Four (4) Items You Should Always Pay Close Attention to In a Contract
Most people only bother to make sure a contract contains the services/goods/property they want to acquire, and the consideration they will need to provide in return. However, there are several items in a contract that you should always check for or know about before executing any agreement.
1. Indemnification and Hold Harmless SectionsMany people fail to understand or notice the Indemnification and Hold Harmless sections in the agreements they enter in to. To say this is a mistake is an understatement. These sections will contain language such as, "Party 1 will be responsible for any and all damages, costs, fees, etc. for litigation that arises from Party 2's performance under this agreement." It is very important that you realize what this means, especially if you will be the party responsible for indemnifying/holding harmless the other. An indemnification/hold harmless section requires a party to guarantee that they will not hold the other liable for injuries or damages, and that they may also reimburse them for losses they incure in respect to their performance under the contract (or other specified items). Essentially, you may be promising the other party that you will pay for their mistakes
2. Attorney's Fees and CostsI can not stress how important it is to scan through a contract and find any sections that state the responsibility of one party for the other's attorney's fees and costs. Generally, you will find a section either dedicated to attorney's fees and costs. or it will be lumped in to a "failure to perform" section. A clause such as this will generally state, "in the event that Party 1 fails to perform under this contract and Party 2 brings an action against Party 1 for breach, and Party 2 is successful in said action, Party 1 will be responsible to pay the attorney's fees and costs Party 2 expended in pursuing said action." What this means that is in the event that a party fails to perform under the terms of the agreement, and the other is forced to bring litigation, the non-prevailing party may be responsible for paying the other party's attorney's fees and costs. It should also be noted that these clauses can be "one-sided" meaning that one party may be able to seek this against the other, but the other party does not have the ability to seek it. This is a huge determining factor for many in deciding whether they will or will not pursue a claim.
3. Waivers and Limitation of LiabilityMany contracts will have a specific section which will be dedicated to informing what each side waives their rights to seek liability from the other for. These waivers and limitations of liability sections are generally for good reason as they will prevent a party from trying to hold the other liable for loses that occur in the course of performing the contract. However, you must read them as to realize what, if any, rights you are giving up, and what rights you still maintain in regards to the other party you are entering the contract with. Additionally, you will want to insure that the other party is waiving its ability to hold you liable for the incidental items that may occur in their performance of the contract. It is important that you read this section very thoroughly as it is generally very repetitive and confusing; however, it is also very important as you will want to know what you are able to hold the other party accountable for, and what they are able to hold you accountable too as well.
4. Choice of LawThe last section I will discuss is actually very simple to understand. Normally, if an action s brought regarding a contract, the jurisdiction and venue would have to be determined based on the applicable rules of civil procedure, where the action took place, where the parties are located, etc. However, if the contract contains a choice of law clause, it can specify which venue the matter will be heard in, and which states, jurisdictions, etc. law will be utilized in the event the contract is litigated. This is important because if the contract states that the venue will be held in Germany, and you live in Ohio, that will be a difficult court case for you to make it to. Additionally, the party that inserts the Choice of Law clause will also usually make sure that the jurisdictional law specified is beneficial to their position, and likely detrimental to yours. As such, it is very important to find this clause, if any is present in the contract, and make sure that the venue and jurisdiction are amiable.