A "consequential damages waiver clause" in a contract limits liability by excluding recovery for indirect or consequential damages resulting from a breach, protecting parties from extensive financial consequences beyond the immediate losses.
Key elements of a consequential damages waiver clause in a commercial contract include:
- Explicit Exclusion: This clause clearly states that consequential damages are excluded from recoverable losses, limiting the scope of potential liability.
- Definition of Consequential Damages: It precisely defines what constitutes consequential damages to avoid ambiguity or disputes over the scope of excluded losses.
- Exceptions: This clause may include exceptions, specifying situations where consequential damages are recoverable despite the general exclusion.
- Mutual Agreement: It represents a mutual agreement between parties, establishing a shared understanding of the limitations on liability for consequential damages.
Examples of consequential damages waiver clauses in a commercial contract include:
- In a software license, a consequential damages waiver clause might protect the licensor from liability for business interruption or lost profits due to software malfunction.
- A construction contract may include a consequential damages waiver to limit the contractor's liability for delays or disruptions impacting the project owner's business operations.
- In a supply contract, a manufacturer may seek a consequential damages waiver to limit exposure to losses incurred by the buyer's downstream customers due to supply chain interruptions.
The consequential damages waiver clause is a crucial risk-allocation tool, providing clarity and limitation on potential liability. By explicitly excluding certain types of damages, parties can better manage their exposure, fostering fair and informed contractual relationships.
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