One issue that arises in litigation over liquidated damages provisions in breach of contract cases is whether liquidated damages are the exclusive remedy for the non-breaching party.
This question arose in a recent matter relating to a dispute between parties to a wind-up agreement. The liquidated damages clause met the typical requisites under Texas law to be enforceable – was compensatory rather than punitive, included reasonableness language, was tailored to a particular type of breach, and the like. However, it did not expressly state that liquidated damages were the exclusive remedy for breach. It only indicated that the parties would be entitled to seek liquidated damages for breach.
Texas courts have generally held that simply because a contract allows for a particular remedy does not mean that remedy is the exclusive remedy, that an intent for an exclusive remedy must be clearly stated, and that what is stated in the agreement trumps what the parties may have intended.
Accordingly, in order to avoid confusion and likely litigation, contracting parties should take care to negotiate whether liquidated damages will be the exclusive remedy, and if so, include express language stating such in the agreement. Correspondingly, the parties should leave out language regarding the election of remedies or that liquidated damages are “in addition to” or “without prejudice to” other remedies.
Weitz Morgan serves as litigation counsel to general counsels, business owners, and government contractors throughout Texas and nationally. This article is basic in nature, for the purpose of general interest and education, and limited to the law of the State of Texas.