parties. As a result, it is important for the parties to agree which state’s laws will govern their contract using a governing law provision.
Some contracts will also spell out which court must be used to resolve disputes arising out of the contract. For example, a small company in Missouri contracting with Facebook in California will likely have to agree to use San Mateo County courts (where Facebook is located) to resolve any subsequent contract disputes. Sometimes you won’t have enough bargaining power to change that provision, but whenever possible, don’t agree to a jurisdiction far away from your office unless there is some benefit to doing so.
Waiver of Jury Trial
Judges decide issues of law. Juries decide issues of fact. Unfortunately, juries can produce unexpected results. That’s why many entrepreneurs choose to waive their rights to a jury trial in favor of allowing the judge to decide issues of fact for disputes arising out of the contract.
You should always give an attorneys fee provision careful consideration. Typically, what it says is that the losing party in a subsequent dispute between the parties that arises out of the contract will have to pay the winning party’s attorneys fees and court costs. However, you should give thought to how likely it is that you will be the one suing the other party. If it is unlikely you would want to sue the other party, and more likely they would want to sue you, then including an attorneys fee provision might give an unwarranted benefit to the other party.
Indemnification (and Insurance)
When a party agrees to indemnify the other, it is agreeing to pay for the other party’s legal defense and any assessed damages resulting from a lawsuit if the other party is sued because of the indemnifying party’s negligence. Often, indemnification isn’t very helpful without a requirement that the indemnifying party maintain insurance (because many parties don’t have enough money to pay for litigation and damages without insurance) so you’ll see a requirement to obtain and maintain insurance next to the indemnification provision. As with the attorneys fees provision, it is very important to consider whether you are ok indemnifying the other party, whether you need the other party to indemnify you, and what the scope of the indemnification should include.
If you haven’t already, you might check out our last post in which we explore seven boiler plate provisions that impact the interpretation of your contract.