Sunday, January 23, 2011


When a party fails to perform the other party may have “remedies”. Most remedies are money damages or payment for costs incurred A remedy could be acts the other party is required to do by the contract.

There are Three forms of remedies::
      at Law (common law or statute such as the Uniform Commercial Code).
      in Equity (such as injunctions or specific performance)
      Those Agreed in the Contract.

Remedies In General
In contract law typical remedies that may be available to the parties are:
  • Expectation damages (benefit of the bargain)
  • Reliance damages (recovery of costs reasonably incurred in reasonable reliance of a contract that was breached).
  • Restitution (recovery of the value provided by the non-breaching party)
  • Stipulated or Liquidated damages – (A fixed sum or formula agreed to be paid in the event of a material breach. For example a per day amount for each day a project is late in delivery)
  • Interest
  • Special or Punitive damages (Damages that are designed to punish the party. For example, willful Intellectual Property infringement in the US is subject to treble damages which would be considered to be punitive damages.
  • Contract agreed remedies, (If the Supplier is late in making delivery, and the delivery term requires them to ship it by express freight with the Supplier paying the incremental cost, that is an example of a contract agreed remedy.
  • Specific Enforcement/ Specific Performance (Ordering the party to perform)
  • Cover (Being able to charge the reasonable cost of excess re-procurement)
  • Incidental and consequential damages (recovery of costs that are not the direct result of the breach, but would be incidental to or a consequence of the breach
For all remedies the non-breaching party has the responsibility to mitigate damages with reasonable effort and without undue risk.

In the Contract you may also include specific remedies in many of the clauses that would be in addition to the remedies you have retained. For example, If a Supplier fails to deliver a Product on time, your contract could provide the right to cancel the order without charge for Products or Services not yet delivered; it could require Supplier to deliver Products using priority freight with any difference in cost at Supplier’s expense. If there were on-going performance problems you may have remedies that require the supplier to take additional actions to mitigate the potential impact to you. These can be used to improve performance, reduce your costs associated their performance problems or provide additional remedies for the breach. For example, a source code licenses or manufacturing rights license may be additional remedies you need if the Supplier breached the agreement and you needed to continue to get use and support the product.

Most contracts will also provide catch all language where if there is a breach in addition to any contract remedies that you may have spelled out, you would have the ability to exercise all other remedies provided at law, or equity. Most of those remedies would allow you to collect certain damages you incurred. Equitable remedies go beyond just collecting damages.

Equitable Remedies
Equity principles are based on the concept of fairness. If you reserve equitable remedies in your contract, the non-breaching party could seek the equitable remedies of injunctive relief, specific performance or contract modification to prevent unjust enrichment of the other party or if money damages were inadequate to the harm that could be sustained.
  • Injunctive relief is a court ordering the party to not do something. For example, if a Supplier breached a Non-Disclosure agreement, the collection of damages may be inadequate so the non-breaching party may seek an injunction preventing further breach, disclosure, or use of the information.
  • In Specific Performance a court could order the breaching party to perform and meet their obligations. A common example of specific performance could be you have a purchase and sale agreement to purchase a new house and the builder or owner refuses to sell the house. If a court ordered specific performance they would be obligated to sell the house or be in contempt of court until they do.

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