Because contracts are so important to business transactions, it is necessary for both sides to stay compliant with the agreed-upon terms. If a breach of contract occurs, or even a perceived breach, the parties involved could end up in a serious conflict. As a result, in efforts to avoid litigation, a California company may consider using a letter of indemnity.
In some cases, circumstances could arise that result in a company being unable to uphold its end of an agreement. The issue may have been unforeseeable, but the company still does not want to breach the terms of the contract. As a result, that company could utilize a letter of indemnity to explain the issue and reassure the other party that it will not suffer damages due to the issue.
Essentially, the letter works in efforts to release the company that cannot uphold its end of the deal from legal liability. A letter of indemnity works as a contract in itself, so it is important that it is created correctly and in accordance with applicable laws. The party that cannot uphold its end of the deal can offer alternative solutions in this letter to ensure that the other party will not suffer losses. In the end, both parties involved must sign the letter in agreement.
Of course, even with a letter of indemnity, a breach of contract lawsuit could still result. If so, the company that issued the letter may be able to bring it as evidence in court. Before creating a letter of indemnity or finding alternative ways to handle a potential breach, California business owners may want to discuss their options with their legal counsel.