Contractual liability is a term used to refer to how much liability a contracting party assumes by signing a contract.
In this article, I will break down the meaning of Contractual Liability so you know all there is to know about it!
Keep reading as we have gathered exactly the information that you need!
Let me explain to you what contractual liability is and why it matters!
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What Is Contractual Liability
Contractual liability is a term used to refer to how much liability a party may be responsible to assume should something go wrong in the performance of the contract.
In other words, contractual liability refers to the notion of “liability”, whether it’s financial or legal, that a party assumes by entering into a contract.
For example, in a sales contract, the seller may have the contractual liability of having to deliver a product or tangible good at a certain time and certain place.
The buyer will have the contractual liability to pay the seller the price that it agreed to pay to receive delivery of the product or tangible goods.
In the province of Quebec, the Civil Code of Quebec governs the notion of contractual liability.
In essence, the Quebec Civil Code requires that every person or party to a contract honour its contractual undertakings and commitments.
Should a party fail to respect its contractual obligations, an injured party can hold the other contractually liable for the damages caused.
Keep reading as I will further break down the meaning of contractual liability and tell you how it works in Quebec.
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Why Is Contractual Liability Important
Having a good understanding of your potential liability under a contract is important to assess the contract’s risk and reward.
In commercial contracts, companies will generally negotiate their contracts in such a way as to find a fair balance in how much they stand to gain versus how much they stand to lose by signing a contract.
Typically, a contracting party will be held liable for damages suffered as a result of the other party’s breach of the terms of the contract.
Virtually any contract that you may sign can expose you to a certain level of risk (or liability), namely, service contracts, sale contracts, partnership agreements, joint ventures, shareholder agreements, licensing agreements, and so on.
Knowing how you can potentially be held responsible under a contract and how much you may be held liable will help you make sound business decisions when signing contracts.
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Types of Liability In Quebec
Fundamentally, under Quebec laws, you have two types of liability: contractual liability arising from a contract and extra-contractual liability arising from a person’s actions or omissions.
For a person to be held liable under Quebec laws, the plaintiff must prove that the defendant committed a “fault” leading to the plaintiff suffering damages.
The defendant’s fault could be intentional or not.
When we are talking about contractual liability, Quebec contract law requires that the parties to a contract perform their duties and undertakings.
Should they fail to honour their duties and obligations, they can be held liable for any bodily, moral, or material injury caused.
As such, the party causing damages to the other will be held responsible to repair the injuries caused.
In the context of extra-contractual liability, a person or entity will be held liable for injuries caused to another by its act or omission considered to be a fault.
A person can be held liable for his or her own actions or omissions but also by the act of “things” in his or her custody.
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Contractual Liability Exemption In Quebec
There are certain situations where a contracting party can be exempt from liability under a contract.
The first exemption is when a party is unable to perform its obligations due to a “superior force”, also called “force majeure” or “Act of God”.
A contracting party can include a stipulation in the contract excluding its liability or limiting it, to the extent the party invoking such limitation of liability can show the other party was made aware of the existence of such stipulation when the contract was formed.
However, a contracting party cannot limit its liability for intentional or gross fault where gross fault is conduct that shows gross recklessness, gross carelessness, or gross negligence.
At no point in time can a contracting party limit or exclude its liability for bodily or moral injury caused to another.
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Liability Cap Clause In Commercial Contracts
In a recent ruling by the Supreme Court of Canada, the court unanimously held that Quebec law does allow parties to limit or exclude their liability in a freely negotiated commercial contract.
In the case 6362222 Canada inc. v. Prelco inc. (636222 Canada Inc. being Createch), the Supreme Court indicated that a limitation of liability clause cannot be nullified based on the doctrine of a fundamental obligation.
The doctrine of fundamental obligation states that a party cannot limit its liability for obligations that are fundamental or central to the contract as it results in the other party being deprived of the contract of its cause, thus leading to its nullity.
The Supreme Court of Canada indicated that in a commercial contract that has been freely negotiated by the parties, the intention of the parties should prevail.
If the parties’ intention was to limit liability in certain situations, the limitation of liability clause should therefore remain valid and enforceable.
The mere fact of including a limitation of liability clause relating to fundamental obligations does not deprive a contract of its “cause”.
The imbalance of benefits in the contract having a limitation of liability provision should not lead to the nullity of the clause.
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So there you have it folks!
What does contractual liability mean in Quebec law?
In a nutshell, contractual liability refers to a concept where contracting parties are held legally responsible to repair injuries caused by their fault or failure to honour their contractual undertakings.
Just like most other jurisdictions, a non-breaching party can file a civil lawsuit against a breaching party seeking damages and reparations for injuries suffered under a contract.
However, there are certain situations where a contracting party cannot limit its liability, such as due to intentional or gross fault.
On the other hand, commercial parties can use the limitation of liability clause in Quebec to exclude or limit their liability under the contract.
If you are dealing with a contract in Quebec and need legal advice, it is best that you speak to a qualified contract attorney to guide you in the process.
Now that you know more about contractual liability in Quebec, good luck with your research!
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