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I got this contractor agreement from a company. Do you think it is proportional legally?

Representations, Warranties, and Covenants. Consultant represents, warrants, and covenants to Company that: (i) Consultant has the expertise to perform the Services, and all of Consultant’s Services performed under this Agreement and any Statement of Work shall be performed, in a timely and high quality manner by qualified personnel consistent with industry standard procedures; (ii) all Work Product (defined below) produced by Consultant pursuant to a Statement of Work shall conform to the specifications set forth in the applicable Statement of Work and shall perform in a manner satisfactory to Company for a period of one (1) year from delivery; (iii) no Work Product produced by Consultant under this Agreement or any Statement of Work shall infringe the rights of any third party under United States intellectual property or other laws or the laws of any applicable foreign jurisdiction, and Consultant has not included any information, data, computer code, or any other property that was not originally created by Consultant or its employees or that is owned or controlled by any third party other than that, if any, set forth in an applicable Statement of Work; (iv) no portion of the Work Product or the media upon which it is stored has any type of software routine or other element that is designed to permit: (a) unauthorized access to or intrusion upon, (b) disabling of, (c) erasure of, or (d) interference with any hardware, software, data, or peripheral equipment; (v) Consultant’s execution and performance of this Agreement and all Statements of Work do not and will not violate the legal or contractual rights of any third party; (vi) Consultant shall at all times abide by all federal, state, local, or other laws respecting the performance of the Services, the production of the Work Product and any and all applicable policies of Company; (vii) Consultant has the power and authority to execute, deliver, and perform under this Agreement; (viii) this Agreement constitutes a valid and binding obligation enforceable in accordance with its terms; and (ix) Consultant will comply, in all respects, with the provisions of this Agreement.

Indemnity. Consultant shall indemnify, defend and hold Company and its directors, officers, employees, members, agents, parents, subsidiaries, and affiliated companies harmless from and against all claims, actions, liabilities, losses, expenses, damages, and costs (including, without limitation, reasonable attorneys’ fees) that may at any time be incurred by any such indemnified party and that arise out of or relate to: (i) any breach by Consultant, its agents, employees, permitted subcontractors or representatives of any of the representations, warranties, covenants, or terms of this Agreement; (ii) any negligence or willful misconduct of Consultant, its agents, employees, subcontractors, or representatives; and/or (iii) the infringement by the Work Product of any third party rights.

Effect of Termination. Except as otherwise provided in this Agreement, any and all rights and obligations of the parties under this Agreement shall terminate upon termination of this Agreement. In the event that Company terminates this Agreement pursuant to Section 5.1, Company will reimburse Consultant for all Services rendered satisfactorily by Consultant and for any reimbursable expenses incurred by Consultant in conformance with this Agreement through the termination of this Agreement. In the event Consultant breaches this Agreement, the parties agree that Company will suffer damages that would be difficult to ascertain. Therefore, Consultant agrees that Company shall not be required to further pay Consultant and shall be entitled to recover all fees paid to Consultant as liquidated damages and not a penalty in addition to all other rights and remedies available to Company in law and in equity which may be granted by a court of competent jurisdiction.

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  • Do you know what country you and the company are in? Jul 3, 2021 at 13:38
  • @@János No Work Product […] shall infringe the rights of any third party under United States intellectual property or other laws or the laws of any applicable foreign jurisdiction […] (vi) Consultant shall at all times abide by all federal, state, local, or other laws respecting [...]
    – kisspuska
    Jul 3, 2021 at 14:20
  • Maybe they added it later, but this is clear now that the company operates under U.S. law, and it would be very unusual if they would allow the contractor’s jurisdiction to govern the provisions of it, or leave it to chance. The is probably a clause for U.S. jurisdiction with a state and probably the city is signed too though that probably won’t make much of a difference overall.
    – kisspuska
    Jul 3, 2021 at 14:22
  • Hi, the company is in US, in Delaware.
    – János
    Jul 4, 2021 at 9:09

3 Answers 3

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The conditions are largely unremarkable

They pretty much set out the terms that would largely be implied between a principal and an independent contractor.

Paragraph 1 basically states that the contractor will do what they are contracted to do without breaking the law. Which is what everyone is supposed to do.

Paragraph 2 says the contractor will indemnify the principal from third-party claims if they break the contract, are negligent or nick someone else’s IP. Because contractors are responsible for their own civil wrongs.

Paragraph 3 tries to impose a liquidated damages clause. On the face of it, it looks unenforceable.

Not because it’s excessive, damages can be as big or larger than contract sum, for example, if you pay a structural engineer $1m to design a $60m bridge which falls down and kills 386 people, the damages are going to be waaaay bigger than the fee. No, it’s unenforceable because the LDs are not a genuine pre-estimate of the damage the principal could suffer - your fee bears no relationship to their loss as far as I can see. LDs must be a genuine pre-estimate of the loss, a daily figure based on loss of income for being late, expected loss of profit from non-delivery - something like that.

Of course, as an independent consultant, you should have professional indemnity insurance. Run this past them, if they say you’re covered, go ahead, if not ask them what changes need to be made.

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  • Exactly. Any breach to result in full reimbursement shows zero good faith effort to evaluate the actual damages. Although, startup companies have a standard practice of offering share options and if you breach to the extent of giving rise to termination, it typically will result in losing all share options accrued before the “cliff” or during the “cliff period” (the time one may not exercise their options and has to provide services per the contract to be able to)
    – kisspuska
    Jul 3, 2021 at 14:55
  • @kisspuska but that’s not a penalty or damages clause, that’s simply a condition of “payment”
    – Dale M
    Jul 3, 2021 at 23:44
  • @@Dale M Yes, I just wanted to mention that it appears on that analogy, but I neither thought this language would fly.
    – kisspuska
    Jul 3, 2021 at 23:53
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Can such a stringent conditions be expected of a backend developer in a ctract agreement?

Many people/entities will always try to get a benefit for free. But even if the language in bold is stricken in court (as contrary to public policy, as null and void, and so forth), the consultant ought to ask himself whether it makes sense to risk that the ensuing litigation could end up in a corrupt court, and whether it makes sense to put himself --even if only on paper-- in a position of possibly working for free.

The consultant is better off by asking the company to remove the language in bold. The company's refusal can be an indication of the company's intransigence on anything else, and/or its planned breach of the implied covenant of good faith and fair dealing.

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You didn't even mention the location where you are, so nobody can answer if this contract is legal.

But it doesn't matter. The question for you is not whether this contract is legal, the question is whether you want to enter into this contract. To me, the answer is NO. Not worth the possible trouble.

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  • […] shall infringe the rights of any third party under United States intellectual property or other laws or the laws of any applicable foreign jurisdiction […] (vi) Consultant shall at all times abide by all federal, state, local, or other laws respecting [...]
    – kisspuska
    Jul 4, 2021 at 1:21
  • It is pretty clear that where OP is, in all likeliness, completely irrelevant, by international law, he is entitled to enter into a contract under U.S. jurisdiction, if he's in the U.S., that will rule. And, of course, there might be specific state or local laws, but you can still proceed to answer based on the current jurisdictional scope and limitations.
    – kisspuska
    Jul 4, 2021 at 1:23

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