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A Common Contract Clause Might Not Be So Useful After All

Most clauses that typically appear in contracts serve useful and important purposes.

But a recent federal court decision sheds some doubt about the effectiveness of one type of clause that many contracts contain.

The clause that the court considered was one that provided that, if one party breaches the contract the non-breaching party will be entitled to an injunction to prohibit future breaches. These clauses may be written in various ways but they all have the same purpose: to entitle the non-breaching party to a court-issued injunction against a party that is breaching. Parties to a contract (and their attorneys) often cite these clauses in court in support of a request for an injunction.

Recently, however, a federal appellate court held that judges are not bound by that language and may ignore it. The court determined that just because a contract says that a breach may be prohibited by a court injunction does not require a court to issue one. Rather, injunctions are only to be issued when the damage done by the breach is “irreparable” – meaning that the potential damage could not be adequately compensated by money.

Thus, although there is no harm in including these injunction clauses in contracts, the best advice is to avoid relying on them when assessing the chances of obtaining an injunction order against a party in breach of contract.

For more information, please contact Josh Glikin at glikin@bowie-jensen.com.

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