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Legal - Beware: Limitation of Liability clauses can be enforced

image West W. Winter, Attorney, The Winter Law Firm, PLLC, San Antonio, TX

AUSTIN - Construction contracts increasingly contain clauses which seek to limit one party’s potential liability or damages to the other. Such clauses may include express waivers of claims, rights or damages, no damages for delay clauses, waivers of consequential damages, and clauses which limit or cap a party’s available legal claims or potential monetary damages. While these clauses may seem unfair, particularly if the clause is being used against your company, Texas courts routinely recognize and protect the broad freedom to contract and will generally enforce these clauses. Texas courts also typically view participants in construction contracts as “sophisticated parties” who know the consequences of their contractual actions.


    Such clauses can have catastrophic consequences if your company is on the wrong side of a bargain where you have agreed to waive claims, rights, or damages or otherwise have agreed to a limitation of your opponent’s liability.  Accordingly, the best time to address and mitigate the potential impact of these clauses is during the negotiation phase of your contracts before you have signed away your rights.  Be aware that many of these clauses may be buried within other contract language or contained under contract headings which do not give adequate notice of the rights being compromised.  It goes without saying that blindly signing any agreement without first reading and understanding all of the provisions contained therein or otherwise consulting with your attorney, could have significant adverse consequences for your business. 

    If you find yourself on the wrong side of one of these clauses, there are some arguments, in addition to the standard defenses to contract enforcement, that can be asserted depending on the circumstances.  While not an exhaustive list, these include that the clause is unenforceable because of public policy concerns, unconscionability, or ambiguity.  For certain types of clauses, it may also be a defense to enforcement that the other party acted wrongfully or that the damages are not of the type which have been waived.  Be aware that any time a party to a contract is attempting to avoid the consequences of such clauses, it will be an up-hill battle because, as stated above, courts routinely recognize and protect the broad freedom to contract.

    When a “no damages for delay clause” is in issue, Courts have recognized some exceptions to enforcement when the delay: (1) was not intended or contemplated by the parties to be within the purview of the provision; (2) resulted from fraud, misrepresentation, or other bad faith on the part of one seeking the benefit of the provision; (3) has extended for such an unreasonable length of time that the party delayed would have been justified in abandoning the contract; or (4) is not within the specifically enumerated delays to which the clause applies.  Courts have also recognized an exception “based upon active interference” with the contractor or other wrongful conduct including “arbitrary and capricious acts,” “without due consideration” and in disregard of the other parties’ rights. 

    As it relates to a waiver of consequential damages, what constitutes “consequential” versus “direct” damages can be very fact specific.  Legal precedent is also wide ranging and much confusion persists in the courts regarding the subject of consequential damages.  This landscape allows for arguments to be made on both sides of most disputes which involve consequential damages.

    If you have agreed to a limitation of liability clause which the other side is attempting to enforce, it is advisable to consult with your construction law attorneys to determine whether any basis exists to defend against the enforcement of such contract provisions which adversely impact your ability to fully recover.

West W. Winter, a LEED Green Associate, serves on the board of the Construction Law Section of the San Antonio Bar Association and has been listed as one of the Best Lawyers in San Antonio for Construction Litigation.  The Winter Law Firm represents general contractors, subcontractors, and suppliers, in all phases of the construction process, from contract formation through dispute resolution, litigation, and collection.  West may be reached via email:  west@thewinterlawfirm.com.

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