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Old June 30th, 2004, 02:29 PM   #1
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Gotcha Terms in Contracts

There are a couple of real Gotchas in contracts that people like to throw in.

In my experience, these terms are so onerous as to possibly put you out of business or make you go broke. e.g., completely destitute.

Term One

Hold Harmless

Sounds simple, doesn't it? What it means is that you will exhaust all of your financial resources to pay off damages resulting from a lawsuit. Here's an example a local college just sent me:

"The contractors agrees to indemnify and hold harmless the District, its officers, agents and employees from any and all persons, firms or corporations for damage, injury or death arising from or connected with the Contractor's performance of this contract."

When I objected, they said it was to prevent me from suing the District. I disagree. What it actually requires me to do is become a financial wall between the District and the world should someone sue me and/or the District because of something I did.

They aren't asking for a million dollar insurance policy (Which I have), they want unlimited protection.

Now, were I a corporation, the most I would normally risk is my company. Since I'm a Sole Proprietor, I risk my company, my home, savings, retirement and just about everything of worth I have or will have in the future (assuming the judgment is larger than my business insurance).

So it is discriminatory against small businesses too.

And by the way, AAA won't issue a certificate of insurance for any contract that has this term. I suspect that The St. Paul (my business insuror) won't either.

The other term is:

Best Effort

As in, "the Contractor will use Best Effort to remedy a warranty problem with work performed."

What that means is you drop everything and use everyone in your company that can assist in the solution and work to solve the problem. Doesn't matter if you are in the middle of a Hollywood production, if your only DP is needed to fix the problem, you shut down the Hollywood production and go fix the problem.

What do you think, Paul, do you have more?
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Old June 30th, 2004, 05:19 PM   #2
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Mike, what you've described is one of the perils of not taking advantage of the shield offered by corporate status. A couple of points:

Quote:
Hold Harmless

Sounds simple, doesn't it? What it means is that you will exhaust all of your financial resources to pay off damages resulting from a lawsuit. Here's an example a local college just sent me:
As you noted, "hold harmless" is indemnity language. However, it is not limited to damages resulting from a lawsuit from whomever you indemnify -- you can be on the hook for all of their legal expenses, court costs, settlements, and even lost profits. If you must agree to an indemnity provision, make sure it is capped, e.g. indemnify up to policy limits, etc.

Quote:
Best Effort

As in, "the Contractor will use Best Effort to remedy a warranty problem with work performed."

What that means is you drop everything and use everyone in your company that can assist in the solution and work to solve the problem. Doesn't matter if you are in the middle of a Hollywood production, if your only DP is needed to fix the problem, you shut down the Hollywood production and go fix the problem.
Well, this one is a little overstated. Most jurisdictions will imply into "best efforts" the qualifier, "commercially-reasonable." Note, however, that when I review contracts for clients that have a best efforts provision, I will _always_ insert the term "commerically-reasonable."

Note that I don't view either of these as "gotchas." Contracts are always about quid pro quo, i.e. "this for that." They promise you something, and in exchange you promise them something. Indemnity provisions are reasonable. Example: I retain Victor's Valueless Video to shoot my event. Victor shows up with lights purchased at a Home Depot close-out sale -- the lights are manufactured in Iraq and aren't UL approved. Victor is using a miniDV camcorder with 1/120" inch CCDs, so he likes a lot of light. He plugs one hundred of these into extension cords that he bought at Walgreens. Halfway through the event the extension cords fuse, the resulting shower of sparks causes a fire injuring 200 guests and causing 10 million dollars in damage. Do you think it would not be reasonable for me to sue Victor?

As for best efforts provisions, they tend to be less onerous than, for example, a guarantee. Example: I contract with Wally's Wedding Videos to shoot my daughter's wedding. As it happens, I'm a ham radio hobbiest, and I invite all my ham buddies. We decide to broadcast the wedding around the world by setting up a 500,000 watt transmitter in the back of the chapel. The RF is so high, that it overwhelms Wally's cameras, and all the video shot has horrible herringbone RF incursions. What does Wally have to do? If it's a "commercially-reasonable best efforts" contract, he may try different noise-reduction plug-ins in his NLE. He does not have to go frame-by-frame, rotoscoping out the interference, nor does he have to stage a new wedding and reshoot.

Other things for videographers to watch out for:

Choice of law and jurisdiction in a state other than where you live. If you need to sue, or if you get sued, you don't want to have to get on a plane to do it.

Non-assignability provisions. Most likely, contracts for video production services will be considered personal services contracts and are not, in any event, assignable. However, if you employ a lot of shooters and there's a non-assignment provision, you very well may have to shoot the job yourself, rather than delegating to someone else.

Binding Arbitration: agree to this and you waive your right to sue (though it also means that you won't be sued).

That's all I can think of right now. I'll probably think of more, which I'll post along the way.
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Old June 30th, 2004, 07:19 PM   #3
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<<<-- Originally posted by Paul Tauger : Mike, what you've described is one of the perils of not taking advantage of the shield offered by corporate status. A couple of points:



As you noted, "hold harmless" is indemnity language. However, it is not limited to damages resulting from a lawsuit from whomever you indemnify -- you can be on the hook for all of their legal expenses, court costs, settlements, and even lost profits. If you must agree to an indemnity provision, make sure it is capped, e.g. indemnify up to policy limits, etc.

-------------------------
Very good point.
-------------------------


Well, this one is a little overstated. Most jurisdictions will imply into "best efforts" the qualifier, "commercially-reasonable." Note, however, that when I review contracts for clients that have a best efforts provision, I will _always_ insert the term "commerically-reasonable."

Note that I don't view either of these as "gotchas." Contracts are always about quid pro quo, i.e. "this for that." They promise you something, and in exchange you promise them something. Indemnity provisions are reasonable. Example: I retain Victor's Valueless Video to shoot my event. Victor shows up with lights purchased at a Home Depot close-out sale -- the lights are manufactured in Iraq and aren't UL approved. Victor is using a miniDV camcorder with 1/120" inch CCDs, so he likes a lot of light. He plugs one hundred of these into extension cords that he bought at Walgreens. Halfway through the event the extension cords fuse, the resulting shower of sparks causes a fire injuring 200 guests and causing 10 million dollars in damage. Do you think it would not be reasonable for me to sue Victor?

--------------------------------------
Of course you could and should sue. But if, on the other hand, Victor used common sense and good equipment and still had some problem, should he lose everything? As you say, placing limits is the reasonable bit. But most contracts I've seen don't offer that. It has to be negotiated in.

As I read the proposed contract again, I realize that it could not only be a disaster for me financially but should the college district, in some way, injure me, I have no rights for recourse either.
----------------------------------------

As for best efforts provisions, they tend to be less onerous than, for example, a guarantee. Example: I contract with Wally's Wedding Videos to shoot my daughter's wedding. As it happens, I'm a ham radio hobbiest, and I invite all my ham buddies. We decide to broadcast the wedding around the world by setting up a 500,000 watt transmitter in the back of the chapel. The RF is so high, that it overwhelms Wally's cameras, and all the video shot has horrible herringbone RF incursions. What does Wally have to do? If it's a "commercially-reasonable best efforts" contract, he may try different noise-reduction plug-ins in his NLE. He does not have to go frame-by-frame, rotoscoping out the interference, nor does he have to stage a new wedding and reshoot.

--------------------------
Again, my point is that a contract worded as I wrote the original is a real gotcha. Only if it can be reworded to include the equivalent of 'Commercial-reasonable does it become reasonable and not a gotcha.

If the text I used as examples is not modified, they are both genuine gotchas in my book.
--------------------------------

Other things for videographers to watch out for:

Choice of law and jurisdiction in a state other than where you live. If you need to sue, or if you get sued, you don't want to have to get on a plane to do it.

Non-assignability provisions. Most likely, contracts for video production services will be considered personal services contracts and are not, in any event, assignable. However, if you employ a lot of shooters and there's a non-assignment provision, you very well may have to shoot the job yourself, rather than delegating to someone else.

Binding Arbitration: agree to this and you waive your right to sue (though it also means that you won't be sued).

That's all I can think of right now. I'll probably think of more, which I'll post along the way. -->>>

Let's keep this going if we can. I'll try to remember some more bits from my contract negotiation days.
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