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A letter of indemnity may help prevent a lawsuit

Entering into an agreement with another party is something that many business owners do. They may have contracts with other businesses, employees, clients or customers. When you enter into those contracts, you undoubtedly have every intention of upholding your end of the deal to the best of your and your company's ability.

Of course, a situation could arise in which you cannot keep your end of the bargain for a business-related agreement. It may be due to factors outside of your control, such as a vendor being out of a specific product or item you intended to use. As a result, you may end up in breach of the contract you created. What can you do?

Consider a letter of indemnity

When you know that you will not be able to stick to the terms of a business agreement, you may worry about the other party suffering losses and your business facing liability for those losses. However, you may have the ability to find an alternative solution that would prevent the other party from sustaining any losses. You could propose this alternative in a letter of indemnity.

Essentially, a letter of indemnity works to inform the other party that you cannot abide by the terms of the agreement but that you have an alternative avenue for meeting the other party's needs without their suffering any losses. This letter can work in an attempt for you to request that the other party hold you harmless despite your not following through with the terms of the agreement.

The letter is also a contract

In order for a letter of indemnity to work, you and the other party have to agree and sign it. As a result, it works like a new contract. You will need to create the letter in accordance with California business laws to ensure that it is legally binding. You certainly want this letter to stand up to any tests because it can protect you in various ways. 

First, it could prevent the other party from holding you liable for not following through with the initial contract. Secondly, it could act as evidence in court in the event that the other party tries to sue you for breach of contract despite signing the letter of indemnity. Because this document could be of significant benefit to you and your company, you may want to enlist the help of an experienced business law attorney when considering using this option.

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