An exclusion clause states that one party is not liable for certain conditions of a contract.

What Is an Exclusion Clause?

An exclusion clause in a contract excuses or restricts one party's liability due to certain situations, circumstances, or conditions. Typically, a breach of agreement has occurred. The clause limits the parties' rights stated in the contract.

The party that relies on the exclusion clause must draft the clause properly to make sure it accounts for any potential liability. If the terms aren't specific enough, the courts usually interpret the clause for the other party.

Exclusion Clause Term in a Contract

When it comes to exclusion clauses, you can add one to a contract to exclude your liability for negligence or breach of contract. However, you can only use this clause if:

In addition, you must state that the exclusion clause was part of the original contract. You can verify this information by:

  • Reasonable notice of term.
  • A course of dealing between the two parties.
  • Signature.

If one party signs a contract containing an exclusion clause, he or she is bound by its terms. This is true even if that party did not read or understand the document. Keep in mind that a signed document can be marked as partly or wholly ineffective if you or the other party makes a misrepresentation.

Exclusion clauses might involve an unsigned document, such as a notice or ticket. If you encounter this, you should have sufficient notice about the exclusion clause. It must exist in an actual contractual document and not in one that acknowledges payment, such as a receipt. In addition, the exclusion clause must exist before the contract begins. The courts will not enforce the clause unless both parties knew about its existence.

An exclusion clause can occur even without sufficient notice. This could happen if the two parties had a previous interaction. The exclusion clause might be part of the original contract thanks to custom or trade usage.

If a doctrine of privity is involved, the courts will rule that the individual is not protected by the exclusion clause. This only occurs if the individual is not involved as a third party. In this instance, employees are deemed part of the third-party consortium.

How Should Contract Forms Be Involved?

If you send a form stating specific terms in the contract but the other party accepts the contract based on its own terms, you have an issue. That's because the contract usually involves the last set of terms sent.

However, if there's an exclusion clause, the whole contract must be examined to determine if the clause covers the breach. If the clause is vague, the courts must look into it. To avoid liability issues, you should use precise language in the exclusion clause. Rules of construction to follow include:

  • Contra Proferentem. If there is any uncertainty about an exclusion clause's meaning, the court will issue a contra proferentem. This goes against the party that placed it in the contract.
  • Main Purpose Rule. According to this rule, the court can eliminate an exemption clause that goes against the contract's main purpose.
  • Doctrine of Fundamental Breach. Before 1964, the law stated that you could not eliminate or restrict a breach because it would be like giving with one hand and taking with the other.

What Is an Exclusion Clause Contract Law?

Exclusion clauses can enter a contract with or without a signature. If a contract does incorporate an exclusion clause, the court must determine whether it covers the breach that has occurred. If the language regarding liability is confusing, the contra proferentem rule comes into play. However, if there is an issue regarding negligence, the wording must be easy to understand.

The exclusion clause must also comply with specific conditions that restrict liability for negligence or breach of contract. In these instances, the clauses are either deemed invalid or must endure a test of reasonableness.

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