Home > Uncategorized > Businesses: Consider Limitation Clauses in Your Contracts

Businesses: Consider Limitation Clauses in Your Contracts

A few days ago the ABAJournal posted an article about a lawsuit that has been 13 years in the making – Allstate agents signed a “right-to-sue waiver” – are they precluded from filing a lawsuit now? See the article here

 

A few thoughts after reading that article:

 

Do you use standard contracts in your business?

you might want to include limitation clauses in your contracts

 

Presented with business contracts to sign?

read them before signing.

 

 

 

As a general point, under Michigan law, these broad releases are generally enforceable.

 

I. Release of Liability in Michigan

 

Under Michigan law, such releases are, in general, valid.

 

According to Brooks v Holmes, 163 Mich. App 143, 145 (1987): A release is only valid if “it is fairly and knowingly made…

 

 

II. The Exceptions

There are a few exceptions to the validity of a release: A release is invalid if

(1) the releasor was acting under duress (e.g. signing a contract with a gun pointed to your head),

(2) there was misrepresentation as to the nature of the release agreement, or

(3) there was fraudulent or overreaching conduct to secure the release. Brooks v Holmes, 163 Mich App 143, 145; 413 NW2d 688, 689 (1987).

 

Further, it can always be argued that if the release wasn’t drafted clearly enough, an ambiguity should be found in favor of the non-drafting party. “It is an elementary rule of construction of contracts that in case of doubt, a contract is to be strictly construed against the party by whose agent it was drafted.” Shay v Aldrich, 487 Mich 648, 672 (2010). .

 

In the All-State case, these Agents may have been legitimately damaged, but if they signed the Agreements, it is an uphill battle to invalidate these releases.

These arguments that the release is invalid are left to the Allstate agents, to make.

 

Regardless, if you are representing All-State, it was a good idea to include these releases in your Agreements!

 

Another clause you might want to consider

 

III. Limitations of Damages

In General, just like the release clauses, inserting a clause in your contract to “limit your damages” are enforceable.

 

 

“[I]t is not contrary to the public policy of Michigan for a party to contract against liability for that party’s own ordinary negligence.” (Emphasis added). Slater v. Hometeam Inspection Serv, 260989, 2005 WL 1842843 (Mich. Ct. App. Aug. 4, 2005) citing Starks v. Solomon, unpublished opinion per curiam of the Court of Appeals, issued March 30, 2001 (Docket No. 220989).

 

However, they won’t limit all types of damages.

 

IV. The Exceptions

 

However, Michigan Courts will not apply contractual limitations on damages when gross negligence or fraud is present.

 

“Because fraud is intentional misconduct and gross negligence its functional equivalent, if bona fide issues of fraud or gross negligence exist, then applying the contractual limitation on liability to insulate defendants from such claims would be contrary to public policy.” (Emphasis added). Slater, supra citing Klann v. Hess Cartage Co, 50 Mich.App 703, 709; 214 NW2d 63 (1973).

 

V. Take away:

As always, be careful when you sign a legally binding document. The law rightfully presumes that you have read the document and are agreeing to be bound to its terms. Only in limited circumstances will a court invalidate clauses where you limit your rights.

 

Conversely, businesses including such limitation provisions is a wise idea to limit your liability. Make sure you have your lawyer review any standard agreements you are using.

 

Questions? Comments?

 

email: Jeshua@dwlawpc.com

http://www.dwlawpc.com

 

 

 

 

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