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Richard J. Lambert was named by Best Lawyers® as a 2021 Corporate Law “Lawyer of the Year.”

Best Lawyers® is the oldest and most respected peer-review publication in the legal profession. Only one lawyer in each practice area in a given community is honored as “Lawyer of the Year.”

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A letter of indemnity could head off a breach of contract issue

As a small business owner, you have likely had many contractual obligations during the course of your company’s operations. Because you understand the importance of upholding contract terms, you do your best to always remain compliant with any agreements you come to with other parties. Of course, you expect the same from them.

However, certain circumstances could end up out of your control, and though you agreed to certain terms, some extenuating factor may make it nearly impossible for you to carry out your side of the deal. You do not want to end up in breach of the contract terms, so what can you do?

A letter of indemnity

Fortunately, you do not have to resign yourself to simply breaking the terms of a business agreement and facing the repercussions. If you know that you will not have the ability to fulfill a promise made through a contract, you may have the chance to offer the other party an alternative to the agreed-upon deal.

A letter of indemnity essentially lets the other party know that your company cannot uphold its end of the bargain and requests that the other party does not hold your company at fault for the issue. Your letter can also explain how you and your business intend to address the problem so that the other party does not suffer any damages as a result of the issue.

Another agreement

A letter of indemnity is not simply a notice that you should provide the other party. It is a document that you and the other party should sign and consider a new contractual agreement. This agreement ensures that everyone understands why the terms of the original contract do not work, what the alternative arrangement is and that all parties involved agree to the new arrangement.

Signing the letter can provide protections to the other party by knowing how you intend to fix the problem and can protect you and your business from the other party trying to sue you for breach of the original contract.

Writing the letter

A letter of indemnity does need to include certain information, and because it becomes a legally-binding document, you want to ensure that it meets the necessary stipulations for such a letter under New Jersey business laws. Fortunately, if you believe that your company will not be able to uphold its end of a business contract, you can contact your legal counsel to discuss options, like a letter of indemnity, for addressing the issue head on.

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