Recovery: Overview, definition, and example
What is recovery?
Recovery refers to the process of regaining money, assets, or legal rights that were lost, damaged, or owed due to a financial loss, breach of contract, or other legal dispute. Recovery can occur through legal claims, financial compensation, insurance payouts, or enforcement of contractual rights.
For example, if a business successfully sues a supplier for failing to deliver goods, the court may order recovery of financial damages, requiring the supplier to compensate the business for its losses.
Why is recovery important?
Recovery is important because it provides businesses and individuals with a legal means to reclaim losses and enforce their rights. Without a clear recovery process, parties may struggle to obtain compensation for damages, unpaid debts, or breaches of contract.
For businesses, defining recovery in agreements ensures clarity on how financial losses, damages, or outstanding obligations will be addressed, reducing legal risks and protecting financial stability.
Understanding recovery through an example
Imagine a construction company enters into a contract with a subcontractor who fails to complete the agreed-upon work. The construction company incurs extra costs hiring another contractor to finish the job. Under the contract’s recovery clause, the company is entitled to seek reimbursement from the subcontractor for these additional costs.
In another scenario, an investor lends money to a startup. If the startup defaults on repayment, the investor may pursue recovery through legal action or by liquidating the startup’s assets to recover the unpaid funds.
An example of a recovery clause
Here’s how a recovery clause might appear in an agreement:
“In the event of a breach of this Agreement, the non-breaching Party shall be entitled to recover all direct damages, costs, and reasonable attorneys’ fees incurred in enforcing its rights.”
Conclusion
Recovery ensures that businesses and individuals have a clear path to reclaim losses, enforce financial rights, and seek compensation in case of breaches or financial disputes. It plays a crucial role in protecting contractual interests and maintaining legal accountability.By including a recovery clause in agreements, parties can establish a structured approach to seeking damages, ensuring that financial and legal remedies are clearly defined and enforceable.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.