Standard form of contract

Standard form of contract

A 'standard form' contract is a pre-prepared contract where most of the terms are set in advance and little or no negotiation between the parties occurs. Often, these are printed with only a few blank spaces for filling in information such as names, dates and signatures.

Standard form contracts often include a lot of legal 'fine print' and terms that you may not understand. They tend to be one-sided documents that mostly benefit the person who prepared the contract (for example, by shifting as much risk as possible to the contractor). If you don't understand the fine print or any other part of the contract, you should get advice. If you sign the contract, you will be required to comply with the fine print even if you didn't actually read it.

Tips for standard form contracts

Read every word before you sign

Read the fine print carefully and get advice about any terms you don't understand before you sign. Once you sign a contract you are bound by all of its terms. If there is an indemnity clause, don't sign until you understand the risks you are agreeing to accept if something goes wrong.

Cross out any blank spaces

Don't leave any spaces blank. If you don't need to fill in a blank space, always cross it out so the contract can't be changed after you sign it.

Negotiate

You have the right to negotiate any contract before signing, including a standard form contract. But remember that both parties must agree to any changes and record them in the contract you sign. Your union or industry association or a lawyer can help you prepare for negotiations.

Keep a copy

You should always have a copy of any contract you sign. It is best if you and the hirer sign two copies of the contract, so that you can both keep an original. If this isn't possible, ask for a photocopy and check that it is an exact copy. Remember to keep your copy somewhere safe for future reference.

A lawyer, your union or industry association might be able to provide you with information about some common standard terms used in contracts in your industry. They may also be able to provide you with a standard form contract for you to use.

Periodic Contracts

Periodic Contracts

Some independent contractors and hirers use a 'period contract', which is a contract template that sets out the terms for a business relationship where the contractor is engaged to perform work from time to time.  In the building and construction industry, these contracts are called 'period trade contracts'.

The contract template will apply each time the hirer offers work to the contractor and the contractor accepts it.  This can occur when the contractor provides a quote and receives a work order from the hirer, or the parties might sign an addendum (an addition to the contract) that sets out the specific work to be done or result to be achieved. Once the work starts, the contract template and the work order or addendum will form the total contract for the specific work.

Period contracts can work well for both parties. They allow for the flexibility of performing intermittent work over an agreed period.  However, you should check the terms of the agreement to do each new job. Are they the same as those set out in the original contract template? Any term or condition that is different for a particular job, may change the terms of the original contract template.

If you are unsure about anything related to a period contract, get advice before you sign or agree to new work, even if you have performed work for that hirer previously.

Tip: Before you agree to start a new job under the contract template, check whether the terms and conditions are the same as those set out in the original contract template.  If not, don't take on the work until you are happy with the changes to the contract.

Letter of Indemnity

Letter of Indemnity

A letter of indemnity is used in business transactions to assure one party that they will not suffer financial loss if the other party cannot fulfill part of the contract. 

When two parties agree to a contract they both have obligations. Usually, one party agrees to pay the other party, who agrees to provide products or services. If one party breaches the contract (doesn't do what they agreed to do), the other party may suffer a loss, either losing the payment or not receiving the goods or services.

The concept of indemnity is about holding someone harmless and not having that person or business suffer a loss. A letter of indemnity is written to reassure the other party with specific measures that will hold them harmless. Since the letter is in writing, it is an additional assurance to the other party. 

You might be wondering why you need to write an actual letter, rather than just talking to the person about the issue. It's important to remember that a letter of indemnity is also a written contract, which means your assurance can be taken to court if you fail to deliver on the promises made in that letter. Just talking about the issue and making verbal promises will not be enough if the other party decides to take you to court. 

Examples of Letters of Indemnity

Let's say you have a painting business and you have signed a contract to paint an office building and you have already received a deposit.

Then you find out that the paint you agreed on is out of stock and there is no guarantee that the paint will be available any time soon. You could write a letter of indemnity assuring the other business that you will find acceptable paint, return their deposit, or find someone else to do the work. The letter, as noted above, is a reassurance that the customer won't suffer a loss because you couldn't fulfill your part of the bargain.

In another common example, you may agree to use a credit card to buy services for someone else. (This might happen if you buy airline tickets for someone.) The credit card company may question the transaction because it doesn't want the liability if you refuse to pay. You might need to write a letter of indemnity to the credit card company stating that you agree to pay the charges. 

In another more personal example, your neighbor might want to borrow your truck to do some moving. You are concerned that the truck might be damaged or that the items being moved might be damaged and you might have liability. You could ask your neighbor to sign a letter of indemnity stating that you would be held harmless and that the neighbor would pay for all damage in case the truck or the items are damaged. (Yes, insurance might come into this example, but you might not want to have to file an insurance claim.)

When a Letter of Indemnity Might Be Needed

Often a letter of indemnity is written by a third party, often a bank or insurance company. If a business has a loss on a piece of property and the insurance company has agreed to pay the claim, the insurance company may write a letter of indemnity to the mortgage holder assuring that the insurance proceeds will go towards repair of the property.

Letters of indemnity are common in shipping. A shipment may arrive at a customer's location but no bill of lading is available to check against the list of items in the shipment. The customer may be reluctant to accept the shipment because they have no way of knowing if it's complete. A letter of indemnity would be written in this case to assure the customer that they would not suffer a loss if something is missing. 

What to Include in a Letter of Indemnity

1. Begin the letter confirming the contract already in place with the other party. Include the circumstances—"We agreed that ..."— and emphasize your acceptance of the terms of the contract. 
2. Explain what might happen to cause you not to complete the contract. You don't need to go into a lengthy explanation, just a brief sentence or two is fine. 

1. Describe what you will do to make sure the other party doesn't suffer a loss. Be specific. Offer alternatives. 
2. Emphasize that your commitment that the other party will not have to pay more or suffer any kind of loss if you can't fulfill the contract.

Indemnity in Business Contracts

Indemnity in Business Contracts

Indemnity is defined as "a duty to make good any loss, damage, or liability incurred by another" (Black's Law Dictionary). The term comes from a  late Middle English word meaning "unhurt, free from loss." The principles described in the terms "indemnity" and "indemnify" are interrelated so these terms are defined and explained together.

Indemnify and and Indemnification

To indemnify someone is to absolve that person from responsibility for damage or loss arising from a transaction.

 Indemnification is the act of not being held liable for or being protected from harm, loss, or damages, by shifting the liability to another party. Both terms relate to liability, specifically being sued for one's actions. 

Indemnity - Variations in Meaning 

Indemnity also includes an understanding that an injured party has a right to claim reimbursement or compensation for a loss or damage from the person who has the duty. This concept is seen often in civil lawsuits relating to negligence claims. 

Indemnity refers in some contexts as compensation for loss or damage from the actions of another party. 

Indemnity can also refer to a legal exemption from loss or damages, as in the case of an indemnity clause in a contract, in which one party agrees to take the liability for loss or damage from another party. In this case, indemnity has the general meaning of "hold harmless."

No Indemnity for Illegal Activities

A person can attempt to be indemnified (held harmless) for doing their duty or acting within the scope of of their job.

But indemnity doesn't carry over into illegal acts, like theft, harassment, and fraud. For example, a corporate financial officer may have made a mistake in an important financial report. The officer may be protected from being sued for this mistake. But if the financial officer embezzles money from the company, this is a crime and there's no indemnity protection.

Indemnity and Hold Harmless Agreements and State Laws

An indemnity agreement is sometimes called a hold harmless agreement, because it is an attempt to make sure that one party does not attempt to sue another party for negligence.

At present, 42 states have some kind of state laws that limit the inclusion of indemnity clauses or agreements. While indemnity agreements are a protection against lawsuits, they don't allow compensation for loss or damage.  

Even where these clauses are not restricted, courts have held that indemnity clauses must be expressed in "clear and unequivocal terms" (Maine) or, "very clearly intended" (Nevada). 

Indemnity and Contracts

Indemnity usually arises in contracts, either as a separate indemnity agreement or as an indemnity clause in a contract. This language is included in cases where there is a possibility of loss or damage to one party during the term of, or arising from the circumstances of, the contract. The right to indemnity and the duty to indemnify ordinarily stem from a contractual agreement, which generally protects against liability, loss, or damage.  

Uses of Indemnity Agreements in Business

Indemnity in construction contracts. Indemnity clauses or agreements inconstruction contracts are an attempt to protect the contractor from lawsuits and losses due to negligence.

Some states 

Indemnity and Insurance
One of the best examples of indemnity is insurance, which an insurance company indemnifies a property owner from losses or damage to that property. The business owner basically transfers the risk of having to pay for negligence to the insurance company. 

In another example, business owners may buy indemnity insurance for professional liability. Allena Tapia, of TheBalance, explains how the concept of indemnity insurance can protect freelance writers.

Examples of Indemnity Clauses in Contracts

 Example 1: Here is an example of a simple indemnity clause in a contract:

"I hereby release, acquit and discharge [company] and its agents and employees from any liability arising from any circumstance including the negligence of [company] or its employees.

Example 2: Many states include an indemnity clause in the template for articles of incorporation (the document used to register a corporation with a state).

These standard indemnity clauses seek to protect the corporation's directors, executives, employees, and agents. A sample indemnity clause might state: 

The Board of Directors, officers, employees and agents of the Corporation will be indemnified and held harmless by the Corporation and its shareholders against any claim...arising out of the individual's participation in the affairs of the Corporation. 

But a typical indemnity clause may also state that these individuals aren't entitled to indemnity for liability for gross negligence, willful misconduct, or breach by the individual of any provisions of the agreement. 

Indemnity Agreements

Indemnity Agreements

To explain an indemnity agreement, it is first necessary to define the term "indemnity." Indemnity is defined as "a duty to make good any loss, damage, or liability incurred by another (Black's Law Dictionary). Indemnity has the general meaning of "hold harmless;" that is, one party holds the other harmless for some loss or damage. Some variations of meaning for the term "indemnity:"

• Indemnity also includes an understanding that an injured party has a right to claim reimbursement or compensation for a loss or damage to the person who has the duty.
• Indemnity can also refer to compensation for loss or damage from the actions of another party
• And indemnity can also be described as a legal exemption from loss or damages, as in the case of an indemnity clause in a contract.

The Type of Business That Would Use an Indemnity Agreement

The most common case of a business that has indemnity agreements is in construction. But any business with employees may want those employees to sign an indemnity agreement to protect against employee lawsuits. Rental car companies also use indemnity agreements to protect against lawsuits from accidents involving rental car drivers.

Indemnity Agreements and Dangerous Activities

Businesses that offer somewhat dangerous activities to the public (skiing, para-sailing, amusement park rides) require that the members of the public sign an indemnity agreement releasing the business from liability in case of an accident. In reality, if the business is found to be negligent (faulty equipment, poor maintenance), the individual who was injured still has a claim against the company.

An indemnity agreement (sometimes called a "hold harmless agreement" can be a contract or a section of a contract. In these cases, an indemnity agreement is contract language that indemnifies (holds harmless) one of the parties in a contract for specific actions that might cause damage to the other party.

Examples of Indemnity Agreements

• A kennel may want an indemnity agreement in a contract with a pet owner to keep the kennel from being sued for damage caused by the owner's pet to other pets. I this case, the pet owner is being asked to indemnify the kennel owner (to hold the kennel owner harmless) for damages caused by the pet.
• Indemnity clauses are often found in intellectual property licensing agreements.
• In another general example, a landlord may require a tenant to sign a "hold harmless" clause in a rental agreement, agreeing that the landlord is not responsible for damages caused by the tenant's negligence.

In each of these cases and many others, Party A must be persuaded to sign a contract which could cause him or her to be sued. So, Party B is being required to indemnify Party A, so the contract can be signed.

Types of Indemnity Agreements

Indemnity agreements are found commonly in construction contracts. In this context, there are several types:

• Broad form indemnity agreements, also called "no-fault" agreements, have been common in construction contracts where all loss is placed on the sub-contractors. Many states have declared this type of indemnity agreement to be illegal.
• Limited indemnity agreements state that the subcontractor pays for all damages caused by the subcontractor's own negligence. This type of indemnity agreement still places a heavy burden on the subcontractor.
• Comparative form agreements or clauses are based on the common law principle that negligence is based on actions over which the actor has complete control.

Typical Parts of an Indemnity Agreement

The specific form of an indemnity agreement varies by state law. This is a general overview of what you might find in an indemnity agreement. The two parties will be described: 

• The Indemnitee - the person wanting protection
• The Indemnifier - the person promising (warranting) to minimize harm to the indemnitee

The agreement may describe consideration (usually a sum of money) that will be used to secure the agreement. The agreement will state the specific terms under which the indemnitee will be held harmless. This is fairly complicated legal language. 

Exclusions to the agreement will be described. One common exclusion is negligence or fault of the indemnitee. That is, if the indemnitee can be shown to be negligent, the indemnification doesn't work (the indemnitee is at fault and can be sued).

A claims process will be described, including when a claim must be filed and the limits to the claim. The agreement will state who has the burden of proof; usually, the indemnifier must prove that the claim is not appropriate. These are the main parts of an indemnification agreement, mostly procedural. 

Why Do We Need Contracts and Agreements?

Why Do We Need Contracts and Agreements?

 Back in the "olden days," there were few written business contracts. Many business and personal deals were done with a handshake. and if there was a problem, the two parties could take the issue to a court, who would hear it even if the contract was not put into writing.

Today, although a verbal contract is still legal (except for specific situations, most contracts are in writing. Contracts are very detailed these days, and every effort is made to make all possibilities clear. In addition to being clear, a contract must meet certain criteria to make sure it can be enforceable. A contract that is enforceable can be taken to court for a decision on a disputed item. If a contract does not have the essential ingredients, it is not enforceable.

Most contracts never see a courtroom and they could easily be verbal unless there is a specific reason for the contract to be in writing. But when something goes wrong, a written contract protects both parties. If one party to a valid (enforceable) contract believes the other party has broken the contract (the legal term is "breached") the party being harmed can bring a lawsuit against the party who it believes has breached the contract.

The legal process (called "litigation") determines whether the contract has been breached or whether there are circumstances that negate the breach. But, remember, the court will only hear a contract dispute if the contract is valid.

Essentials of Business Contracts

There are six essential elements for a contract to be valid (enforceable by a court). The first three, considered here together, relate to the agreement itself; the other three relate to the parties making the contract. 

• Offer, Acceptance, and Mutual Consent: Every contract must include a specific offer and acceptance of that specific offer. Both parties must consent of their free will. Neither party can be coerced or forced to sign the contract, and both parties must agree to the same terms. Implied in these three conditions is intent of the parties to create a binding agreement. If one or both parties are not serious, there's no contract.
• Consideration: There must be something of value exchanged between the parties. The thing of value may be money or services, but both parties must give something (otherwise, it is a gift, not a contract).

• Competence: Both parties must be of "sound mind" to comprehend the seriousness of the situation and understand what is required. This definition requires that neither party be a minor, both must be sober (not under the influence of drugs or alcohol when signing the contract), and neither can be mentally deficient. If one party is not competent the contract is not valid and the non-competent party can disavow (ignore) the contract. 
• Legal Purpose: The contract must be for a legal purpose. It cannot be for something illegal, like selling drugs or prostitution. Remember that it is not illegal to enter into a contract that doesn't have all of these essential items; it just means that if an essential is missing the contract cannot be enforced by a court.

When a Contract Has to Be in Writing and When It Doesn't 

As noted above, verbal contracts can have the force of law, but there are some types of contracts that must be in writing, like long-term contracts and contracts for marriage (pre-nuptials). There is also such a thing as an implied contract. You can unknowingly enter into a contract with someone and be forced to abide by its terms.

What Terms Should be Included in an Employment Contract

What Terms Should be Included in an Employment Contract?

Most employers require administrative, professional, and executive employees to sign an employment agreement or contract (the two terms mean essentially the same thing). Employment contracts are not required, except in specific cases., and they can protect both the employer and employee. Hourly employees typically do not have written contracts, but terms of employment might be spelled out in an employee handbook or policies/procedures manual. 

The agreement sets out the duties of the employee and employer and provides the employer with the opportunity to clarify the relationship, as well as including restrictive covenants to protect the employer. 

These terms are for contracts between employees and employers. Other terms and conditions apply to agreements with independent contractors. 

Specific Contract Terms to Include

Although the specific terms or articles required in an employment contract vary by state and by type of employment, the following terms and conditions are usually in these types of agreements:

• Identification of the parties, including, in some cases, addresses and other identifiers. 
• Effective Date of the agreement
• The type of employment, full-time or part-time, salaried or hourly, professional, and the type of services provided by the employee
• Duties of the employee, including maintenance of professional licenses, ethical actions
• The Extent of Services, including hours and days of work
• Benefits provided to the employee. These may be specific or the agreement may refer to an employee handbook or benefits listing for all employees

• Termination, describing the circumstances under which either party may terminate the relationship, and the notice required
• Notices. How notices of actions must be sent and received by each party. This section describes the process of serving notice to the parties, including by mail, email, or other, and when notice is assumed to have been received. 
• Severability. This contract section states that one part of the contract is found to be invalid, the rest of the contract remains valid. 
• Dispute process. In many contracts these days, the dispute process is spelled out, including whether there is a mandatory arbitration process instead of having disputes tried in a court. 

• Applicable law. This section is a statement about the state in which the contract is effective. This is the state in which any disputes about the contract will be adjudicated (tried in court). 

Restrictive Covenants in Employment Contracts

These agreements may be articles in an employment agreement, or they may be separate agreements. These agreements are not found in all employment contracts but depend on the type of employment and level of employment (executive employees or corporate officers, for example). 

• A noncompete agreement, restricting the employee's competition with the employer during or after termination
• A nonsolicitation agreement, in which the employee agrees not to solicit employer's customers or other employees
• A confidentiality agreement, in which the employee agrees to keep trade secrets, proprietary information private.

Contract Review by an Attorney

If you want to prepare an employment contract or you are asked to sign an employment contract, you should get an attorney to help you, or at least to review the contract. State laws are always changing, and you don't want to find out later that you missed an important clause or misread the contract.