When businesses enter into commercial contracts, they run the risk that the other party will not perform their contractual obligations. If a business has the right to terminate a contact due to a breach, it has a choice of remedies to make it whole. The business must elect the most appropriate remedies and cannot receive a double recovery of damages for a breach. When determining how to respond to a breach of contract, a business should act quickly to avoid further losses.
- Possible Remedy: Terminate the Contract
One possible remedy available is terminating the contract. This remedy arises when a contracting party breaches an essential term or otherwise gives rise to a right to terminate (see previous blogs for discussion of when a right to terminate arises). The non-breaching party can terminate the contract and file a claim for damages to compensate for the loss arising from the breach of the contract. These damages compensate for the inability to complete the deal or get the benefit of the contract as a whole.
- Possible Remedy: Affirm the Contract and Claim Damages
Another option is to affirm the contract and claim damages for the specific breach that led to the right to terminate. To affirm, the non-breaching party should state that it intends to continue performing under the contract and ask the breaching party to do so as well. The non-breaching party can seek damages for any losses caused by the breach – such as payment for items the non-breaching party made to order.
- Other Remedies: Specific Performance or an Injunction
Other remedies may be available to the non-breaching party in a court action. If an order is made for specific performance of the contract the breaching party will be directed to perform the specific actions required by the contract that it has not done. Usually this remedy is best when damages would be inadequate. Injunctions similarly order a breaching party to do or not do something.
- Election of Remedies and Double Recovery
As noted above, non-breaching businesses must choose among the remedies listed above. The business cannot choose to affirm the contract and then later terminate it for the same breach. Nor can it recover damages for the specific breach (if it affirms) and damages for losing the whole benefit of the contract (if it also wants to terminate). Doing so would be a “double recovery”. A double recovery also occurs when a non-breaching party receives both a court order requiring specific performance by the breaching party to remedy a breach and also payment of damages for the breach.
Before a business elects a remedy, it should be careful not to perform any acts that are inconsistent with the possible remedies it could obtain. For example, it should not fail to perform the contract itself while it decides how to proceed. As a result, businesses seeking relief for breach of contract must take care to elect the chosen remedy in a timely fashion. Otherwise they could incur further losses due to the breaching party's continued failure to perform contract terms.
To learn more about remedies for breach of contract, visit Gonsalves-Sabola Chambers online or call the office at +1 242 326 6400.