This paper discusses the potential for legal liability when software malfunctions and causes financial loss or harm to the user. The focus is on the systems developer as opposed to the vendor, although the samelegal issues may apply to vendors as well. Various theories in the U.S. legal system may form the basis for legal action, on the part of the purchaser or ultimate user, based upon the characteristics of the individual case. The legal theories examined, for their application to malfunctioning software, are breach of contract and the tort theories of fraud and computer malpractice.