Many lawsuits before our courts involve litigation between two or more companies. Please consider the following example.
Company X signs a contract with Company Y to purchase the services of Company Y for a price of $200,000.00. The contract stipulates that the services of Company Y must be furnished no later than April 29th. If Company Y does not furnish the services on or before April 29th, then Company X is not obliged to pay the contract price of $200,000.00.
However, if the contract had also stipulated that Company X required the services of Company Y in order to allow Company X to complete its contract with Company Z, then Company X might also sue Company Y. When Company Y failed to meet the April 29th deadline, Company X was not able to fulfill its contract with Company Z and Company X could not earn the amount of the projected profit of the contract with Company Z, an amount of $500,000.00.
Therefore, Company X may attempt to sue Company Y for the amount of $500,000.00 as being its damages that were foreseeable at the time that Company Y contracted its obligations to Company X. This is an example of the principle in Quebec Law that a party is required to repair the damages that were foreseen or foreseeable at the moment that a contract was concluded, where the party does not perform its contractual obligations.
In our example, Company Y loses the $200,000.00 that it would have earned for the contracted services that were to be rendered to Company X and in addition it may also be held to indemnify Company X for the amount of $500,000.00 in lost profit that Company X did not otherwise earn.
In such circumstances, however, it is possible for Company Y to protect itself. The service contract can be written in such a way as to stipulate that Company Y will not be responsible to Company X for other damages (in the case of non-performance of the contract) and that the only consequence of the non-performance of the contract will be that Company X will not be obliged to pay the sum of $200,000.00 for the services not rendered within the stipulated time frame, or, perhaps Company Y might agree to pay a small monetary penalty in case of non-performance.
To avoid surprises, when companies make contracts with partners or suppliers or clients, it is important to attempt to foresee not only the consequences of properly carrying out the contract but as well the consequences of not performing the contract and to negotiate clauses that serve the interests of the company in the case of non-performance, whether to limit liability or to provide for compensation in the event of non-performance. As the contract is the law between the parties, they can make the arrangements that they can agree upon and attempt to foresee all contingencies, so that the best possible arrangement is made between the companies and litigation can, if possible, be avoided.
Franco Tamburro, Attorney-at-Law
Alepin Gauthier Avocats Inc.