Do you have a damage limitation clause in your contract and think it will hold up? Think again.
Sophisticated business owners will include “damage limitation” clauses in their commercial contracts to limit liability. You will find these generic clauses in everything from standard service contracts to Intellectual Property Development Agreements.
The typical language limits the ability of the aggrieved party to recover only the dollar amount of the contract. As an example, an agreement to provide financial services might limit damages of the customer to the engagement fee – say $1,000.00 even if the damage sustained is $1,000,000.00.
A reasonably competent lawyer will challenge a damage limitation clause by arguing that the business owner acted fraudulently. This is an excellent way to totally circumvent the damage limitation clause and used all the time by defense attorneys.
However, a recent case out of the Texas Supreme Court – (yupper – Italian Cowboy) changes all this by now declawing defense tactics to jettison the damage limitation clause. The key is to put language in the contract which discloses that the contracting parties are waiving their ability to file a fraud claim. This closes the loophole.
Bottom Line: Italian Cowboy is the way to go. Consult a business attorney to make sure the correct language is added to your agreements.