Contracts As Risk Management

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Discussion of those parts of contracts that should be looked at to assess risk

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Contracts As Risk Management

  1. 1. Contracts: There’s Risk?
  2. 2. Risk Management – Where’s the Risk <ul><li>Can you trust the person </li></ul><ul><li>Financial miscalculation </li></ul><ul><li>Contract is not performed </li></ul>
  3. 3. Whom do you Trust?
  4. 4. Financial Ruin
  5. 5. Covenants = Promises <ul><li>Performance </li></ul><ul><li>Milestones </li></ul><ul><li>Representations </li></ul><ul><li>Warranty </li></ul>
  6. 6. What is a warranty? <ul><li>A warranty is a </li></ul><ul><li>statement of fact </li></ul>
  7. 7. 2006 White Mustang, GC - $500
  8. 8. Warranty of Fitness for a Particular Purpose
  9. 9. White Mustang for Car Show
  10. 10. <ul><li>Warranty of Merchantability </li></ul>
  11. 11. White Mustang for Normal Use
  12. 12. Default <ul><li>A party fails to perform an </li></ul><ul><li>obligation under the contract </li></ul>
  13. 13. Remedies <ul><li>Nothing </li></ul><ul><li>Damages </li></ul><ul><li>Indemnity </li></ul><ul><li>Defense </li></ul><ul><li>Hold Harmless </li></ul><ul><li>Injunctive Relief </li></ul>
  14. 14. <ul><li>Damages </li></ul><ul><li>= </li></ul><ul><li>Money </li></ul>
  15. 15. Types of Damages <ul><li>Actual </li></ul><ul><li>Incidental </li></ul><ul><li>Consequential </li></ul><ul><li>Liquidated </li></ul><ul><li>Punitive </li></ul>
  16. 16. Actual Damages <ul><li>Mustang as warranted = $20,000 </li></ul><ul><li>Mustang as delivered = $15,000 </li></ul><ul><li>Damages = $5,000 </li></ul>
  17. 17. Incidental <ul><li>Cost to find replacement </li></ul><ul><li>Cost of storage </li></ul><ul><li>Broker’s costs </li></ul><ul><li>Etc. </li></ul>
  18. 18. Consequential <ul><li>Seller must have reason to know consequential damages are likely </li></ul><ul><li>Buyer’s failure to deliver Mustang causes its breach of other agreement and damages of $100,000 </li></ul>
  19. 19. Liquidated <ul><li>Parties agree that damages may be hard to measure so agree ahead of time as to what they will be if there is a breach </li></ul><ul><li>Must be reasonably related to damages that can be incurred </li></ul><ul><li>Can’t be a penalty (unless you are the government) </li></ul>
  20. 20. Punitive <ul><li>Not going to happen </li></ul>
  21. 21. Disclaimer of Warranty <ul><li>Implied Warranties </li></ul><ul><li>Anything other than express warranty </li></ul><ul><li>Limitation of remedies </li></ul><ul><ul><li>Time </li></ul></ul><ul><ul><li>Amount </li></ul></ul><ul><ul><li>Repair or Replace </li></ul></ul><ul><li>AS IS </li></ul>
  22. 22. Limitation of Liability <ul><li>For any breach </li></ul><ul><li>Time </li></ul><ul><li>Amount of damages </li></ul><ul><li>Types of damages </li></ul>
  23. 23. Indemnity <ul><li>Indemnity = reimburse </li></ul><ul><li>Defend </li></ul><ul><li>Hold Harmless </li></ul>
  24. 24. Manage Risk <ul><li>Warranties </li></ul><ul><li>Disclaimer </li></ul><ul><li>Limitation of Liability </li></ul><ul><li>Indemnity </li></ul>

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