What Does “Liability” Mean in a Contract?
Legal responsibility for losses, damages, or obligations - the extent to which you can be held accountable.
Detailed Explanation
Liability is the legal responsibility you bear under a contract. It encompasses what you might have to pay if things go wrong - whether through your actions, breach of contract, or other specified circumstances.
Contracts often address liability through limitation clauses (capping exposure), exclusion clauses (eliminating certain types), and indemnification clauses (shifting liability to another party).
Example in a Contract
“Contractor's total liability under this Agreement shall not exceed the amounts paid by Company to Contractor in the twelve (12) months preceding the event giving rise to such liability.”
Why It Matters
Understanding your liability exposure is crucial. Can they sue you for unlimited damages? Only for what they paid you? Only for direct damages? The liability provisions often determine the real risk in any contract.
Related Terms
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