17 Mar Common Questions About Business Contracts, Part IV—Remedies Provision

In our last four blogs Edwards Law provided a sample business contract to demonstrate what a simple employee business agreement looks like; and sample language for prevailing party and indemnification provisions in your business contract, as well as integration clauses and forum selection clauses.  Our blog today addresses yet another important boilerplate provision that should be included in well-written contracts—a remedies clause.

What Is a Remedies Clause?

Contracting parties often include in their written agreement provisions on remedies for breach of the contract.  A remedies clause sets forth the parties’ intention to provide for equitable remedies for breach of contract, in addition to or instead of just monetary relief.

A remedies clause can also be used to limit the relief the parties can obtain upon breach of the contract.  If the parties intend that certain express remedies like liquidated damages constitute the exclusive or sole remedy for a particular breach, the parties can include an alternative, “exclusive remedy” carve-out.  Liquidated damages and actual damages are, absent express language permitting recovery of both, mutually exclusive remedies, so that where an election is permitted, the election of one remedy bars pursuit of the other.

Other examples are disclaimers of consequential damages, limits on the time or grounds for rejecting tendered goods, and clauses shortening the applicable limitations period.

However, you must be very careful when negating remedies because if you limit yourself or the other party to a single remedy, and the law makes that remedy unavailable, the party might find itself without any recourse for breach.

What Types of Contract Remedies Should be Addressed in the Contract?

The details of your clause will be wholly dependent on the subject matter of your contract, the status of the law and the parties involved in the contract.  You may want to create or expand a remedy if you are a secured lender drafting a security agreement.  Some statutory remedies are expressly made available only in limited situations, but the law can allow parties to make those remedies available in other situations.

You may also want to use this provision to enhance the availability of a discretionary remedy.  Some remedies like equitable remedies are within the court’s discretion.  Courts will not be bound by such a contractual provision, but the provision may help.

Examples of provisions you may consider adding to expand a remedy or the availability of a remedy are:

• Rescission – this remedy would allow a party to undo the contract from the beginning, and would allow for special damages in case of rescission of a contract due to fraud.  The object of rescission is to return the parties to the status quo.  The choice of remedy between rescission or damages for breach would belong to the one defrauded.
• Reformation – if you discover after you sign the contract that it does not reflect what the parties really agreed to, this remedy provides a means by which you can revise the contract to conform to the intention of the parties. It is an equitable remedy and only applicable when there is a mistake or fraud.  The mistake must be one that is mutual, material, and not induced by negligence.
• Restitution – This is an equitable remedy awarded to prevent the breaching party from being unjustly enriched. For example, if one party has delivered goods but the other party has failed to pay, the delivering party may be entitled to the cost of the delivered goods, in order to prevent the unjust enrichment.
• Specific Performance – this provision would allow a court to require the breaching party to perform their part of the bargain as set forth in the contract. For example, if one party has paid for a delivery of goods, but the other party did not ship them, a specific performance decree might require the goods to be properly delivered.  This provision however would typically not be enforceable in the context of an employment contract.  Also, an award of specific performance is subject to court discretion and will not be ordered if, among other reasons, an award of damages would be adequate or forcing the other party to perform would be unfair.

Talk to a lawyer before adding a remedies provision to your contract.  Edwards Law has experience drafting business contracts, and can provide an initial, complementary 15-minute consultation to discuss your business contract needs.