Contractual liability concerns responsibility for damage resulting from failure to meet contractual obligations. Arranging this liability properly is vitally important to protect yourself or a business and to manage legal risks. Clear contracts and agreements help prevent misunderstandings and set out responsibilities clearly, which is essential if problems arise. Contractual liability differs from other forms of liability (such as liability for an unlawful act) in that it is always based on an agreement between the parties. This page describes the situation in the Netherlands.
What is contractual liability?
Contractual liability is liability for damage that arises because a party fails to meet its contractual obligations. When two parties enter into an agreement (this can be done verbally as well as in writing), they are bound by the terms of that contract. In principle, freedom of contract applies, although there are also exceptions. Does a party fail to keep its agreements entirely, partly or correctly? Then there is a breach of contract (wanprestatie). In principle, the injured party can claim the damage suffered from the party that breached the contract. This is called compensation.
Legal basis of contractual liability
According to the law (Article 6:74 of the Dutch Civil Code, Burgerlijk Wetboek or BW), “every failure in the performance of an obligation” is grounds for compensation, “unless the failure cannot be attributed to the debtor”. This last part of the article is not unimportant. It means that the party that fails to perform must compensate the damage, unless it is not to blame. This is the case if there is force majeure (overmacht). The legal framework for this can be found in Article 6:75 BW. Force majeure means that the failure is not due to the fault of the debtor and should not be at their risk either. In such a case, there is no obligation to compensate the damage.
Contractual liability in practice
Someone is contractually liable when they commit an attributable failure to perform (breach of contract) towards someone else. In other words: there is a valid contract, the obligations under that contract are breached, and that breach can be attributed to the party that failed to perform (no force majeure). Some common situations in which contractual liability plays a role are:
- Delivery problems, for example a seller does not deliver the product, or delivers it late, in breach of the contract.
- Non-payment, for example a customer does not pay the invoice within the agreed period.
- Poor performance of services, for example a contractor (service provider) carries out agreed work incompletely or defectively.
- Breach of contractual guarantees or obligations, for example a contractor who gives a guarantee and refuses to carry out repairs, or a tenant who breaks the house rules in the contract.
- Breach of exclusivity or confidentiality clauses, for example a party breaches its confidentiality obligations, causing trade secrets to end up in the newspaper.
In all these cases, the injured party can hold the other party liable on the basis of contractual liability. A claim can, however, become time-barred, so waiting is not without risk. A certain procedure often has to be followed first. If performance is not permanently impossible, the creditor usually has to give the defaulting party notice of default (ingebrekestelling) and a reasonable period to still perform. Only if performance is still not correct after such a notice of default is the defaulting party in default (verzuim), and the obligation to pay compensation arises, possibly along with the right to terminate the contract.
Contractual vs. non-contractual liability
There are two main forms in liability law: contractual liability and non-contractual liability. Non-contractual liability is also called liability for an unlawful act (based on Article 6:162 BW). The difference between the two types of liability lies mainly in the relationship between the parties and the basis of the liability. The overview below summarises the most important differences.
| Aspect | Contractual liability | Non-contractual liability |
|---|---|---|
| Relationship between parties | There is an agreement between the parties involved. The liability arises from the breach of a contractual obligation (breach of contract). | There is no contract between the parties. The liability arises from committing an unlawful act. |
| Breach and basis | Attributable failure to perform (breach of contract): a term of the contract is breached and that failure can be attributed to the person responsible. | Unlawful act: an infringement of the law, of a right, or of what is considered proper in society. No prior agreement is needed. |
| Obligations for a damage claim | In principle, the creditor must first give the debtor notice of default if performance is still possible. Only then can compensation and/or termination be claimed (unless performance is permanently impossible). | No notice of default is required. As soon as the unlawful act has been committed and damage has occurred, the injured party can claim compensation directly under Art. 6:162 BW. |
| Legal basis | Art. 6:74 BW (compensation for breach of contract) and Art. 6:75 BW (force majeure). | Art. 6:162 BW (liability for an unlawful act) and following. |
| Parties who can bring a claim | Only the contracting parties can derive rights from the contract, although exceptions are possible. | Anyone who suffers damage due to someone else’s unlawful conduct can hold that person liable. There does not have to be a contractual relationship. |
| Limitation and exclusion | Liability can be limited or regulated by contract through clauses (for example exemption clauses in general terms and conditions), within the limits of the law. | Liability for an unlawful act is not regulated in advance between the parties. Any limitations follow from the law (such as the victim’s own fault or statutory liability limits) and case law, but not from agreements between the parties. |
Role of general terms and conditions in contractual liability
General terms and conditions, often called the “small print”, play a major role in determining and limiting contractual liability. In a contract or the accompanying general terms and conditions, parties can include liability clauses in which they make agreements about the extent of their liability. With an exemption clause (exoneratiebeding), liability can be limited and sometimes even (partly) excluded. This is an important instrument for managing financial risks: by agreeing in advance what a party is and is not liable for, it is possible to avoid having to pay high damage claims later.
The law sets limits on such limitations of liability. First of all, the other party must be bound by the general terms and conditions: the exemption clause is only valid if those terms and conditions have been properly declared applicable and accepted. Furthermore, the content must not be contrary to the law, public order or public morality. For example, it is not possible to exclude liability for intent or conscious recklessness. A party always remains liable for damage caused intentionally. Completely excluding liability for injury or death is also usually contrary to the law.
Difference between B2C and B2B agreements
Anyone who does business with consumers must be extra careful. In consumer contracts, the main rule is that liability may not be excluded or limited too far. Clauses that far-reachingly limit the business’s liability are on the so-called grey list of unreasonably onerous clauses and are presumed to be invalid. In many cases, a consumer can have such a clause annulled, unless the business convincingly shows that the clause is not unreasonable in the given circumstances. This rarely succeeds.
In practical terms, this means that a complete exclusion of liability towards consumers is usually not permitted. Businesses in B2C relationships may, however, limit their liability, for example to a certain maximum amount, as long as the limitation is reasonable. Such limitations are particularly common in the removals sector.
Between business parties (B2B), there is more freedom of contract. There, it is common and accepted to limit liability by contract, provided both parties agree. Commercial contracts therefore often contain clauses that cap liability at, for example, the invoice amount or a multiple of it, or that exclude certain types of damage (for example liability for indirect damage such as loss of profit). In theory, a complete exclusion of liability is also possible between businesses. In the IT sector, for example, it is standard to limit liability to a certain amount per year and to exclude liability for consequential damage. It is important, however, that the exemption clause is clearly worded and that the other party was aware, or could have been aware, of the general terms and conditions when the contract was concluded.
Exemption clauses in practice
Many contracts contain a combination of clauses, such as: “The liability of party X is limited to the amount of the price agreed for that agreement” (this puts a ceiling on possible claims). It is also often stipulated that a party “is not liable for consequential damage, such as loss of profit or business interruption losses”. In addition, contracts regularly include a period within which claims must be made, for example: “Any claims lapse if they are not submitted within one year of the damage being discovered.” Such clauses force the other party to be alert and limit the long-term risks for the liable party. Finally, general terms and conditions may include a force majeure clause that describes exactly when there is force majeure (for example in the case of natural disasters, government measures and so on), to reduce uncertainty about what counts as an excuse for non-performance.
Joint and several liability in contractual relationships
Joint and several liability means that two or more debtors are each individually liable for the full debt, regardless of anyone else’s share. In other words: when several people jointly enter into an obligation, the creditor can compel each person involved separately to fulfil that obligation in full. For example: if three partners jointly take out a loan of €30,000 and are jointly and severally liable, the lender can hold each partner liable for the full amount of €30,000. If one partner pays everything, the debt is settled for all of them. The partners then have to settle among themselves who should actually have borne which share. Joint and several liability is the exception, not the rule. It usually has to be explicitly agreed in the contract or follow from the law.
More about joint and several liability
Insuring contractual liability
Business liability insurance (aansprakelijkheidsverzekering voor bedrijven, AVB) covers damage to other people and their belongings, but often excludes liability that arises solely from a contractual clause. The AVB policy conditions AONAVB2025 from Aon (Article 4.9), for example, state that claims arising from a penalty, compensation, guarantee or indemnity clause are not covered, unless and to the extent that the insured would also have been liable without that clause. Anyone who accepts more liability in a contract than the law requires therefore often bears that extra risk themselves. That is why it is sensible to compare the policy conditions with the business’s own contracts and general terms and conditions. For financial loss caused by professional errors, such as incorrect advice, there is professional indemnity insurance.
Tips for business owners when drawing up contracts
When drawing up contracts, it is important to pay attention to contractual liability as well, because it can be limited. Various factors need to be taken into account here. The step-by-step plan below contains a number of guidelines and tips that help when drawing up contracts.
- Map out the risks
For each agreement, a business owner analyses which obligations each party enters into and what potential damage could arise if something goes wrong. This gives insight into the risks the business owner needs to be protected against.
- Draft clear liability clauses
The contract or the general terms and conditions set out which damage the business owner is liable for and which damage is excluded or limited. For example, a maximum liability amount (cap) can be set and specific categories of damage can be excluded (e.g. indirect damage). Agreements about any penalty clauses or guarantees also belong here.
- Stay within the legal limits
The clauses must not be unreasonable or contrary to the law. Liability for intentional or grossly negligent conduct is never excluded. Anyone who works with consumers must be extra careful: a far-reaching exclusion will usually be voidable. In consumer terms and conditions, a reasonable limitation is better than a complete exclusion.
- Include a force majeure clause
The force majeure clause states what is understood by force majeure and what its consequences are (for example suspension of obligations, or no liability for damage in the case of certain events). This prevents discussions if exceptional circumstances should arise.
- Check that they apply
General terms and conditions with exemption clauses only have the desired effect if they are valid and applicable. That is why the contract should include a provision stating that the general terms and conditions apply, and the other party should receive a copy in good time. Preferably, both the contract and the terms and conditions are signed or confirmed, so that agreement to these additional terms is clear.
- Review and tailor to the situation
Contracts are adjusted if this is necessary for a specific deal. A standard clause may be suitable for one agreement, but not for another. It is also sensible to check regularly whether the liability clauses are in line with the latest legislation and case law. A legal adviser or lawyer can help with this.
Frequently asked questions about contractual liability
Contractual liability raises many questions, because the consequences can be considerable. On top of that, there are no standard answers, because every contract is unique. This obviously makes it even more complex. That is why the answers to a number of frequently asked practical questions about contractual liability and how this form of liability works are set out below.
What is the difference between contractual and non-contractual liability?
Contractual liability arises from breaching a contractual agreement between parties (there is an agreement), whereas non-contractual liability arises from breaching a general standard of care or a statutory duty towards someone with whom no contract has been concluded (unlawful act). Put simply: with contractual liability, the parties first concluded a contract together and one of them does not keep to it; with non-contractual liability, there is no contract and someone causes damage, for example by acting carelessly or unlawfully.
When is someone contractually liable?
Someone is contractually liable if he or she fails to fulfil an obligation under an agreement in a way that can be attributed to him or her, and the other party suffers damage as a result. That means: there is a valid contract, the debtor fails to perform (for example by not performing, performing late or performing incorrectly), and that failure is his or her fault or is at his or her risk.
Does a contract always have to be in writing for contractual liability?
No, a verbal contract is in principle just as valid as a written contract. If two parties verbally agree to do something (for example a service in return for payment), an agreement is created, and if it is not fulfilled, contractual liability can arise. The problem with verbal agreements, however, is proof: it is harder to show exactly what was agreed.
How can contractual liability be limited?
Contractual liability can be limited by means of clear limitations of liability in the contract or the general terms and conditions. This can be done in various ways, for example: agreeing a maximum amount above which a party is not liable, excluding certain types of damage (such as consequential damage and loss of profit) and setting a short period within which the other party must submit complaints or claims.
What options are there if a party does not meet his or her contractual obligations?
If a contracting party does not meet its obligations (in other words, commits a breach of contract), the other party can do a number of things. Initially, the injured party will usually give the defaulting party written notice of default and still demand performance within a reasonable period. This is usually required; in the cases set out in Article 6:83 BW (for example a strict deadline, fatale termijn), default occurs without a notice of default. If performance still does not follow after the notice of default, the defaulting party is in default. The creditor can then choose between various actions, including enforcing performance, terminating the contract and claiming compensation. Termination is often accompanied by a claim for substitute compensation or the return of goods already delivered. In certain circumstances, the creditor may also suspend their own obligations as long as the other party does not perform (this is the right of suspension). Please note: sometimes the contract itself provides for remedies, such as penalties for late delivery.
Why is a notice of default important in the case of a breach of contract?
A notice of default is a formal written reminder to the contracting partner who is failing to perform, in which the creditor gives them one last chance to meet their obligations within a reasonable period. In contract law, this is often a requirement before the creditor may use certain remedies, such as terminating the agreement or demanding substitute compensation. Without a notice of default (and therefore without the other party being in default), in many cases compensation cannot yet be claimed. There are, however, exceptions to this rule, for example when a strict deadline (fatale termijn) has passed (Article 6:83 BW).
How can a contract be terminated on the basis of breach of contract?
In this case, termination means undoing an agreement because of a serious failure to perform by the other party. Under Art. 6:265 BW, every failure to perform by one party gives the other party the power to terminate the contract, unless the failure is too minor to justify termination. In practice, termination works as follows: the creditor first gives the other party notice of default and a reasonable period to put things right. Does that period expire without the obligation being correctly fulfilled? Then the creditor can terminate the agreement, or the court can do so.
What to do if someone is wrongly held contractually liable?
Anyone who believes they are wrongly being held contractually liable would do well to respond promptly and clearly. The liability is then disputed in writing: a reply to the other party’s claim letter or email states clearly that the liability is not accepted, with a factual explanation of why. It is also sensible to gather evidence and information and, if necessary, to seek legal advice. In the worst case, a court will have to rule on it.