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What Is an Exclusion Clause?

A contract is a formalized agreement between 2 parties. When one party fails to meet the conditions stipulated in the contract, he or she may be liable for his or her inability to fulfill the conditions and the damages it may incur unless such circumstances were included in an exclusion clause. This kind of clause provides that a party may be excused from liability in situations or circumstances that have been provided for in the clause.

There are 3 types of exclusion clauses. The first kind is a true exclusion clause wherein it preempts a possible breach of contract and excuses the party that commits the breach of contract from any liability. The second kind is a limitation clause, which limits the amount of damages a party can pay for in the event of a breach of contract. This amount is fixed and cannot change no matter how much the actual damages or losses are. The third kind of exclusion clause is time limitation wherein a time period is fixed for the offended party to make a claim against the other. If the offended party does not make a claim against the other in the time period allotted, then he or she can no longer make a claim against the other regarding that particular agreement or contract.

As much as exclusion clauses are put into practice and written contracts, some uses for this clause can make it illegal. It is necessary to consult a lawyer or legal firm before entering into a contract that involves an exclusion clause.

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