Do Your Business Contracts Need a “Cumulative Remedies” Provision?
In San Diego business contracts, one often finds a “cumulative rights” provision in the miscellaneous provisions portion of the contract. A typical cumulative rights clause might be as simple as this:
“Cumulative Rights: Any specific right or remedy provided in this contract will not be exclusive but will be cumulative of all other rights and remedies.”
In evaluating whether this is necessary language or unnecessary surplusage, it is important to consult an experienced San Diego corporate attorney for advice and counsel. Surplusage is language or clauses in a contract that are extraneous or superfluous. Under older legal principles, cumulative remedy clauses were essential because often a contract would specify the remedies that a party might have in the event of a default and, then, courts would deem the listed remedies to be exclusive. For example, if the contract called for the delivery of machine parts, the contract might also say that the buyer had a right to liquidated damages if the delivery was delayed. Alternatively, the contract might have allowed the buyer to termination the contract. Under old legal principles, exercising one of those specific remedies was deemed the exclusive right. Put another way, a party’s exercise of one remedy disallowed exercise of other remedies. This was particularly disheartening for recovery when a breach occurred where termination was the remedy exercised. Adding a cumulative rights clause solved that problem; a party could still terminate the contract — remedy number one — and still sue to recover damages for breach of contract — remedy number two.
The modern rule has reversed the presumption. Under the modern legal rule, any clause that mentions or lists remedies is deemed cumulative rather than exclusive. Indeed, if the parties wish to limit remedies to the expressed list, then the parties are now required to be clear that they are agreeing to limit the possible remedies. Section 2-719(1)(b) of the Uniform Commercial Code, for example — enacted here in California — provides that choosing a remedy allowed under a contract is “… optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy.”
While the modern rule is that remedies are cumulative, there may be positive benefits to stating clearly in a contract that the parties have agreed that remedies are cumulative in the event a judge must interpret the contract if there is a dispute. It is always better to have language in a contract that states the clear intent of the parties rather than relying on legal principles. The other reason for inclusion is if the law changes. As noted, the old rule provided that remedies were exclusive. What if the modern law reverts back to the old rule? Contract drafting is an art and that is one reason to hire a trusted corporate attorney to protect your business.
Contact San Diego Corporate Law Today
For more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard can be reached at (858) 483-9200 or via email. Mr. Leonard’s law practice is focused on corporate, securities, contract, and intellectual property law for small and medium businesses. Mr. Leonard can assist with the formation of your business entity — corporations, LLCs, and other forms — financing through the sale of debt and equity securities, mergers and acquisitions, contract drafting and review, including commercial leases, and establishment and licensing of trademarks, copyrights, and trade secrets. Like us on Facebook.