Contracts carry certain risks that require careful management. Key risks include not being able to trust the other party to fulfill their obligations, financial miscalculations, or non-performance leading to financial ruin. Contracts contain covenants like promises, milestones, and representations or warranties, which are statements of fact about goods or services. If a party defaults by failing to perform their obligations, available remedies include damages, indemnification, defense, or injunctive relief. Damages can be actual, incidental, consequential, liquidated, or punitive amounts to compensate for losses from the breach. Risks in a contract can be managed through warranties, liability disclaimers, damage limitations, and indemnification clauses

1. Contracts: There’s Risk?

2. Risk Management – Where’s the Risk Can you trust the person Financial miscalculation Contract is not performed

3. Whom do you Trust?

4. Financial Ruin

5. Covenants = Promises Performance Milestones Representations Warranty

6. What is a warranty? A warranty is a statement of fact

7. 2006 White Mustang, GC - $500

8. Warranty of Fitness for a Particular Purpose

9. White Mustang for Car Show

10. Warranty of Merchantability

11. White Mustang for Normal Use

12. Default A party fails to perform an obligation under the contract

13. Remedies Nothing Damages Indemnity Defense Hold Harmless Injunctive Relief

14. Damages = Money

15. Types of Damages Actual Incidental Consequential Liquidated Punitive

16. Actual Damages Mustang as warranted = $20,000 Mustang as delivered = $15,000 Damages = $5,000

17. Incidental Cost to find replacement Cost of storage Broker’s costs Etc.

18. Consequential Seller must have reason to know consequential damages are likely Buyer’s failure to deliver Mustang causes its breach of other agreement and damages of $100,000

19. Liquidated 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 Must be reasonably related to damages that can be incurred Can’t be a penalty (unless you are the government)

20. Punitive Not going to happen

21. Disclaimer of Warranty Implied Warranties Anything other than express warranty Limitation of remedies Time Amount Repair or Replace AS IS

22. Limitation of Liability For any breach Time Amount of damages Types of damages

23. Indemnity Indemnity = reimburse Defend Hold Harmless

24. Manage Risk Warranties Disclaimer Limitation of Liability Indemnity