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Can a business owner face personal liability for negligence?

Anyone who has ever made a major purchase on credit, signed onto a mortgage or dealt with a service company knows what "breach of contract" is all about. If either party fails to live up to the terms and provisions of the contract (either in letter or spirit), the other party may seek restitution through the courts. Compensation may include more than just the dollar value of the financial losses, but may incorporate damages for future financial losses, legal fees, pain and suffering for injuries/death and under specific circumstances, even punitive damages.

But can breach of contract actually considered a form of "personal negligence" under our civil laws?

When a professional is involved

Licensed professionals who incorporate their practices under a business entity (such LLC or PC) may face liability for professional negligence, as well as breach of a contract they may have entered into with a client or customer. For medical professionals, this may mean a medical malpractice lawsuit for harm done to the individual, as well as a breach of contract for failing to meet the terms and conditions of any contractual relationship. For licensed trade professionals such as architects, plumbers and designers, the contract is generally in the form of an agreement for services rendered.

Professionals face the reality that they are not only held to the terms and conditions of the contract in front of them, but may also be held liable for unforeseen damages, which may include:

  • Lost future business opportunities for the other party
  • Delays and miscalculations resulting in business interruption
  • Oversights resulting in increased costs to the other party

Will a waiver of liability protect you?

Most business owners rely on a legal professional to make sure their contracts will stand up in court. Many try to protect themselves by having signatories agree to a waiver of liability. But these types of waivers don't protect you from gross negligence. If the other party can prove that your business purposefully breached the terms of the contract, or entered into the contract without the professional capacity to fulfill the terms and conditions, you may be found guilty of gross negligence. Waivers will only protect you from unforeseen circumstances or the other party's contributory negligence.

Make sure you know what you are signing

Before entering into any agreement that will hold your company accountable for delivering goods or services, make sure you can uphold the four corners of the contract. Double-check with your legal counsel when drafting quotation documents, sales agreements, purchase offers and service agreements. While breaching the contract will hold you liable for compensating the other party for direct losses. Gross negligence may add to the financial damages.

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