Hello, I'm nearing the end of working out a contract with a potential associate, but one of the terms on the contract (below) seems to raise a few questions.

Quote: NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY INCIDENTAL, CONSEQUENTIAL, SPECIAL, OR PUNITIVE DAMAGES OF ANY KIND OR NATURE, INCLUDING, WITHOUT LIMITATION, THE BREACH OF THIS AGREEMENT OR ANY TERMINATION OF THIS AGREEMENT, WHETHER SUCH LIABILITY IS ASSERTED ON THE BASIS OF CONTRACT, TORT, OR OTHERWISE, EVEN IF EITHER PARTY HAS BEEN WARNED, OR WARNED OF THE POSSIBILITY OF ANY SUCH LOSS OR DAMAGE.

The contract is designed to allow the individual to share in profits-after-expenses. There are a number of terms indicating what occurs if the contract is terminated for any reason (e.g. the associate normally receives a percentage of profits-after-expenses, but the % of work the associate is responsible for is reduced to reflect the actual amount completed at the time of termination). The quoted text above, however, seems to directly negate much of those contractual obligations, basically indicating that if (a) the associate is terminated, and (b) I refuse to share profits with the individual as per the contract, I cannot be held liable for damages if the associate decides to sue me. I've Google'd some of the quoted text, and it seems to be common terms in many types of contracts. If it's so common, what's the point of the contract in the first place? Are we reading the paragraph incorrectly? Thanks,

First off, you should be consulting a lawyer on the contract. It is a specialized field of law, and needs specialized training to ensure that it actually does what you think it does.

That particular block is boilerplate. It is a general disclaimer that basically means if one party violates or cancels the contract, they can't sue the other party for inducing them break the contract.

It usually does not affect other remedies or conditions specified in the contract, so you are misreading that particular aspect.

It's a standard limitation on the type of damages you can claim in the event the contract is breached. It does not limit "actual" damages, only consequential and punitive damages. Basically a party to the contract can sue for the failure of the breaching party to pay royalties, but they can't tack on every other conceivable loss that flows from that breach only the losses that can be caluculated under the terms of the contract. Talk to your lawyer if you think this will negatively impact your company.