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Excluding or limiting liability is a central issue in many contract negotiations and disputes. exclusion clauses— clauses excluding liability for breach of contract—are typical risk allocation tools that are frequently included in contracts between businesses. Their contents differ. They may exclude liability altogether, or liability for certain losses (for example, consequential losses). They may also exclude certain remedies. Typical examples of exclusion or limitation clauses include the following:

  • • limitation of aggregate liability for damages to a specific amount or a percentage of the price
  • • disclaimers of liability for consequential loss
  • • limitation of liability to negligent acts or omissions only
  • • disclaimers and limitations related to seller's obligations and buyer's remedies for breach, such as delay in delivery or non-conformity

A limitation of liability clause often restricts the amount of damages a party can recover from the other party. one of the most common ways to do this is to set a liability cap. in some contract types and industries, a percentage of the purchase price or fee may be customary, in others, a multiple of the price or fee. Here is a sample clause where the purchase price is agreed to be the maximum of the supplier's liability:

The Supplier's total liability in respect of any and all claims for damages or losses, caused by breach of contract, warranty, indemnity, tort (including negligence), strict liability, statutory duty, or otherwise, which may arise in connection with its performance or non-performance under this contract, shall not exceed in the aggregate the total purchase price.

Normal profit margins charged to customers do not enable sellers to cover unlimited liability. The margin on the price typically bears no relation to the buyer's possible loss of revenue if the products are defective or if their delivery is delayed. Even where the products supplied are components used in the assembly of complex machinery or a production line, delay or defects may cause the buyer increased production costs or put the buyer in breach of large supply contracts with damages out of proportion to the price of the product supplied.

There are limitations on a seller's ability to limit liability. in consumer contracts, clauses that attempt to exclude or limit liability are often invalid. Even in contracts between businesses, some exclusion clauses might be invalid. Not all exclusion clauses become part of the contract, either. For instance, exclusion clauses that are included in standard terms and conditions (STCs) may have been sent to the other party too late to become part of the contract. Some countries' laws (for instance, in Germany and England) have requirements and limitations for such clauses when part of STCs. in some countries, the law may disregard the exclusion clause (whether in individual or in standard terms) if it is unfair or unreasonable—for example, an attempted exclusion of liability for death or personal injury. the same is true for attempts to exclude (or limit) liability for grossly negligent or intentional breaches.

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