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PROTECT YOUR BUSINESS BY ALLOCATING RISKS AND LIMITING LIABILITY

PROTECT YOUR BUSINESS BY ALLOCATING RISKS AND LIMITING LIABILITY

November 19, 2019

By: Greg Drumright, Attorney at Law

Contracts, whether written or oral, are used every day in nearly every business and consumer transaction.  Contracts are utilized in real estate transactions, sales of goods, service agreements, professional services, purchase agreements and vendor agreements.  Sometimes contracts are entered into after months of negotiations and, other times, businesses rely on their standard, boilerplate forms to consummate or memorialize an agreement.  Since written contracts are commonplace, it is important to include terms and conditions that protect your interests and put you in the best position to avoid lawsuits or, at a minimum, put you in the best position to prevail if a lawsuit arises.  Not having the right terms in your contracts can mean the difference between defusing a dispute quickly and exposing your company to significant financial risks.                

While there are exceptions, the general rule in Kansas is that parties are free to arrange their own contracts and fashion their own remedies.  This includes contract terms where one party limits its liability in case of a breach or default.  While this can sometimes lead to harsh consequences, especially in the consumer setting, the law favors the freedom to contract.  Unless the agreement is illegal, unconscionable or contrary to public policy, it is generally enforced as written.          

How Do you Limit yOur Liability?

There are various ways to limit your liability.  For instance, you can limit your liability to a specific amount (like the cost of the services provided), the repair or replacement of an item or you can specifically exclude certain types of damages (including incidental or consequential damages) that may ordinarily be recovered in the event of a breach.  Excluding incidental and consequential damages can significantly reduce your financial exposure.  While limiting your liability is not foolproof, and naturally depends on the particular facts involved, a party seeking to invalidate or circumvent the limitation of liability carries an extremely high burden.         

Although limiting your liability in case of a breach of contract should be a priority, other contract provisions can be implemented or negotiated to further allocate risks and should be considered.  Indeed, you should consider incorporating contract provisions that address, among other items, indemnification, insurance, attorneys’ fees, time limits for bringing a claim, limiting where a lawsuit can be filed and dispute resolution procedures.                            

While the ability to allocate risks is largely unimpeded in Kansas, care must be exercised in the drafting to avoid undesired consequences, such as having a limited remedy be non-exclusive or creating discrepancies that arguably invalidate a limitation of liability.  All contracts should be evaluated on a case-by-case basis, especially those involving consumer transactions.

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Greg Drumright may be best known in Wichita as a former pitcher for the Wichita State Shockers baseball team. Within Wichita’s legal and business communities, however, Greg is known as a skilled litigation attorney. He represents clients in corporate litigation matters, including contract disputes, construction law, products liability, agricultural law, and general commercial liability matters. His clients include small/large businesses, OEMs, insurers, aviation businesses, suppliers, component manufacturers, agricultural enterprises, contractors and other clients in a broad range of commercial disputes.

*This is for informational purposes only. It is not a legal opinion; it does not provide legal advice; and it neither creates nor constitutes evidence of an attorney-client relationship.

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