The BUSKLAW February Newsletter: "What's in Your Contracts?" The Case for Auditing Your Contracts (Part 2)
In last month's newsletter , we discussed the importance of auditing your business contracts and pointed to five potentially troublesome provisions: identification of the parties, agreement term, payment, intellectual property rights, and confidentiality . But there are additional provisions that deserve careful scrutiny: > Indemnification. To understand this concept, start with three players: the parties to the contract (call them Able and Baker) and a third player who isn't a contracting party (call him Charlie). Let's say Able manufactures widgets, Baker sells them in its retail stores, and Charlie is a customer who purchases an Able-produced widget from Baker. The widget injures Charlie. Charlie's lawyer sues Able and Baker because Able produced the widget and Baker sold it to Charlie. Baker's only involvement was selling the widget, so he tells Able to take care of it, i.e., defend him in the lawsuit and pay the settlement or the court judgment if the c...