LinkedIn Series Chapter 4: Limitation of Liability

December 16, 2013
Jack Walsh

There are a million different forms of this clause. Some states require special language to make this clause enforceable or limit its use or scope. The gist is always the same; no matter what bad thing happens to the buyer because the seller did not deliver the product, did not deliver it on time, did not deliver the correct product, or the product did not function properly (even if it caused damages to other property or even people), buyer can only get his, her or its money back. This clause is important to sellers. Products with low sales prices and limited profit to a seller can cause major damage. (E.g. A 50 cent bolt can fail and lead to a car crash destroying a $30,000 car and serious personal injury or failure of that same bolt to be delivered on time or within specifications can cause a buyer to lose a $10 million contract). Insurance can help with a failed product but not a contractual breach. Sellers’ forms always have some sort of limitation of liability. Buyers' forms never do. Who controls the contract; see offer and acceptance may make the difference. On this clause, however, there is a twist; a tie where both clauses drop out is a buyer’s win. As such a buyer may want a weak limitation of liability not because it helps the buyer, but because it will knock out a seller’s more onerous form. Common sense can control the enforcement of these clauses. If serious personal injury is involved, these sorts of clauses tend not to be enforced unless the seller carries sufficient insurance and buyer is not left without a remedy. In contract cases, these clauses may well be enforced; buyer beware!