Understanding Lost Profits in Business Contracts
Exploring key concepts related to lost profits in business contracts, including limitations clauses, acceptance criteria, material alterations, and the projection of future income. The instructions for calculating profits, descriptive statistics, and expected exposure in a business context are also covered.
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Noble fir Farm, Inc. Student Coaching Notes 1
Recovery of Lost Profits Is the Lost Profits Limitation Clause Part of the Contract? May an Established Business Recover Lost Profits Based on Projection of Future Income? 2
Is the Lost Profits Limitation Clause Part of the Contract? Is there an Acceptance? - Definite - Timely - Not Conditional on Offeror s Assent Rejection & Counter Offer Are the Additional/Different Terms Part of Contract? Both Parties Merchants At Least One Party is Not a Merchant Yes, unless - Material Alteration - Offer Limit Acceptance - Offeror Objects No, unless Offeror Expressly Consents 3
Material Alteration Surprise or Hardship Standard Clauses that deny implied warranties Clauses that require arbitration Clauses that limit remedies 4
May an Established Business Recover Lost Profits Based on Projection of Future Income? Reasonable Certainty Standard Not Speculative in Nature No Absolute Precision is Required May Rely on Statistical Models based on Past Financial Data 5
Question 2a: Getting the Histogram Use Excel to Calculate Profits on Spreadsheet File Harvey s Case. Divide Profits Range (Highest Minus Lowest) by 6 to Get Bin Size and Round to Nearest 1000 s. Manually Input 6 Upper Values of Bins into Column of Spreadsheet File Harvey s Case. Follow Directions for Constructing Histograms on Using_Excel_for_Stat PowerPoint. 6
Questions 2b & 2c: Descriptive Statistics Follow Directions for Descriptive Statistics on Using_Excel_for_Stat PowerPoint. Use a 99% Confidence Level when Using Excel. 7
Question 2 d: Expected Exposure Expected Exposure = Construction Costs + Total Expected Profits for Six Months Basis for Compensation 8
Question 4: Hypothesis Test Test Mr. James s Claim that Offer Underestimated Lost Profits (Profit Increased During Last Six Months). Follow Directions for Hypothesis Testing on Using_Excel_for_Stat PowerPoint. Use Two Sample Assuming Equal Variances. 9
