Duty of Care in Contracts: Standards and Implications
What Is the Duty of Care?
The duty of care requires that a person in a position of responsibility act with the same care, diligence, and skill that a reasonably prudent person would exercise in similar circumstances. In the corporate context, it requires directors and officers to make informed, deliberate decisions.
The duty of care is one of the two fundamental components of fiduciary duty, alongside the duty of loyalty.
How the Duty of Care Applies
In corporate governance:
- Directors must inform themselves of all material information reasonably available before making decisions
- They must deliberate and consider alternatives, not rubber-stamp management proposals
- The business judgment rule protects directors who make informed decisions in good faith, even if those decisions turn out badly
In contracts:
- Agreements may specify the standard of care one party owes another (e.g., "reasonable care," "highest degree of care")
- Professional service agreements often define the care standard expected from the service provider
- Some contracts attempt to lower the standard of care to gross negligence, limiting liability for ordinary mistakes
Standards of Care in Contracts
Contracts may establish different levels:
- Ordinary care — The default standard; acting as a reasonable person would
- Highest degree of care — An elevated standard sometimes applied to bailees, carriers, or trustees
- Gross negligence standard — Only liability for extreme carelessness, reducing the duty significantly
- Professional standard of care — Measured against what a qualified professional in the same field would do
Red Flags
- Contracts that reduce the duty of care to "willful misconduct only" — leaving you with virtually no remedy for negligent conduct
- Vague care standards that could be interpreted narrowly
- Absence of any defined care standard in professional service agreements
When to Consult a Lawyer
If your contract defines or modifies the duty of care, consider having an attorney review whether the standard adequately protects your interests, especially in professional services and management agreements.
This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.