New York is the most-chosen state in the country for commercial contract disputes. Counterparties from Texas, California, Singapore, and London routinely insist on New York law and New York courts, not because they have any connection to New York, but because New York courts are predictable, sophisticated, and reliable. That predictability cuts both ways for New York business owners. The same body of law that protects sophisticated parties enforces unfavorable provisions strictly when they appear in routine vendor and customer contracts. A New York business law attorney reviewing commercial agreements regularly sees the same five clauses cause the same problems, and most of them get signed without anyone noticing what they actually do.
These five deserve a careful read every time.
1. Choice of Law
A choice of law clause tells the court which state’s substantive law governs the contract. New York commercial law is famously well-developed, sophisticated, and merchant-friendly, which is why so many contracts choose it. The choice has real consequences.
For contracts of $250,000 or more, New York General Obligations Law § 5-1401 allows parties to choose New York law even when the contract has no other connection to the state. Below that threshold, courts look for a “reasonable relationship” between the contract and the chosen jurisdiction. New York courts will generally enforce a choice of law clause as written.
The questions a New York business owner should ask before signing:
- Does the chosen law favor the counterparty’s typical position on key issues (statute of limitations, damages caps, implied warranties, fee-shifting)?
- Does it interact unfavorably with regulatory regimes that follow the company regardless of contract law (employment, consumer protection, professional licensing)?
- Does it conflict with mandatory law in the state where performance actually occurs?
A New York business signing a vendor agreement governed by Delaware or another state’s law is not getting a worse deal automatically, but the choice changes how disputes will be evaluated, and most companies have not thought through the implications.
2. Forum Selection and the Commercial Division
A forum selection clause specifies where disputes must be litigated. Within New York, the choice between federal court, state Supreme Court, and the Commercial Division of the Supreme Court matters more than most contract drafters realize.
The Commercial Division, established in 1995 and operating in eight counties including New York, Kings, Queens, Bronx, Westchester, Nassau, Suffolk, and Erie, handles complex commercial cases above specified monetary thresholds (currently $500,000 in New York County, lower in other counties). Commercial Division judges are experienced commercial litigators, the rules are calibrated for sophisticated business disputes, and the case management is materially faster than the regular civil track.
A clause that specifies “the courts of New York County” can be read to permit either the Commercial Division or the regular state Supreme Court. A clause that specifies “the Commercial Division of the Supreme Court of the State of New York, County of New York” is more precise and gives both parties access to the specialized forum if the case meets the monetary threshold.
For New York business owners, two practical considerations matter. Litigating in your home venue is materially less expensive than traveling to another state, even if the substantive law is the same. And consenting to personal jurisdiction in a forum where you have no operations creates real exposure if a dispute arises.
A forum selection clause that requires litigation in Delaware Chancery Court, the Southern District of New York, or another forum should be evaluated against the realistic cost of defending or pursuing a claim there.
3. Indemnification Under New York Common Law
New York indemnification provisions look simple and produce some of the most expensive contract disputes. The interaction with New York General Obligations Law § 5-322.1 in construction contracts, the common-law rule against indemnification for one’s own negligence absent express language, and the strict construction New York courts apply to indemnity clauses all matter.
Two recurring issues catch business owners off guard.
The duty to defend versus the duty to indemnify. Under New York law, an indemnification clause that includes a duty to defend creates a separate, broader obligation than the indemnification itself. The indemnitor must defend the indemnitee against covered claims regardless of whether the underlying claim has merit, with that obligation triggering at the moment a covered claim is filed rather than after liability is established. Defense costs alone can exceed the value of the contract.
Indemnification for the indemnitee’s own negligence. New York courts require unmistakable language to enforce an indemnification clause that covers the indemnitee’s own negligent acts. Generic language like “indemnify against all claims arising from this agreement” does not reach the indemnitee’s own negligence. Specific language addressing fault attribution does. The drafting choice between the two reads as a small difference and produces a large practical one.
A New York business signing an indemnification clause should know whether the company is the protected party or the protector, whether the duty to defend is included, and whether the language reaches the other side’s own negligence.
4. Attorneys’ Fees Provisions and Their New York Quirks
The American Rule applies in New York: each party pays its own attorneys’ fees absent a statute, court rule, or contract provision shifting that obligation. The contract provision is where business owners exercise control, and the drafting choices matter substantially.
A unilateral fee-shifting clause that allows only the counterparty to recover fees is one of the most common drafting traps in commercial contracts. New York courts will generally enforce these as written, even though they create significant asymmetry. The counterparty can sue, win, and recover fees. The other side cannot.
Reciprocal fee-shifting is the default to push for. New York courts apply the reasonableness standard to fee awards, evaluating the rates, hours, and necessity of the legal work, but the entitlement runs both directions when drafted that way.
A few additional points worth checking:
- Whether the fee provision applies to all disputes under the contract or only to specific categories like collection actions or breach of representations
- Whether mediation and arbitration costs are covered or only court-litigation costs
- Whether the fee award is conditioned on being the “prevailing party” or some other defined standard
- Whether the clause survives termination of the contract
Companies routinely sign agreements with one-way fee-shifting clauses they would never agree to if they understood the asymmetry.
5. IP Assignment Under New York Law
Intellectual property assignment provisions are where service providers and creators often give away more than they realize, and where customers often receive less than they think they paid for.
For service providers, the trap is broad assignment language that covers “all intellectual property created in connection with this agreement.” That language can sweep in pre-existing tools, methodologies, frameworks, and code libraries the provider built before the engagement began and uses across many clients. The fix is a carve-out preserving the provider’s background IP, paired with a license to the customer for what they actually need to use the deliverable.
For customers, the trap is ambiguous ownership language that leaves the actual deliverable in the provider’s hands with only a license back to the customer. A New York technology company paying a development firm $400,000 to build a custom platform should own the platform, with clean assignment language and a covenant of further assurances ensuring proper IP transfer documentation gets executed.
New York courts apply contract principles to IP assignments rather than special equitable rules, which means the language controls. Assignments that should have happened but did not get drafted clearly remain unowned by the customer until corrected, and corrections after the fact are expensive when the provider is no longer cooperating.
The federal Copyright Act and Lanham Act overlay state contract law on these issues, with specific requirements for the assignment of certain IP rights to be effective. Work-for-hire treatment under copyright law requires both written agreement and the work falling within specifically enumerated categories, which most service-provider work does not.
When to Have a New York Business Law Attorney Read the Contract
Not every contract justifies a full legal review. A standard NDA with a low-risk vendor or a routine purchase order can usually be handled with internal review by someone trained to spot the clauses above. The contracts that warrant attention from a New York business law attorney share certain features: significant dollar value, long term, broad indemnification, exposure to the counterparty’s customers or end users, substantial IP at stake, or unfamiliar choice-of-law and forum-selection provisions.
The Mundaca Law Firm reviews and negotiates commercial agreements for businesses across New York, from technology startups in SoHo to professional services firms in Midtown. If you have a contract sitting in your inbox waiting for a signature, send it over before you sign rather than after the dispute starts.
