Plan Ahead! Business Relationships (usually) Don't Last Forever!

Many times the excitement of a new business venture and the desire not to cause waves prevents people from taking that one little extra step to ask, "Okay what happens if I want to end the deal?"

Asking that little question and engaging the other side in an open discussion about what each side expects from each other at termination can avoid unnecessary headaches in the future.

Many contracts simply contain a venue/jurisdiction and perhaps an attorney's fees provision as the answer to addressing what will happen if a party wants to end (probably breach) the contract. A jurisdiction/venue/fee clause will set the basics for any future litigation, but litigation is usually not the most desirable or cost effective resolution.

Other provisions should be contemplated, like a liquidated damages provision, where a party willingly accepts that if he or she breaches the agreement that a monetary fee will apply. A required mediation provision can force people to talk the situation through, and since the great majority of lawsuits settle without resort to trial, contractual mediation can avoid wasting resources and time in the future.

Many of my business acquaintances here in north San Diego County comment that the days of the hand-shake deal are over, and how it was great in the past when if the relationship wasn't going the way it was foreseen the parties would just walk away. Those types of relationships are wonderful, but do not necessarily address risk management concerns.

Talk to a properly licensed attorney regarding how you can propose, draft or negotiate for contract terms that will help business relationships end in a predictable and hopefully peaceful way. Remember, ending a business relationship in a businesslike and agreeable way means preserving it for the future.

Is Your Indemnification as Strong as You Intended it to Be?

Indemnification clauses are generally classified as Type I, II or III. (See Bustarde Law's post on the topic by clicking here.)

However, if not drafted carefully your indemnification provision in your contract may not have the effect intended. Also, you should carefully analyze an indemnification provision that you may be subject to, to determine when it may be triggered.

The case Edmondson Property Management vs. Kwock (2007) 156 Cal.App.4th 197 provides a good example of when one party believed they had a Type I provision but was actually determined to be a general indemnity provision.

A Type I provision, that would require someone to indemnify another for their active negligence, must be clearly set forth. Otherwise, a court may interpret the provision to be a Type II which would only require an indemnitor to indemnify the other for passive negligence.

If you are the party who is demanding another to indemnify you, you most likely want your indemnification clause to be as strong as possible to cover you even where you are actively negligent. The opposite is true if you might have to pay for the losses of another person.

As you can see, indemnity clauses can be confusing. The indemnity provision in Edmondson stated, in part:

"Owner shall indemnify and save the Agent harm-less from any and all costs, expenses, attorney's fees, suits, liabilities, damages from or connected with the management of the property by Agent, or the perfor-mance or exercise of any of the duties, obligations, pow-ers, or authorities herein or hereafter granted to Agent."

The Appellate Court only found this to be a general indemnity provision. The lesson is that you may not be able to rely on simply saying that someone has to indemnify you for "all" harm or conduct. If a Type I indemnity provision is intended, it should be properly worded.

You should consult with an attorney regarding any questions you might have about indemnity provisions.