Given the unusual levels of uncertainty in the global economy, breaches of contracts are becoming an ever more common part of life in many supply chains. When dealing with these situations, the non-breaching party has a number of potential remedies available to it for a breach of contract claim. Three common types of remedies that a party can seek are injunctive relief, specific performance and monetary damages.

Injunctive Relief

In contract disputes, injunctive relief is a court order that prevents a party from taking specific actions. In the case of a breach of contract claim, it may be appropriate where a party could suffer irreparable harm from the breach, and where money damages would not be enough to put the non-breaching party in the same position it would have been in if the breach never happened. For example, if an employee breaches a confidentiality agreement, the employer could seek injunctive relief to prevent the former employee from continuing to misuse the employer’s confidential information.

Granting injunctive relief is generally within the discretion of a court. To obtain it, a party must first show that it’s likely to succeed on the merits of its breach of contract claim. It doesn’t need to prove that it will definitely win the case, but it must demonstrate how it intends to prove the key elements of its case.

Second, a party must show “irreparable harm,” which means the harm “cannot be prevented or fully rectified by the final judgment after trial.” As part of this analysis, the party must also show that traditional legal remedies aren’t sufficient. Finally, a court will consider the consequences to the public (meaning any non-parties) of granting or denying the injunction. If a party seeking injunctive relief establishes the above factors, a court may grant an injunction to prevent a breaching party from engaging in certain acts.

Specific Performance

Specific performance under the Uniform Commercial Code is a remedy available for contract breaches involving the sale of goods. It allows a buyer to compel the other party to perform their contractual obligations. Specific performance is typically sought when the goods are unique or rare, making monetary damages an inadequate remedy. Specific performance can only be ordered if the performance requested is both feasible and not unduly burdensome on the party against whom enforcement is sought.

One common scenario where specific performance arises in a business context is when a manufacturer agrees to produce custom-made equipment for a company, but the manufacturer fails to deliver the equipment. Here, the company could pursue specific performance ordering the manufacturer to produce and deliver the custom equipment because it can’t be readily replaced.

Monetary Damages

This is the most common remedy for breach of contract. It can involve either direct or indirect damages causally related to the breach.

Direct damages are calculated based on the difference between the contract price and the market price of the goods at the time and place where the buyer learned of the breach. For example, if a trucking company purchases 10,000 trailer hitches from a manufacturer for $100 each, and the manufacturer never delivers the hitches, the trucking company could recover the difference in price to purchase the hitches from another company. If the trucking company had to purchase the hitches for $120 each from another manufacturer, the company’s direct damages would be the difference in market price for the hitches ($120-$100 = $20) multiplied by the number of hitches purchased (10,000). In this scenario, the trucking company’s total direct damages would be $200,000.

In addition to a buyer’s direct or compensatory damages, a non-breaching buyer can also recover incidental and consequential damages under the UCC. (UCC Section 2-715).  Incidental damages refer to the reasonable expenses that a buyer incurs because of a seller’s breach of contract. Incidental damages are intended to compensate a buyer for the additional costs and inconvenience caused by a seller’s failure to perform under the contract. Similar to direct damages, they aim to place the buyer in the position it would have been in had the contract been properly fulfilled, including reimbursing the buyer for expenses reasonably incurred due to the breach.

Consequential damages refer to additional losses or damages that a buyer might suffer as a consequence of a seller’s breach of contract. These damages go beyond the immediate costs of the breach (such as the direct and incidental damages) and encompass indirect but foreseeable losses resulting from the breach. Common examples of consequential damages include lost profits and business interruption costs. For instance, if a buyer relies on the delivery of goods from a seller to run its business and the delay leads to lost production or increased operational costs, the buyer could recover these costs as consequential damages. The threshold question to determine whether consequential damages are recoverable is whether the damages were reasonably foreseeable at the time the contract was created.

Sellers’ Damages

The UCC also provides specific monetary and non-monetary remedies for a seller upon a buyer’s breach. Under UCC Section 2-703, if a buyer wrongfully rejects goods under a contract or fails to make a payment, the seller may do any of the following:

• Withhold delivery of such goods;
• Stop delivery;
• Resell and recover damages;
• Recover damages for non-acceptance (Section 2-708) or in a proper case the price (Section 2-709), or
• Cancel.

Overall, UCC Section 2-708 allows a seller to recover damages by compensating it for the difference between the contract price and the market price at the time of the buyer’s rejection or cancellation. This ensures that sellers are protected from losses incurred due to breaches by buyers in sales contracts governed by the UCC.

Attorney fees are one key category of damages generally not recoverable as either direct, incidental or consequential damages, in the absence of either a contract provision or statute permitting recovery of such fees. As such, parties should consider including an explicit fee-shifting provision in a contract specifying that attorney fees are recoverable when enforcing contract provisions.

Statute of Limitations 

One critical limitation on a party’s ability to obtain any remedy is the statute of limitations, which can limit a party’s ability to bring a breach of contract claim due to the passage of time. A central purpose of statute of limitations is to protect defendants from stale or fraudulent claims. Because it provides a complete defense to a breaching-party, even if the alleged breach actually occurred, it’s important for contracting parties to understand how the statute of limitations works.

If a party breaches a contract governed by Article 2 of the UCC, the statute of limitations provided in the UCC is the time period by which the non-breaching party must file the lawsuit after such breach occurred, in order to maintain its rights to take legal action against the breaching party. Section 2-725 (1) – (2) of the UCC states that:

“(1) an action for breach of any contract for sale must be commenced within four years after the cause of action has accrued. By the original agreement the parties may reduce the period of limitation to not less than one year but may not extend it.

(2) A cause of action accrues when the breach occurs, regardless of the aggrieved party’s lack of knowledge of the breach. A breach of warranty occurs when tender of delivery is made, except that where a warranty explicitly extends to future performance of the goods and discovery of the breach must await the time of such performance the cause of action accrues when the breach is or should have been discovered.”

Each state has adopted its own version of Article 2 of the UCC, which may contain a shorter or longer statute of limitations period for breach of contract claims arising out of a contract for the sale of goods. For example, the statute of limitations period for such claims is six years under Wisconsin law, and four years under Delaware and Illinois law. (Most states generally have a statute of limitations period between four to six years for contracts for the sale of goods, and between four to 10 years for all other contracts.)

Additionally, some states, but not all, generally permit parties the flexibility to contract for a shorter statute of limitations as described under the UCC Section 2-725 (1) noted above.  Finally, the statute of limitations for contracts involving a mix of goods and services may differ from that which applies to contracts that are solely for the sale of goods.

As tariffs, inflation, and general economic uncertainty lead to an increasing number of contract breaches, supply chain leaders and employees need to develop an understanding of their rights and remedies, and restrictions on those remedies such as statutes of limitations, in order to guide their companies through these situations.

Brandon Krajewski and Patrick Taylor are partners at the law firm of Quarles & Brady.