Understanding the Remedies in Commercial Contract Litigation

When dealing with a breach of contract, pursuing litigation may be the only practical option for enforcing a company’s contractual rights. If settling isn’t in the company’s best interests (or isn’t an option under the circumstances at hand), going to court provides a means of obtaining a certain outcome and an enforceable judgment.

Potential Remedies in Commercial Contract Litigation

Companies can seek various types of remedies in commercial contract litigation. These remedies broadly fall into two categories: (i) “legal” remedies (remedies that are financial in nature); and (ii) “equitable” remedies (remedies that either require or prohibit certain conduct). Companies pursuing contract enforcement can seek legal remedies, equitable remedies, or both—including (but not necessarily limited to):

1. Compensatory Damages

As their name suggests, compensatory damages are intended to compensate a plaintiff for the financial losses resulting from the defendant’s breach of contract. These losses could result from the defendant’s non-payment for goods or services rendered, non-payment for goods or services to be rendered, or failure to perform. For example, if a contractor is reliant on a vendor or subcontractor to timely meet its obligations to a customer, if the vendor or subcontractor fails to perform, then the contractor could sue for its loss of business and any refunds or damages owed to the customer.

2. Liquidated Damages

Oftentimes, commercial parties will negotiate the damages that will be owed in the event of a breach. These are referred to as “liquidated damages.” While it may make sense to negotiate liquidated damages in a variety of scenarios, these clauses are most commonly used when either: (i) the true damages resulting from a breach are not easily calculable; or (ii) the parties desire certainty regarding their contract-related liability exposure. Liquidated damages clauses in commercial contracts are generally enforceable, and the parties’ agreement (assuming it is enforceable) will override any statutory or common law principles that would otherwise govern their dispute.

3. Punitive Damages

Punitive damages are available in some cases. While punitive damages laws vary between jurisdictions, these damages are generally available when the defendant’s conduct can be classified as “egregious,” “malicious,” or “wanton.” While punitive damages awards in commercial contract disputes are relatively uncommon, prospective plaintiffs should work with their litigation counsel to carefully assess all of the options they have available.

4. Injunctive Relief

Injunctive relief is an equitable remedy that prohibits a company or individual from engaging in certain conduct. For example, an injunction may be appropriate when the defendant has breached (or threatened to breach) a confidentiality or non-disclosure obligation or when the defendant is exceeding the scope of a contractual license. Companies can seek injunctive relief on an emergency basis when necessary, and courts can (and will) impose temporary injunctions while lawsuits are pending when warranted.

5. Specific Performance

While an injunction prohibits certain conduct, an order for specific performance requires the defendant to take certain actions. Specific performance isn’t an available remedy in all cases, but when it is available, seeking an order for specific performance can help mitigate a plaintiff’s contract-related losses. Plaintiffs seeking specific performance can seek damages as well, as in many cases it will be too late for the damage caused by the delay in the defendant’s performance to be undone.

Limitations on Remedies in Commercial Contract Litigation

When considering the viability of pursuing litigation in response to a commercial contract breach, it is also important to consider any limitations on the remedies that are available. Contracting parties can (and often will) place limits on one or both parties’ access to remedies in order to mitigate their risk. Some examples of common limitations on remedies in commercial contract litigation include:

• Contractual Filing Deadlines – Contracting parties will often agree to filing deadlines in order to limit the amount of time that a contract breach presents a risk for litigation. These contractual deadlines will often be significantly shorter than the statute of limitations under the contract’s governing law. For example, while the statute of limitations for most contract claims in Florida is five years from the date of the breach, it isn’t uncommon for a commercial contract to bar lawsuits after one year, if not after six months or less.
• Waivers – Commercial parties will also frequently agree to waive certain rights during the negotiation process. These may include the right to pursue punitive damages and specific performance, among other remedies. Here too, these types of agreements are generally enforceable, and judges will defer to the terms of an arm’s length commercial transaction in most cases.
• Damages Caps – Commercial parties can also agree to damages caps. For example, a commercial agreement may state that regardless of a party’s actual losses resulting from a breach, the maximum damages recoverable in a breach-of-contract action are $500,000. Damage caps are also frequently based on the value of the contract, payments made through the date of the dispute, and a variety of other measures.

Insurance Limits, Indemnification Rights and Other Issues

Various other contractual provisions can come into play when assessing the viability of commercial contract litigation as well. For example, if the party’s contract includes a mandatory insurance provision, this can be a double-edged sword. On the one hand, this provision should ensure that at least some insurance coverage is available. On the other hand, the insured party may opt not to purchase coverage above the minimum requirement, as doing so may be viewed as unnecessary.

Indemnification rights, mandatory arbitration clauses, choice of law and jurisdiction clauses, and other “boilerplate” provisions can come into play as well. Ultimately, deciding whether to pursue commercial contract litigation requires a comprehensive assessment of all pertinent legal and practical considerations guided by the advice and insights of experienced legal counsel.

Contact Us To Learn More

If your business is facing a contract dispute and you would like to know more about the considerations involved in pursuing litigation, we invite you to get in touch. To schedule an appointment with a commercial contract litigation attorney at Edelboim Lieberman, please call 305-768-9909 or contact us online today.