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  • Tanya S Osensky

Everything in a Contract is a Business Decision

Risk is what contracts are all about. Many people mistakenly think that some provisions of a contract are pure legal issues. Usually, they think this about provisions like warranty, indemnity, and limit of liability.

But every contract provision is about the shifting of business risk. Every provision is a business issue.

Consider warranties. This is where one party makes a promise about a fact being true. If the statement ends up not being true, the party has to pay damages.

For example, in the sale of a car, the seller warrants that the car has been driven 50,000 miles. With this kind of warranty, any mistake could lead to a claim for damages. Even if the actual miles driven is 50,001.

By adding a qualifier like “approximately” to the warranty – the car has been driven approximately 50,000 miles – the seller would get some leeway. Now a small immaterial mistake will not result in a misrepresentation, and this reduces the seller’s risk. For the buyer, this increases the risk.

Warranties, indemnities and limitation of liabilities are not boilerplate, and there’s nothing standard about them. If you ever see any of them in the miscellaneous section of a contract, be sure to zoom in really closely, because they can get very confusing.

They’re worth taking your time on.

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