Well, the price of oil is up a “bit” today. Here is a good reminder when drafting those “nasty” indemnity clauses:
In every purchase and sale agreement, there is an indemnity clause. Indemnity clauses, which appear in many, many contracts and many, many types of contracts, are drafted to relieve one party to the contract from future liability. This is an important provision in any purchase and sale agreement.
In Texas, for an indemnity agreement to be binding, it must be “conspicuous.” Sometimes the test is known as “fair notice.” While an argument can be made that parties to a multi-million dollar contract should thoroughly understand their contract, this is the rule. And there are instances where the indemnity was deemed to be “buried in the contract and inconspicuous” and thereby unenforceable.
Fortunately, our Texas Supreme Court, in the case of Dresser Industries, Inc. v. Page Petro., Inc. et al, 853 SW2d 505 (Texas 1993), laid out what is a very close to a bright line test:
1. A term or clause is conspicuous when it is so written that a reasonable person against whom it is to operate ought to have noticed it.
2. A printed heading in capitals (e.g. INDEMNITY) is conspicuous.
3. Language in the body of a form is conspicuous if it is larger than other language.
4. Language in the body of a form is conspicuous if it is in contrasting type.
So, let’s make sure that indemnity clause is enforceable by doing the following:
1. Make the indemnity provision a distinct provision (separate, for instance, from insurance coverage – not Insurance, Indemnity, & Subrogation, for instance)
2. Title the provision – INDEMNITY(in caps, bolded, in a different font, in a larger font size)
3. In the body of the indemnity clause – PUT EVERYTHING IN CAPS, BOLD EVERYTHING, PUT IT IN A DIFFERENT FONT, AND THEN PUT IT IN A LARGER FONT SIZE.
This way, when the buyer or seller decides to “waffle” on the deal, the inconspicuousness of the indemnity clause will not provide the “waffler” a potentially easy out.
by Jack M. Wilhelm
Edward Wilhelm and Jack Wilhelm provide assistance to buyers and sellers of oil and gas properties.
THE WILHELM LAW FIRM, 5524 Bee Caves Road, Suite B5, Austin, Texas 78746; (512) 236 8400 (phone); (512) 236 8404 (fax); www.wilhelmlaw.net
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