In the architecture of construction and commercial contracts, the risk-shifting clauses—those quiet but powerful paragraphs labeled “Limitation of Liability,” “Liquidated Damages,” or “No Damages for Delay”—often matter more than anything else. They are the backstop, the insurance policy, the pre-agreed battlefield when things go wrong.

But not all armor is created equal. In Tennessee, as elsewhere, the enforceability of these provisions turns not just on how they are drafted but also on how they align with a deeper body of contract law, public policy, and judicial common sense. And understanding that balance—between freedom of contract and public policy limits—is critical for anyone negotiating deals, litigating disputes, or drafting agreements.

Freedom of Contract Versus Public Policy: The Baseline

Tennessee has long championed the idea that parties should be free to craft their bargains as they see fit. As the Tennessee Supreme Court put it, parties have the "right and power to construct their own bargains," and courts should not interfere unless public policy demands it.¹ Whether it’s limiting damages, waiving rights, or accelerating deadlines, Tennessee courts will generally enforce the agreed terms—provided those terms do not shock the conscience or offend overriding legal principles.²

But the devil, as always, is in the details.

Limitation of Liability: Valid, But Not Absolute

Tennessee courts routinely enforce limitation of liability provisions in commercial contracts, especially between sophisticated parties. In Trinity Industries, Inc. v. McKinnon Bridge Co., Inc., the Court of Appeals upheld a provision limiting consequential damages between a general contractor and a steel fabricator for a bridge project.³

However, these clauses are not absolute shields. They cannot protect a party against its own fraud.⁴ Nor can they excuse bad faith conduct. If a termination or breach is infected with bad faith, as illustrated in Armouth International, Inc. v. Dollar General Corp., even a carefully drafted damages cap can collapse.⁵

And in sale-of-goods contracts governed by Tennessee’s version of the UCC, limitation clauses are enforceable unless unconscionable.⁶ Remedy modifications are expressly authorized under Tenn. Code Ann. §§ 47-2-316 and 47-2-719, reinforcing the general deference courts show to commercial arrangements.

Liquidated Damages: Prospective Reasonableness Controls

When it comes to liquidated damages, Tennessee law applies the "prospective" approach adopted by the Tennessee Supreme Court in Guiliano v. Cleo, Inc.⁷ Courts evaluate whether the liquidated sum was a reasonable estimate of potential damages at the time the contract was formed—not in hindsight after a breach occurs.⁸

Freedom to agree on liquidated damages is broad, but not unbounded. If the clause operates as a penalty, it is void as against public policy.⁹ Courts scrutinize whether the sum bears a reasonable relationship to anticipated harm and whether actual damages would have been difficult to calculate at the time of contracting.¹⁰ Importantly, even if a liquidated damages provision fails, the injured party can still seek actual damages.¹¹

Recent Tennessee cases continue to reaffirm this analysis, emphasizing that the burden rests on the challenging party to show that the liquidated amount is grossly disproportionate to anticipated loss.¹²

Exculpatory Clauses: Still Alive—If Carefully Tailored

Exculpatory clauses, which attempt to relieve a party from liability for negligence, are enforceable in Tennessee subject to limitations. As clarified in Copeland v. HealthSouth/Methodist Rehabilitation Hospital, courts now apply a flexible totality-of-the-circumstances analysis rather than rigid tests.¹³

The three key factors are: (1) relative bargaining power, (2) clarity and conspicuousness of the exculpatory language, and (3) public policy considerations.¹⁴ If an agreement is presented on a take-it-or-leave-it basis for a necessary service, or the release is buried in fine print, courts may refuse to enforce it. Likewise, Tennessee courts have consistently held that exculpatory clauses cannot shield a party from liability for gross negligence or willful misconduct.¹⁵

This balancing approach replaced the stricter Olson factors from 1977, providing a more nuanced path to enforcement—especially in commercial contexts where both parties are sophisticated actors.

Contractual Limitations Periods: Reasonableness is the Key

Shortening the time to file a lawsuit by contract remains valid under Tennessee law, so long as the period is reasonable. Tennessee courts have consistently enforced contractual limitations periods of one year,¹⁶ and have even upheld periods as short as 90 days in some circumstances.¹⁷

There is no hard-and-fast minimum duration, but courts generally ask whether the shortened period affords a real, practical opportunity to bring suit. Absent a statutory prohibition or manifest unfairness, courts respect such clauses as another expression of freedom to contract.

Waiver Provisions: Consequential Damages, Delay, and the Limits of Bargaining

"No damages for delay" clauses, common in construction contracts, are also broadly enforceable under Tennessee law—even if they seem harsh in hindsight.¹⁸ That said, there are recognized exceptions: if the delay was (1) not contemplated by the parties, (2) an abandonment of the contract, (3) the result of bad faith, or (4) the product of active interference, the contractor may still recover damages despite the waiver.¹⁹

Similarly, waiver of consequential damages provisions are routinely upheld in construction contracts, provided they are not unconscionable.²⁰ Courts applying Tennessee law have emphasized that unless a clause is "so manifestly unfair as to shock the conscience," it will be enforced as written.²¹

Moreover, under Tennessee’s UCC framework for sales of goods, consequential damages may be contractually waived, subject to the same unconscionability and essential purpose doctrines.²²

Conclusion: Risk Management Requires More Than Boilerplate

The rules Tennessee courts have developed around these clauses reflect a consistent theme: they respect commercial bargains, but not blind injustice. Freedom of contract remains a bedrock principle, but clauses that overreach—shielding fraud, bad faith, gross negligence, or public harms—will not survive judicial scrutiny.

Carefully negotiated limitation clauses, liquidated damages provisions, waivers, and time bars can provide invaluable certainty and risk management. But drafting them thoughtfully, understanding the specific Tennessee rules that govern their enforceability, and tailoring the language to the particular circumstances of the deal are essential.

Otherwise, what looks like a shield on paper may shatter the moment it is tested in court.