If your company sells commercial goods to other businesses for resale, fabrication, or use in other products, you should make certain that your warranty disclaimers are well written, properly communicated, and otherwise enforceable. One of the most important disclaimers you should consider is a limitation of consequential damages.
When drafting warranty disclaimers, businesses must strike a balance. On the one hand, you want to protect yourself themselves from possible New Jersey products liability flowing from the product sold. On the other hand, you want to assure potential customers that you stand behind your product. An attorney who is familiar with your business is essential to drafting effective and enforceable warranty and liability disclaimers.
While the number of ways to limit potential liability is virtually infinite, probably the most important protection is to limit “consequential damages.” In plain English, the concept of consequential damages is as follows. Typically, a business claiming a breach of contract can recover the total contract price, or a fraction thereof, depending on the circumstances. For example, Buyer agrees to pay $100 for Seller’s product. After paying for it, the product does not work. If Seller cannot or will not replace or repair the product, Buyer would be entitled to $100 in direct damages for the breach.
However, if both parties knew when they entered the contract that Buyer bought the $100 product for the purpose of incorporating it into a $1,000 product that was destroyed because of the defective or unsafe equipment in New Jersey, Buyer may be entitled to $1,000 in damages that were “consequential” to Seller’s breach. Thus, even though Seller only made $100 on the contract, Seller could be liable for 10 times that amount in consequential damages.
Needless to say, consequential damages can be both unpredictable and catastrophic. Accordingly, businesses must carefully consider how to exclude consequential damages as a possible remedy in their transactions.
One common method in which Sellers can limit consequential damages is to place language in their invoices indicating the limitation or exclusion of remedies and warranties. As long as this language is prominent and clear, and the Buyer pays for and accepts Product, Buyer has agreed to the remedy limitation contained in the invoice. Although the best practice would be to include this language in the price quotation as well as the invoice, sometimes doing both is not feasible. Either way, as long as the language is sufficient, Seller is protected from unpredictable consequential damages.
If you sell commercial products to other businesses, you should tailor your disclaimers and remedy limitations to your business needs and realities. Not all disclaimers work for all companies. Contact the personal injury and criminal defense attorneys in New Jersey at Lependorf & Silverstein to make sure you are protected.