Thursday, June 11, 2015

The Importance of Honoring Contracts and the High Cost of Dishonor

If you are not already aware, money is based on contracts and contracts are based on business - serving others. Contracts may be implied, oral or written and they all hold substantial legal weight in a court of law. If you're making money in any way, shape or form it is because you either work for a business, you work with a business or you manage a business based on the universal principle of contracts. The more business earned, the more contracts formed, the more money made. That is how the rich do it. They find a way to serve a lot of people. Learn how to service more people, form as many relationships and contracts as you can, and your financial world will come without limits.

Now, let us talk about when contracts are broken or "breached." In a recent case, Snoop Dogg (or Lion) recently filed suit this week against Pabst Brewing Company for $70 million alleging Pabst breached their consulting agreement with Snoop when it sold to Oasis Beverages for $700 million in 2014. According to the contract between Snoop and Pabst, Snoop would endorse the product Colt 45 for 3 years and if the company sold the Colt 45 brand within those 3 years or 2 years following the end of the 3 years in 2014, Snoop would be entitled to "10 percent of the net price of such a sale." That equates to 10% of $700 million minus fees and administrative costs.


What Snoop should be doing is suing for $210 million for wrongful breach of contract. When a party to a contract breaches the "black and white" lettering in a written contract, the damaged party is entitled to punitive damages at double the actual damages. In this case, Snoop's actual damages are $70 million and punitive damages could be $140 million with a total of $210 million not including court and attorney's fees.


In another case re: Natalia Potanina v. Vladimir Potanin, Natalia has filed claim for half of the couple's $15 billion fortune. According to Russian law and akin to United States law, a couple without a pre-nuptial or post-nuptial agreement is required to split half of the assets owned between the divorcing couple. Vladimir is accused of hiding a vast majority of his wealth in offshore accounts. Since the couple officiated their divorce in 2014, Vladimir has made offerings to Natalia to settle, however; Natalia feels Vladimir's offerings are cheap and is demanding half of the value of the total assets held by Vladimir.


At this time, we might be reminded of the divorce case of Sue Ann Arnall (formally Hamm) and her ex-husband, Harold Hamm, an oil tycoon with personal wealth worth nearly $20 billion after 26+ year of marriage. While Sue helped Harold to facilitate a family fortune over the years, Harold has fought with her over splitting the couple's fortune evenly. He paid her $975 billion earlier this year and she accepted based on a partial settlement. This year marks their third year in divorce proceedings regarding the estate.

The underlying point here is that we must always make an effort to honor our agreements and absorb the consequences when we do not. With large amounts of wealth at stake, it becomes very crucial. As evidenced here, any defect can cause a lot of trouble.

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