Risk Allocation in Commercial Contracts
A Practice Note discussing the fundamental principle of risk allocation in commercial contracts. This Practice Note describes how contracting parties can strategically use common contractual provisions to minimize their own risk and manage potential liabilities. It explores key risk allocation mechanisms including indemnification, limitations on liability, termination rights, and force majeure clauses. The resource also examines the role of specific contractual remedies, such as equitable remedies, liquidated damages, and cumulative or exclusive remedies. Additionally, this Practice Note provides guidance on using Uniform Commercial Code (UCC) product warranties, insurance coverage, payment terms, and guaranties to allocate risk. It concludes with a review of how basic contractual building blocks like representations and warranties, covenants, and conditions precedent are used as risk allocation tools.
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