Protecting Your Business: Limitation of Liability Under NY UCC
In commercial contracts, parties may wish to limit their potential liabilities. The New York UCC allows for limitation of liability clauses, but they must meet certain criteria to be enforceable.
Understanding UCC §2-719: Contractual Modification or Limitation of Remedy
Permissible Limitations:
Parties can agree to limit or alter the remedies available in case of breach.
May include limiting the buyer's remedies to return of the goods, repair, or replacement.
Limitations on Consequential Damages:
Consequential damages can be limited or excluded unless the limitation is unconscionable.
For personal injury in consumer goods, such limitations are generally considered unconscionable.
Unconscionability:
A limitation is unenforceable if it is unconscionable at the time of contracting.
Factors include imbalance in bargaining power and unfair surprise.
Best Practices for Drafting Limitation Clauses:
Use Clear Language:
Clauses should be written in clear, understandable terms.
Conspicuousness:
Make sure the clause is noticeable (e.g., using bold or capital letters).
Reasonableness:
Limitations should be reasonable and not overly harsh.
Compliance with Law:
Ensure that the limitation does not violate any statutory protections.
Implications for Merchants:
Risk Management:
Properly drafted clauses can protect against large liability exposures.
Customer Relations:
Fair limitations maintain trust and can prevent disputes.
Key Takeaways:
Limitation of liability clauses are allowed but must be reasonable and conscionable.
Clear and conspicuous drafting is essential for enforceability.
Balancing protection of your business with fairness to the customer is crucial.
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