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CIFG permitted to pursue contract dispute against Goldman Sachs

Texas residents that have been following business news may know that CIFG Assurance North America filed suit against Goldman Sachs Group in August. It claimed the investment bank knowingly sold unstable mortgage bonds to get the risk off its shoulders.

More recently, a Supreme Court judge dismissed some claims against Goldman, including fraudulent inducement. Even so, the court did not eliminate claims for breach of contract.

CIFG claimed in the initial lawsuit that Goldman fraudulently induced it to provide insurance on the portfolio of over 6,000 residential mortgage loans. CIFG claims that Goldman did so by misrepresenting the quality.

Eventually, the judge granted Goldman's motion to dismiss on that claim. The ruling had to do with the issue of due diligence: If CIFG had conducted a proper investigation prior to writing the insurance, it would have discovered the misrepresentations.

Despite the decision, the judge let three breach of contract claims remain based on CIFG's statistical evidence, which showed breaches in the underlying loans.

Generally speaking, a contract is a bargained-for exchange. When businesses develop a contract and one party does not fulfill the obligations of the agreement, a breach occurs. In this particular suit, the court feels as though there is a legitimate question as to whether Goldman breached the contract. For this reason, the case was not tossed.

Ultimately, CIFG's suit seeks reimbursement for claims and also buy-backs of nonperforming loans.

There can be so many different facets to a business deal. If one party does not uphold a specific part of the bargain, this can lead to a heated contract dispute.

Source: Reuters, "Goldman loses bid to dismiss CIFG breach of contract claims," Karen Freifeld, May 3, 2012

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