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Our website uses cookies to provide you with a better experience. Jurisdiction United States. Considerations for the Maker of Representations and Warranties.
Considerations for the Recipient of Representations and Warranties. Additional Considerations Relating to the Scope of Indemnification. Supporting Indemnification as an Exclusive Remedy. In a Breach of Warranty - The damages for which a seller is liable is the amount necessary to compensate the purchaser for any loss resulting from the breach.
A breach of warranty claim is an action for breach of contract and is subject to the normal legal requirements of proving loss. A party that breaches a warranty is only responsible for the loss and damage that is foreseeable as a result of the breach. Warranties can be written into the contract, or stated verbally OR they can be implied by the law or by the usual practices of a particular industry or field of business.
As we will consider next week, a warranty can run alongside a guarantee. Indemnities and Guarantees are 2 more essential tools to use contracts, especially when you are looking to protect the client after the contract has started. Indemnities and guarantees are excellent tools for this purpose.
In Contract Law the onus is on the buyer to show breach of contract and quantifiable loss. The right to indemnity and the duty to indemnify ordinarily stem from a contractual agreement, which generally protects against liability, loss, or damage. Simply put, an indemnity is a promise by one party to another that they will not suffer a financial loss. This is a very different matter from guaranteeing a profit.
An indemnity merely assures one party that they will not be out of pocket in respect of a particular issue. Put more formally, an indemnity clause is a contractual transfer of risk between two contractual parties generally to prevent loss, or compensate for a loss, which may occur as a result of a specified event.
The normal tendency is to seek an indemnity which will protect a party to the greatest possible extent against liabilities arising from the actions of another. You should use indemnities to cover potential losses where there are difficulties in using Warranties, Covenants, or Representations, although you will frequently find that a cocktail of all these clauses is needed to protect the client and make sure that they get what they are expecting.
Under Common Law, the non-breaching party is clearly obliged to mitigate any loss for a breach of the contract but There is no such clear obligation for a buyer to mitigate its loss under an indemnity. Disclosures might be made against warranties in certain transactions, such as share or asset sales, thereby limiting liability.
In which case one party might initially seek an indemnity because of information disclosed either during due diligence or in a disclosure letter. It is necessary for the injured party to prove that financial losses arose as a result of a breach of contract — With an indemnity, however, a buyer can recover any losses sustained without having to prove that there has been reduction in value — merely that a loss was suffered e.
Depending on the terms, a buyer that is aware of a breach of warranty might not be able to claim because they were aware of the problem and decided to enter into the contract regardless. However, knowledge of a potential breach of contract or warranty will not prevent a buyer from making a claim under an indemnity. Buyers often negotiate an indemnity as contractual protection from a specific problem that they have discovered.
Indemnities are often drafted too widely seeking to cover third parties and circumstances beyond the ordinary breach circumstances actionable under the common law. In some circumstances indemnity clauses also seek to apply even when there is no breach of contract by the party.
A well known instance of this is a guarantee where one party indemnifies another party for the act, default or breach of a third party. Zetoony Computing on the Edge by: Robert M. Kamer and Aubrey A. Slack and Peter A. Paolillo and Ellen L. Mitchell and F. Delaney and Kristina M.
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