If a Contract Says a Business Is Only Liable Up to a Specific Amount Is That Even Legal?

A Limited Liability Clause May Be Enforceable. Generally, Courts Will Review Whether the Exact Circumstance Described In the Clause Is What Occurred Whereas a Restriction Stated As a Limited For Anything and Everything That Could Happen Is Unenforceable.

Understanding When a Limited Liability Clause May Be Unenforceable Without Legal Effect

Limited Liability Clauses Within Contract Document Often businesses will attempt to impose a limited liability clause within contractual agreements.  To the party against whom such a clause is against, such a clause can appear ominous at first glance. Where such a clause is written in a manner that is specific to a clearly stated risk, the limited liability clause may stand up as enforceable; however, a generic and broad blanket clause may be deemed unenforceable.

The Law

The law relating to limited liability clauses restricts the validity of such clauses to circumstances that are specificly clear and exact.  Essentially, a broad blanket style limited liability clause fails to negate liability.  For a clause to apply, the specific concern that actually arises must be identified within the clause.  Attempts to exclude liability for general concerns such as, "all defects" or "any errors" will likely fail.  This is especially applicable where the contract containing a purported limited liability clause is a standard form contract known as a contract of adhesion in which the non-drafting party is without opportunity to negotiate the terms of the contract and must either accept the contract as it is or avoid the business transaction altogether.  In regards to limited liability clauses, in Bauer v. The Bank of Montreal, [1980] S.C.R. 102 at 108 the Supreme Court said:

Exemption clauses may broadly be divided into three categories.  First, there are clauses which purport to exempt one party from a substantive obligation to which he would otherwise be subject under the contract, for example, by excluding express or implied terms, by limiting liability to cases of wilful neglect or default, or by binding a buyer of land or goods to accept the property sold subject to "faults", "defects'' or "errors of description".  Secondly, there are clauses which purport to relieve a party in default from the sanctions which would otherwise attach to his breach of contract, such as the liability to be sued for breach or to be liable in damages, or which take away from the other party the right to repudiate or rescind the agreement.  Thirdly, there are clauses which purport to qualify the duty of the party in default to indemnify the other party, for example, by limiting the amount of damages recoverable against him, or by providing a time-limit within which claims must be made.

Contracts falling within these categories are said to be subject to special rules of construction.  In construing such a clause, the court will see that the clause is expressed clearly and that it is limited in its effect to the narrow meaning of the words employed and it must clearly cover the exact circumstances which have arisen in order to afford protection to the party claiming benefit.  It is generally to be construed against the party benefiting from the exemption and this is particularly true where the clause is found in a standard printed form of contract, frequently termed a contract of adhesion, which is presented by one party to the other as the basis of their transaction.

Summary Comment

Clauses that limit liability, or appear and purport to limit liability, are common within many types of contracts; however, the enforceability of such contract clauses will often be limited to a very specific circumstance.  Clauses that are generally vague or state that broad liabilities are limited are likely unenforceable.

Learn More About
Limited Liability Clauses

Need Help?Let's Get Started Today

ATTENTION: Do not send any confidential information through this web form.  Use this web form only to make an introduction.

Send a Message Directly to Civil Litigations Paralegal Services

ATTENTION: Confidential details about your case must not be sent through this website.  Use of this website does not establish a legal-representative/client relationship.  Do not include confidential details about your case by email or phone.  Use this website only for an introduction with Civil Litigations Paralegal Services. 
Privacy Policy & Cookies | Terms of Use Your IP Address is: 3.235.199.19
Toronto Office

3089 Bathurst Street #302
Toronto, Ontario,
M6A 2A4

P: (416) 229-1479

Belleville Office

185 - 110 North Front Street, Unit A3
Belleville, Ontario,
K8P 0A6

P: (343) 600-7722

Hours of Business:

10:00AM – 6:00PM
10:00AM – 6:00PM
10:00AM – 6:00PM
10:00AM – 6:00PM
10:00AM – 6:00PM
Monday:
Tuesday:
Wednesday:
Thursday:
Friday:

Providing Legal Help Within These Areas and More:

Among other areas in Ontario, Canada








Sign Up