Court enforces limitation-of-liability provision.The Oregon Court of Appeals The Oregon Court of Appeals is the state intermediate appellate court in the U.S. state of Oregon. Except for death penalty cases, which are reserved to the Oregon Supreme Court, and tax court cases, it has jurisdiction to hear all civil and criminal appeals from circuit courts, upheld the validity of limitation-of-liability provisions in a contract for professional services. Although this case involved an engineer, its rationale could be applied to an accountant's service contract. The case began when plaintiff Richard C. Estey contracted with MacKenzie Engineering Inc. (MEI) to conduct a "limited visual review" of a house Estey intended to purchase. The one-page service contract set out the estimated contract sum of $200 and contained this clause: "The liability of MEI and the liability of its employees are limited to the contract sum." Estey subsequently purchased the house and later discovered numerous defects. He sued the engineering firm for negligence, negligent misrepresentation misrepresentation In law, any false or misleading expression of fact, usually with the intent to deceive or defraud. It most commonly occurs in insurance and real-estate contracts. False advertising may also constitute misrepresentation. and breach of contract in the performance of professional services and alleged $340,000 in damages. MEI filed a motion for summary judgment motion for summary judgment n. a written request for a judgment in the moving party's favor before a lawsuit goes to trial and based on recorded (testimony outside court) affidavits (or declarations under penalty of perjury), depositions, admissions of fact, answers , which the trial court granted. Estey appealed, and the appellate court ruled for the defendant (MEI) noting, however, that limitations of liability--while not automatically void--were not favored by courts, and conceding that the parties did not specifically bargain for the clause involved in this case. Nevertheless, the appellate court upheld the limitation because it was sufficiently conspicuous, did not involve an essential public service and its enforcement was not contrary to a strong public policy. The court further noted that this was not a contract of adhesion adhesion contract (contract of adhesion) n. a contract (often a signed form) so imbalanced in favor of one party over the other that there is a strong implication it was not freely bargained. , that is, there was no indication that the parties had unequal bargaining power or that the plaintiff had no alternative to hiring MEI. Estey also had argued that he was a homeowner and not a sophisticated business and, therefore, the transaction was inherently unequal. However, the court said it would enforce such limitations. This is an important case for all professionals. The law on enforcement of limitation-of-liability clauses varies from state to state. Accountants should consult their legal advisers about the enforceability of liability clauses in their engagement letters. If acceptable in a particular jurisdiction, such clauses can be an excellent risk management tool in deterring frivolous and exaggerated claims. (Estey v. MacKenzie Engineering Inc., 902 P.2d 1220, Or. App. 1995) -Edited by Wayne Baliga, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , JD, CPCU CPCU Chartered Property Casualty Underwriter CPCU Cardiac Progressive Care Unit CPCU Custody Pending Completion of Use , CFE CFE Conventional Forces in Europe (treaty) CFE Cash Flow to Equity (finance/accounting) CFE Comisión Federal de Electricidad (México) CFE Certified Fraud Examiner , president of Aon Technical Insurance Services. |
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