[ Previous Page] [ Home Page ]
The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us) STATE OF MICHIGAN FRANK J. KELLEY, ATTORNEY GENERAL Opinion No. 5684 April 3, 1980 PUBLIC CONTRACTS: Indemnification against negligence of public officer or employee A contract clause which limits the total aggregate liability of the public owner, engineer and their agents to an amount not to exceed $50,000 for pecuniary damages which the contractor and subcontractors may suffer with respect to an act or acts of professional negligence in connection with the design, drawings and specifications for a public project form which the contractor prepared his or her contract bid price is void as against public policy. Hon. William A. Ryan House of Representatives The Capitol Lansing, Michigan 48909 You have requested my opinion on the following question: 'May a construction contract prepared for a political subdivision of the state validly provide that the construction contractor be required to indemnify the professional engineer and the owner for damages the contractor may incur due to the 'professional negligent act, error or omission' of the professional engineer?' The following contractual language has been included by political subdivisions of the state in several contracts for the construction of public facilities and is in question: '. . . a contractor affirmatively agrees to limit the total aggregate liability of the owner, the engineer, and their agents, and/or consultants to an amount not to exceed $50,000, for pecuniary damages he may suffer with respect to any act of professional negligence associated or connected with the design drawings and specifications from which the contractor prepared his contract bid price. The contractor further agrees to obtain from his subcontractors as a condition precedent to their performance, a like limitation of liability such that the total aggregate liability of the owner, the engineer, their agents, and/or consultants to the contractor, and all subcontractors shall not exceed $50,000.00. 'It is understood and agreed between the parties hereto that this limitation of liability clause shall be confirmed in application to only its matters affecting the contract bid price and shall not affect any party's liability for personal injury or property damage arising or resulting from the sole negligence of any party, his agents, or employee.' Many indemnification agreements in construction contracts are void under 1966 PA 165, Sec. 1; MCLA 691.991; MSA 26.1146(1); however, the specific contractual language quoted above is not within the terms of this statute. The statute only prohibits '. . . (indemnification) against liability for damages arising out of bodily injury to persons or damage to property. . . .' The contractual provision in question specifically states such liability shall not be affected. Thus, it is necessary to consider the question of the effect of this contractual provision. Generally, contracts are presumed to be legal. Roland v Kenzie, 11 Mich App 604, 611; 162 NW2d 97 (1968). The fairness of the terms of a contract is not usually a basis for declaring it illegal. Montgomery v Taylor & Gaskin, Inc, 47 Mich App 269, 274; 209 NW2d 472 (1973). Specifically, contracts limiting the liability of or indemnifying a party may be legal. Cree Coaches Inc v Panel Suppliers, Inc, 384 Mich 646, 649; 186 NW2d 335 (1971). Furthermore, when a contract clause limiting a party's liability does not absolve that party from liability to third parties, there may be good reason to find such a clause valid. Klann v Hess Cartage Co, 50 Mich App 703, 708-709; 214 NW2d 63 (1973). On the other hand, 'As a settled general rule, agreements or contracts against public policy are illegal and void. An agreement or contract made in violation of established public policy is not binding and will not be enforced. nder the principles relating to the doctrine of public policy, as applied to the law of contracts, courts of justice will not recognize or uphold any transaction which, in its object, operation, or tendency, is calculated to be prejudicial to the public welfare, to sound morality, or to civil honesty. It is not necessary to have a statute to prohibit a contract which is against public policy; in such a case, public policy itself prohibits it. The basis of the rule that contracts in contravention of public policy are not enforceable is that no one can rightfully do that which tends to injure the public or is detrimental to the public good; and if it definitely appears that enforcement of a contract will not be followed by injurious results, then, generally at least, what the parties have agreed to ought not to be struck down on the ground of public policy. The principle that agreements opposed to public policy are not enforceable should be applied cautiously and only in circumstances patently within bounds of the reasons on which that doctrine rests. To make available a rule of public policy which is based upon certain inferences of fact, it must appear that the facts of the case warrant drawing the inferences; mere legal technicalities or remote possibilities of fact are not sufficient.' 17 Am Jur 2d, Contracts, Sec. 174, pp 532-533. Whether or not such injuries actually occur, any contractual provision having such a tendency is void. Federoff v Ewing, 386 Mich 474, 480-481; 192 NW2d 242 (1971). The quoted contract provision does not appear to be the type of provision which courts declare void because of the unequal bargaining power of the contracting parties and the unfairness of the contract provision. Compare, Allen v Michigan Bell Telephone Co, 18 Mich App 632; 171 NW2d 689 (1969), lv app den 383 Mich 804 (1970); Cree Coaches, Inc v Panel Suppliers, inc, supra; Johnson v Mobil Oil Corporation, 415 F Supp 264 (ED Mich 1976), with Kensington Corporation v Department of State Highways, 74 Mich App 417, 424; 253 NW2d 781 (1977), lv app den 401 Mich 825 (1977). As observed in Blazic v Ford Motor Co, 15 Mich App 377, 380; 166 NW2d 636 (1968) lv to app den 382 Mich 758 (1969) (citing Restatement, Contracts, Sec. 575); contracts involving the avoidance of the consequences of performing a public duty are illegal. 1937 PA 240, Sec. 189, as amended; MCLA 338.568; MSA 18.84(18) requires political subdivisions to have all plans and specifications for the construction of any public work prepared and supervised by a registered architect or a registered professional engineer. The clear purpose of this statute is to protect the public from improper construction of public works. Given this legislative intent, preparing plans and specifications for the construction of public works is an important public function. The contract clause in question may foster negligence in performance of that public function. See, Sellars v Lamb, 303 Mich 604, 608; 6 NW2d 911 (1942). It is, therefore, my opinion that a contract clause which limits the total aggregate liability of a political subdivision, its engineers and their agents to an amount not to exceed $50,000.00 for damages suffered by a contractor and subcontractors as a result of an act or acts of professional negligence in creating the design, drawings and specifications for a construction project and which may foster negligence is against public policy and void. Frank J. Kelley Attorney General
[ Previous Page] [ Home Page ]