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First Principles of Business Law |
| The contents of a contract |
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4. Terms that exclude or limit liability |
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4.4. Interpreting exclusion and limitation clauses |
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Read the facts and the question and then choose the best answer. A, a manufacturer, agrees to supply B, an oil company, with drilling equipment. The contract includes a number of specified 'warranties against faults', guaranteeing against any faults in the equipment supplied. There is also a clause which states: 'In the event of any breach of a condition of this contract the supplier's maximum liability is $10,000.' Because of faults in the equipment, B suffers losses of $50,000. Will the limitation clause protect A? |
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(a) Yes, because there is a clause in the contract that limits A's liability for breach of contract. (b) No, because liability is expressly limited only for breach of conditions, but not for breach of warranties. |
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