Here are the top 10 clauses that business owners often neglect to include in their contracts. The failure to include these clauses can make a huge difference in both the outcome and well and as the ultimate dollar amount of litigation, should such ensue. While each and every one of these clauses may not be applicable to every agreement, a contracting party should seek to include as many of these as are applicable in their contracts. As you read these clauses, you should consider yourself to be party AA and the party you are contracting with as party BB.
CLAUSE ONE. Arbitration.
Mindful of the high cost of litigation, not only in dollars, but in time and energy as well, the parties intend to and do hereby establish final and binding out of court dispute resolution procedures to be followed in the event any controversy should arise out of or concerning the performance of this Agreement. Accordingly, the parties do hereby covenant and agree that any claim of controversy, dispute or claim of whatever nature, including, but not limited to, the issue of arbitration, arising out of or relating to this Agreement, or the breach thereof, shall be settled by either negotiation, mediation or final and binding arbitration in accordance with the commercial rules of arbitration of the American Arbitration Association.
CLAUSE TWO. Waiver of Jury Trial.
AA AND BB EACH ACKNOWLEDGE THAT THEY ARE AWARE OF AND HAVE HAD THE ADVICE OF COUNSEL OF THEIR OWN CHOICE WITH RESPECT TO THEIR RIGHTS TO TRIAL BY JURY, AND EACH PARTY DOES HEREBY EXPRESSLY AND KNOWINGLY WAIVE AND RELEASE ALL SUCH RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CROSS CLAIM BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER (AND/OR AGAINST ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, OR SUBSIDIARY OR AFFILIATED ENTITIES) ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT AND/OR ANY CLAIM OF INJURY OR DAMAGE. FURTHERMORE, THIS WAIVER AND RELEASE OF ALL RIGHTS TO A JURY TRIAL IS DEEMED TO BE INDEPENDENT OF EACH AND EVERY OTHER PROVISION, COVENANT, AND/OR CONDITION SET FORTH IN THIS AGREEMENT.
CLAUSE THREE. Disclaimer of Warranties.
AA GRANTS NO WARRANTIES, EXPRESS OR IMPLIED, BY STATUTE OR OTHERWISE, TO BB REGARDING THE [list item that is the subject matter of agreement], ITS FITNESS FOR ANY PURPOSE, ITS QUALITY, ITS MERCHANTABILITY, OR OTHERWISE. THE LIABILITY OF AA SHALL BE LIMITED TO THE AMOUNT PAID BY BB FOR THE [list subject matter of agreement].
CLAUSE FOUR. Commencement of Action.
Any claim, demand, right, or defense by BB which arises out of this Agreement or the negotiations that preceded this Agreement shall be barred unless BB commences an action thereon, or interposes a defense by reason thereof within six (6) months after the date of the inaction, omission, event, or action that gave rise to such claim, demand, right, or defense. This deadline for asserting such claims shall apply irrespective of when BB knew or, through the exercise of reasonable diligence could or should have known of the existence of such claim, demand, right, or defense. BB has had the opportunity to consult with BB’s own legal counsel about the scope and effect of this paragraph. BB acknowledges, understands, and agrees that the purpose and effect of this paragraph is to shorten the period BB would otherwise have within which to raise such claims, demands, rights, or defenses under applicable law.
CLAUSE FIVE. Maximum Liability Amount.
NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, AA’S MAXIMUM AGGREGATE LIABILITY TO BB RELATED TO OR IN CONNECTION WITH THIS AGREEMENT, WHETHER UNDER THEORY OF CONTRACT, TORT (INCLUDING NEGLIGENCE), PROFESSIONAL ERRORS OR OMISSIONS, STRICT LIABILITY OR OTHERWISE, WILL BE LIMITED TO THE LESSER OF: (I) THE TOTAL AMOUNT PAID BY BB TO AA PURSUANT TO THIS AGREEMENT TO DATE, OR (II) $ [fill in].
CLAUSE SIX. Limitation on Liability.
IN NO EVENT WILL AA BE LIABLE TO BB, ANY REPRESENTATIVE, OR ANY THIRD PARTY FOR ANY LOST REVENUE, LOST PROFITS, INCIDENTAL, SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER UNDER THEORY OF CONTRACT, TORT (INCLUDING NEGLIGENCE), PROFESSIONAL ERRORS OR OMISSIONS, STRICT LIABILITY OR OTHERWISE.
CLAUSE SEVEN. Prior Insurance Resolution.
BB agrees that it will not pursue any claims against AA for any liability AA may have under or relating to this Agreement until BB first makes claims against BB’s insurance providers and such insurance providers finally resolve such claims.
CLAUSE EIGHT. No Third Party Reliance.
The information furnished to BB by AA is delivered solely for BB’s benefit and may not be furnished to, quoted, relied upon or used by any other person or entity or filed with any governmental agency for any purpose without AA’s prior written consent.
CLAUSE NINE. Transfer or Assignment of Interest.
In the event of any transfer of AA’s interest in this Agreement or in the subject matter of this Agreement, AA shall be automatically relieved of all further obligations or liability to BB. It is intended that the covenants and obligations contained in this Agreement on the part of AA shall, subject to the foregoing, be binding on AA only during and with respect to its period of ownership.
CLAUSE TEN. Bargained For Liability Limitations.
The provisions of this Agreement pertaining to liability limitation were mutually negotiated and that, but for their inclusion, the fees charged by AA to BB would have been greater or AA would not have entered into the Agreement.
Please feel free to contact our office if you would like us to review and make the necessary changes to your contracts in light of the foregoing.