Beware of anyone using Latin phrases in a contract. I was involved with a negotiation and received a mark up to a number of sections in the agreement where the supplier’s outside counsel had added a statement that the clause would apply to them “Mutatis mutandis”. This wasn’t a term I was familiar with after many years of negotiations so I needed to do research. What I found was it meant “by changing those things which need to be changed" or "the necessary changes having been made". What they were proposing was that those terms be mutual without coming out and saying that. Armed with that knowledge I reviewed the changes a second time to determine if it made sense for the supplier to have those same contract protections.
I work off a general rule that since the relationships under a contract are different the commitments should be different.
For example, under law the parties to a contract are treated different. A buyer who hires a supplier is considered a principal, the supplier is consider an agreement of the buyer. This means a buyer can potentially be liable for the actions of a supplier under the concept of agency. As agents aren’t liable for the acts of the principal, the supplier cannot be liable for the actions of the buyer. The only exception to that would be where the buyer specifically directs what the supplier must provide (such as making something to a buyer provided designs) or directing how they must implement their design. That latter situation is usually already addressed in most contracts where the supplier is excused from in indemnifying the buyer for those acts. Since the legal relationship and risks aren’t the same, why should the commitments be the same?
The second thing to consider is the obligations of the parties under the contract. In the vast majority of purchase contracts, the buyer’s primary obligation is to make payment for the goods or services they purchase. The supplier has far more obligations. For example the buyer may ask for a number of warranties regarding the product or service the supplier will be providing. What warranties does the buyer really need to provide when their primary obligation is to make payment? The terms don’t apply equally to both parties simply because the obligations of the parties aren’t equal, and the risks aren’t equal.
When it comes to the supplier’s product or services, the supplier is the one that has the ability to manage and control the risks associated with that product in terms of how they design it, how they manage production of it. They can be protected by specifying how the item may be used, the environment, the tolerances. When it comes to intellectual property infringement, how does a buyer protect against the supplier’s product infringing a third party’s intellectual property. They have assumed that risk by agreeing to sell their product or service and can manage against that risk by the way they design their product. When a contractor has control over a site and is responsible for managing safety on the site, how does a buyer manage against the risk of damages or injuries? The contractor can manage against those risks by hiring skilled personnel and implementing safety programs and not taking risks during the performance of the work.
I didn’t agree to any of the sections where they proposed mutatis mutandis. If my company caused the problem such as providing instructions that would be infringing what would be the best thing for the supplier to have. They were looking for the indemnification to be mutual. An indemnification only provides value if they were actually sued for the infringement. In most cases since the buyer was the one selling the infringing product that the supplier produced, it would be the buyer that would be sued.
If I was sitting on their side of the table, rather than pursue a mutual indemnification I would have sought a warranty from the buyer that any buyer specified designs or instructions do not infringe upon the intellectual property rights of a third party. With that warranty if there was an infringement claim made they could claim breach of the warranty, terminate the contract and claim damages.
Very few things in contracts need to be mutual.
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