Also known as:limitation of damages clause · limitation-of-damage clause · limitation of damage clause · limitation of damages · damage-limitation clause
Written by attorneys · grounded in primary & secondary sources — see below
A contractual provision by which the parties agree on a maximum amount of damages recoverable for a future breach of the agreement. The provision operates by capping recovery, most often of consequential damages, subject to statutory limits on unconscionability in sales of goods.
Sources & Authorities
How it applies
Common Examples
2
Commercial Equipment Sale With Damage Cap
Legacy Motors purchased specialized assembly equipment from Lumen Capital under a contract that capped all consequential damages at the purchase price. When the equipment malfunctioned and halted production for two weeks, Legacy incurred substantial lost profits and overtime labor costs. Lumen invoked the limitation-of-damages clause to bar recovery beyond the price. The court enforced the cap because the transaction was a commercial sale between sophisticated parties and the loss remained commercial in character.
Airline Ticket Liability Limit Challenged
Lamar Lewis purchased a ticket from Lighthouse Shipping's airline affiliate that contained a limitation-of-damages clause capping wrongful-death recovery at a fixed sum under the law of the departure state. After a crash caused Lewis's death, his estate sued in the forum state whose public policy rejected such caps. The court refused to enforce the contractual limit, allowing full damages under forum law despite the clause's presence in the ticket.
When is a limitation-of-damages clause unenforceable under the UCC?+
A limitation of consequential damages is unenforceable if it is unconscionable. Limitation of consequential damages for personal injury in consumer-goods cases is prima facie unconscionable, while a limitation in a commercial-loss setting is not.
Supporting sources
How does a limitation-of-damages clause differ from a liquidated-damages clause?+
A limitation-of-damages clause sets an upper ceiling on recoverable damages. A liquidated-damages clause instead fixes in advance the measure of damages that will be awarded upon breach, functioning as an agreed estimate rather than a cap.
Supporting sources
Does a limitation-of-damages clause remain enforceable after a limited remedy fails of its essential purpose?+
Failure of essential purpose under UCC § 2-719(2) allows resort to other UCC remedies, but the separate consequential-damages exclusion in subsection (3) is analyzed independently for unconscionability. Courts therefore may still enforce the damages cap even when repair-or-replace remedies fail.
Supporting sources
Can parties in a commercial transaction validly exclude consequential damages entirely?+
Yes. UCC § 2-719(3) expressly permits limitation or exclusion of consequential damages in commercial-loss settings without a presumption of unconscionability, provided the clause is part of an otherwise enforceable agreement between sophisticated parties.
…by our court that, in an action brought for causing a wrongful death in Pennsylvania, the New York courts would enforce our limitation of damages (as it then existed) although Pennsylvania had no such limitation. The reason, equally pertinent here, is that the “restriction pertains to the remedy rather than the right” (p. 16) and…