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Tech & Sourcing @ Morgan Lewis

TECHNOLOGY, OUTSOURCING, AND COMMERCIAL TRANSACTIONS
NEWS FOR LAWYERS AND SOURCING PROFESSIONALS

A sole and exclusive remedy clause allows parties to a contract to choose specific remedies and relief available under the terms of the agreement. Essentially, exclusive remedy provisions restrict a party's available remedies for specified claims to the remedies set out in the contract and exclude the party from seeking other types of remedies for that action. In commercial contracts, often you will see sole and exclusive remedy clauses in relation to breach of warranty, indemnification, and failure to perform.

Sample Exclusive Remedy Clauses

These sample exclusive remedy clauses are commonly found in commercial agreements:

Sole and Exclusive Remedy. THIS SECTION 10 STATES SUPPLIER’S SOLE AND ENTIRE OBLIGATION AND LIABILITY, AND CUSTOMER’S AND ITS AFFILIATES’ SOLE AND EXCLUSIVE RIGHT AND REMEDY, FOR INFRINGEMENT OR VIOLATION OF INTELLECTUAL PROPERTY RIGHTS.

Exclusive Remedy for Breach of Warranty. If Seller breaches any warranty set forth in clause (i) or clause (ii) of Section 10, Buyer's sole and exclusive remedy for such breach shall be the replacement of the affected Product and delivery of conforming Product, at Seller's sole expense.

Key Considerations

When negotiating commercial contracts, one should carefully review and consider the potential impact of sole and exclusive remedy provisions. Depending on which side of the deal a party is on, an exclusive and sole remedy provision should be either sought or avoided; for example:

  • In most cases, the buyer or customer in the transaction is the party that is most likely to be damaged. Therefore, it is the buyer or customer’s best strategy to attempt to exclude or limit any sole remedy provisions in order to best protect itself against liability from the wrongdoing of the other party and preserve its right to seek any and all damages beyond those stated under the contract.
  • The supplier or seller in the transaction is more likely to be the breaching party (since typically the supplier or seller has more obligations under a contract) so it behooves that seller or supplier to include a sole remedy provision in order to curtail what could potentially be wide-ranging damages available to the nonbreaching party.
  • Exclusive remedy clauses are permissible but a key consideration in ensuring the enforceability of a sole and exclusive remedy provision is to carve out the sole remedy clause from any cumulative remedies provision that exists in the agreement.

For the above reasons, it is important to carefully draft the sole and exclusive remedy clauses in your contracts.