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Business Litigation

“Must Have” Clauses for Your Business Contracts

Whether you are negotiating an agreement between your partners, a purchase order, or a service contract, there are certain clauses that should make an appearance in just about any commercial contract. Before executing your next deal, here are three “Must Have” Clauses to consider:

Indemnification

An indemnity clause addresses the risk that your company might be liable for damages resulting from something another party does related to the agreement. Ideally, a breaching party should hold the non-breaching party harmless from any risks related to the underlying breach, including attorneys’ fees, costs of collection, damages, and potentially lost profits. Defining when this clause triggers and what it covers is critical in every business agreement.

Attorney’s Fees & Costs of Collection

In New York, parties involved in litigation are usually responsible for paying their own attorneys’ fees and costs. However, if specified by a clause in the agreement between parties you can recover these costs. The right to recover attorneys’ fees is sometimes authorized by statute or court rule.One common contractual provision which gives you the right to recover attorneys’ fees is a prevailing party or fee-shifting clause. This type of provision enables the party that successfully prosecutes or successfully defends against a lawsuit arising under the contract, to be reimbursed by the losing party for (reasonable) counsel fees and costs incurred in the lawsuit.

Confidentiality 

A properly worded confidentiality clause prohibits one or both sides in a deal from divulging sensitive information related to the transaction. This information could, for example, relate to your finances, business plans, or intellectual property. Depending on where you’re standing, you’ll want to make sure this clause is limited in its term, and carves out an exception for information that becomes publicly known. 

Judgment Enforcement –
Pre-Judgment Attachments

At the commencement of a lawsuit, a defendant may rush to hide any property that could possibly end up becoming part of a court judgment or award. Cash is transferred to friends; money is wired to relatives overseas; shell businesses are incorporated; property is transferred out of state. 

To forestall such a result, it may be possible to secure a defendant’s property before he has an opportunity to get rid of it. A prejudgment attachment provides a potential tool to secure a defendant’s assets during the pendency of a lawsuit. An attachment is intended to prevent a defendant from selling, transferring, encumbering, or hiding property before the plaintiff is able to obtain and enforce a final judgment. 

State law governs: (1) what property can be attached, (2) what rights the defendant has to notice of the attachment proceedings, and (3) the procedure for obtaining the prejudgment attachment.

In New York, an order of attachment may be granted in any action for money damages when:

  1. The defendant is a non-domiciliary?
  2. The defendant resides or is domiciled in the state and cannot be personally served despite diligent efforts to do so; or
  3. The defendant, with intent to defraud his creditors or frustrate the enforcement of a judgment that might be rendered in plaintiff's favor, has assigned, disposed of, encumbered or secreted property, or removed it from the state or is about to do any of these acts. 

To obtain the attachment, the plaintiff must submit a bond, of no less than $500.  This bond guarantees that the plaintiff will pay all legal costs, fees and damages sustained, if the court ultimately decides the grounds for seeking an attachment were not necessary. An Attachment Bond also ensures the debtor will receive back his/her property. 

New York also authorizes a party to seek an attachment even where the claims are being pursued through arbitration, rather than through a lawsuit.

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