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5 Strategic Clauses to Consider Including in a Business Contract

September 8, 2015

The law provides a number of general rules that govern contracts and dictate when and where lawsuits or arbitration proceedings may be brought when they are based on a breach of contract.  However, the parties to a contract can specify certain parameters which will trump the general rules.  Here are five strategic clauses that one should consider including in a contract to control when, where, and how a claim for breach of contract may be brought:

Time on Your Side

A strategic way to limit claims or avoid them is to include contract language which shortens the statute of limitations.  Time limitations for bringing a lawsuit vary, but can be up to six years in NY for contract claims.  A section of the law allows you to shorten the time by written agreement (CPLR 201). That portion of the contract has to be in conspicuous language (bold or large) and the shortened time period has to be reasonable.  In construction contracts, which are usually subject to a six-year statute of limitations, courts have held that a shortened time period of nine months is reasonable.  In a contract involving the sale of goods, the usual four-year statute of limitations can be shortened, but not to less than one year.

Take it to the Limit

Notably, NY courts cannot extend a statute of limitations, and the parties to a contract cannot waive or extend the statute of limitations for unknown future claims. However, if there is a strategic advantage, the parties can lengthen the statute of limitations, but only in a signed writing after the claim has accrued.

Location Location Location

A contract can specify not only the State but also the County in which a lawsuit or arbitration may be brought, which can be significant in terms of costs and convenience to companies doing business regionally, nationally, or internationally. There are two types of clauses that should be considered:

“The Forum”

When a contract contains a forum selection clause designating NY as the place for trial or arbitration, generally courts will uphold the parties’ agreement.

“The Venue”

It’s also wise to consider including a contract clause which stipulates a venue in the event of litigation.  Venue refers to the NY County where the lawsuit is filed, the court is located, and the depositions take place.  A further strategic tool can be employed after a lawsuit is filed. The parties can stipulate to change venue.  This can be a significant consideration because the venue determines the assigned judge and the location from where the jury pool is selected.

Smile and Waive

A final issue to consider is that the contracting parties can agree to limit or waive a claim for damages in the event one party breaches.  The courts will enforce the parties’ agreement if the contract language is clear and not subject to two reasonable interpretations.  A waiver clause cannot preclude liability for intentional acts or gross negligence because it is against public policy.

Overall, the parties to a contract have broad freedom to agree on terms that will govern significant aspects of the manner in which disputes will be resolved.