Vendor Liability Limitations

Some vendors may propose contracts that contain clauses limiting their liability. They may attempt to add provisions that disclaim all express or implied warranties or that limit monetary damages to the value of the product itself, consideration paid, or specific liquidated damages. Generally, courts uphold these contractual limitations on liability in commercial settings unless they are unconscionable. Therefore, if organizations are considering contracts that contain such clauses, they should consider whether the proposed damage limitation bears an adequate relationship to the amount of loss the financial organization might reasonably experience as a result of the vendor's failure to perform its obligations. For mission-critical software, broad exculpatory clauses that limit a vendor's liability are a dangerous practice that could adversely affect the soundness of an organization because organizations could be substantially injured and have no recourse.


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