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Judge permits CIFG's breach of contract suit against Goldman Sachs

Florida residents that have been following business news may remember that CIFG Assurance North America sued Goldman Sachs Group in August. It alleged that the investment bank knowingly sold unstable mortgage bonds to get the risk off its shoulders.

Recently, a Supreme Court judge from New York dismissed some claims against Goldman, including fraudulent inducement; however, the court did not eliminate the claims for breach of contract.

Within the lawsuit, CIFG claimed 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.

Ultimately, 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 proper investigative efforts prior to writing the insurance, it would have discovered the misrepresentations.

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

Generally speaking, a contract is some sort of 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 dismissed.

In the end, CIFG's suit seeks reimbursement for claims and buy-backs of nonperforming loans.

As one can see, 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 contract dispute.

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

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