Is there a way to contract out of corporate law?

QUESTION:

One of our founders asked, “During a negotiation, when I said I do not want to be responsible for any liability that I’m not aware of, I was told by a lawyer from the other side of the table that I cannot contract out of corporate law and I must bear the burden no matter what.  But don’t companies often sign indemnification agreements with their officers and directors, promising to protect them from any liabilities?”

ANSWER:

Here’s an interesting article that says you cannot contract out of liability for your own negligence.  I interpret it to mean that you may be able to contract out of liability if the liability in question does not arise out of your own negligence.  But then, if you don’t have the indemnification clause or agreement in place, you may still be liable for someone else’s negligence.  So my advice is to get them to indemnify you as a safeguard, but don’t expect that indemnification to hold up in all cases.

Excerpts from the Article:

A general contractor may enforce an indemnification clause against its subcontractor for the damages attributable to that subcontractor’s negligence.

In Brooks v. Judlau Contr., Inc., 2008 N.E.2d 549 (N.Y. 2008), the Court of Appeals of New York interpreted a New York statute that stated, in essence, that a promise related to a construction contract meant to hold the promisee (the one to whom the promise is being made) not liable for injuries resulting from the promisee’s or the promisee’s agents’ negligence was against public policy.

An ironworker was injured when he grabbed onto a perimeter safety cable installed by the general contractor and the cable came lose causing the worker to fall 18 feet to the pavement below. The worker sued the contractor, and the contractor brought a third-party claim against the subcontractor seeking indemnification for the damages attributable to the subcontractor’s negligence.

The agreement between the subcontractor and contractor contained a provision that, according to the subcontractor, violated the New York statute because it purported to relieve the contractor of liability. The Court of Appeals disagreed. It noted that the contract provision did not violate the statute because the contractor only sought indemnification for another’s negligence, not for contractor’s own fault. The subcontractor, therefore, was liable to the contractor for any damages the contractor may have to pay for that did not result from the contractor’s negligence but from the negligence of the subcontractor.

Here’ the article…
http://southcarolinaconstructionlawyer.com/2009/03/06/contractors-you-cannot-contract-out-of-liability-for-your-own-negligence.aspx

Keep in mind that the answer to this question will vary from case to case.   It’s best to seek advice from your own legal counsel in an issue this complex.

Note:  Before making any business decisions based on information on this site, it is your responsibility to check with your counsel or professionals familiar with your situation.

Comments & Advice:
  1. Ethan Stone Ethan Stone says:

    It's hard to tell from the question exactly what you're asking. There are some things you can contract out of and some things you can't. As your questions suggests, if you can't actually avoid liability, you can often (not always) get someone to indemnify or insure you against it. Sometimes, that's almost as good as not having liability. Often, it's not.

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