Blog Layout

Limiting your Liability in Contracts

limit liability picWhen you are negotiating your contracts, it is difficult to think about things falling apart. You are excited to start a new business relationship and you don’t want to plan for a breach of the agreement. A “breach” occurs when one of the parties fails to perform its contractual duties or obligations. However, it is one of the most important provisions in your contract and you should take care to carefully and strategically negotiate the breach of contract terms.

There are three primary types of contractual damages or compensation that may be available when a breach occurs. Many times a contract will allow for a combination of damages in order to make the non-breaching party whole. Below are the three main types of contract damages:

  • Compensatory . The injured party to the contract is allowed to recover the direct damages it incurred. Payment of the actual damages will pay the non-breaching party directly for its loss.
  • Incidental . An injured party may be entitled to recoup the costs that are incurred as a result of the other party’s breach of the agreement. In order to recover incidental damages, the injured party must prove the expenses are reasonably associated with or related to the actual damages incurred.
  • Consequential . As indicated by the name, consequential damages are expenses that don’t flow directly or immediately from the breach, but they are the direct consequence of the breach. These types of damages are indirect in nature and are commonly referred to as “special damages.”

Limiting your liability in a contract can save you a significant amount of money if a dispute should occur. Failing to take time to negotiate the breach of contract provisions could result in liability for any or all of the above types of damages.

Let our business law attorneys review your contracts before you sign them to determine what changes can be made to limit the scope of your potential liability. Depending on the type of transaction, it may be possible to limit recovery to only actual damages incurred by the breach.

Contact us today to schedule your initial consultation. The attorneys at The Swenson Law Firm provide a variety of business law services to entities of all sizes.

 

 

Share by: