ARTICLE - Houston Law Review

more than the mere exchange of assets or the development of a project; they desire ... responsible for unexpected costs. .... App.—Houston [14th Dist.] Dec.
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ARTICLE CONSEQUENTIAL DAMAGES WAIVERS: HOW TO CONSEQUENTIALLY AND INCIDENTALLY (INCLUDING INDIRECTLY) WAIVE YOUR REMEDY Megan A. Ceder and Travis J. Distaso ABSTRACT Consequential damages waivers are often quickly absorbed as boilerplate. There is, however, increasing literature on the recognition of the potential misuse of such waivers, especially with regard to the overlap between direct and consequential damages. This article comments briefly on the above and adds insights on the interpretation of specific terms in common consequential damages waivers. TABLE OF CONTENTS I.

THE CORE OF CONTRACT ............................................................. 2

II. HARKENING BACK TO HADLEY .................................................... 4 III. THE CONSEQUENCE OF CONSEQUENTIAL .................................. 5 IV. WAIVING WORD BY WORD ........................................................... 6 A. State Interpretation ............................................................. 7 B. Incidental Damages ............................................................ 8 C. Indirect Damages ................................................................ 9  Megan A. Ceder and Travis J. Distaso are associates in the Energy Transactions and Projects Practice Group at Vinson & Elkins LLP, in Houston, Texas. They would like to thank Shay Kuperman for his help and guidance throughout the article-writing process, and Brooke Milbauer for her assistance and research.

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D. Punitive Damages................................................................ 9 E. Lost Profits ........................................................................... 9 F. Diminution in Value ......................................................... 10 V. BEYOND HADLEY ........................................................................ 10 I.

THE CORE OF THE CONTRACT

In the world of business transactions, parties often desire more than the mere exchange of assets or the development of a project; they desire certainty around the effects of the transaction. In the context of an acquisition of an asset, for example, parties would have little difficulty agreeing to a bare bones purchase and sale. The basic solution would be to contract only for the delivery of legal title to the asset in exchange for monetary equivalents. In such a scenario, the parties would allow statutory and common law defaults to control any exigencies, such as the amount of damages owed if a party believed the asset was not as they expected or the determination of the party responsible for unexpected costs. More realistically, and especially in complex corporate transaction, the parties may desire to limit the unexpected effects of a transaction through the contractual allocation of liability for specific events. In so doing, the parties modify common law or statutorily prescribed remedies, to the extent allowable by law. This allocation may be accomplished in a variety of ways. Parties may decide to give warranties for certain parts of an asset to extend for a certain amount of time, such as that certain components of solar panels installed in a commercial rooftop shall be free and clear of all defects for a period of five years. They may also choose to allow for certain payments upon an event of early termination or default. More overtly, parties may contract for liquidated damages, i.e., define certain events to trigger certain payments between the parties. For example, if the parties agree to a construction schedule and the contractor fails to deliver a certain component of the project by the schedule’s deadline, the contractor may be required to pay a specified, predetermined amount of damages. Finally, parties may agree on an indemnity, i.e., an allocation of the responsibility for damages with regard to an aspect of the transaction. Regarding these contractual allocations, but especially liquidated damages and indemnities, the par