Quick Definition

An onerous contract is a contract where the costs to fulfill the obligations exceed the economic benefits expected to be received.

Examples

• 1A company signs a long-term lease for office space but later finds that the space is too large, resulting in higher rental costs than the benefits from using the space.
• 2A manufacturer enters into a contract to supply goods at a fixed price but raw material costs increase significantly, making the contract unprofitable.
• 3A software development firm commits to a project at a fixed cost but encounters unexpected technical difficulties, leading to increased labor and overhead costs that exceed the project's revenue.

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