What Does “Lost Profits” Mean?

I noticed this post by Paul Stanfield on the Austin Technology Law Blog. The main point it makes is that if a customer wants to exclude “lost profits” from the damages that you, the seller, might be entitled to under a contract, you should make it clear in the contract that “lost profits” refers to profits on collateral business arrangements, not the profits that you expect to earn on that contract.

That might seem obvious, and even if a contract doesn’t address the issue directly a court might conclude that that’s the intended meaning. But winning a fight is a distant second to not having the fight at all.

How to handle “lost profits” is, of course, a subset of the bigger can of worms that is consequential damages. For more about that, see this March 2010 post on the AdamsDrafting blog.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.