Cengage Advantage Books: Foundations of the Legal Environment of Business 3rd Edition by Marianne Jennings

Exercise 12

Smith Smith, a U.S. computer firm, contracted to install a computer system for Volkswagen in the company's headquarters in Berlin, Germany. Smith's contract included the following liability limitation: "We are only liable for loss of data which is due to a deliberate action on our part. We are not responsible for lost profits in any event." The contract had no provisions on choice of law. A crash in the Smith Smith system caused a loss of 92 days' worth of financial data. Volkswagen was required to use its auditors to restructure the database at a substantial cost. Smith Smith says it did nothing deliberate and, therefore, is not liable. Volkswagen cites German law that mandates protection by sellers against such losses and permits recovery of lost profits. U.S. law would honor the Smith Smith clause. Which law applies? Why?