Limiting Liability when You are the One Being Paid

From time to time, I answer questions – typically about the law or about startups – on LinkedIn. Recently I answered the following question:

What is the best way [in a contract] to limit liability when you’re the party receiving payment?

I believe the answer will be helpful to any supplier of goods or services, so I am reproducing it here in slightly edited form.

I interpret “best” to mean the highest level of protection that is reasonably likely to be acceptable to the customer based on common commercial practices. The contract with the customer should:

1. Exclude liability for consequential damages.
2. Limit liability for any damages to the amount of payments actually received. (Some customers will ask for a multiple of the amount received; this should be resisted, if possible, or kept to a low number, such as 1.5.)
3. Disclaim as many warranties as possible. (Many customers will not accept a disclaimer of all warranties.)
4. Limit indemnification obligations as much as possible. (Note that indemnification obligations normally are carved out from both exclusions of consequential damages and limitations of damages.)
5. Include favorable jurisdiction, venue and choice of law provisions.

Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.