Covenant not to sue: Overview, definition and example
What is a covenant not to sue?
A covenant not to sue is a promise in a contract where one party agrees not to pursue legal action against another party, typically in relation to certain claims or disputes. It means that even if one party has the right to sue, they agree not to do so, often in exchange for a settlement or other consideration.
Why is a covenant not to sue important?
A covenant not to sue is important because it provides a way for parties to resolve disputes without resorting to litigation. It can help reduce the risk of costly and time-consuming legal proceedings. For businesses, it offers a way to settle issues or disagreements without involving the courts, which can be beneficial for maintaining relationships and saving resources.
Understanding a covenant not to sue through an example
Imagine a supplier and a customer enter into a contract where the supplier agrees not to sue the customer for any minor payment delays. In exchange, the customer might agree to pay the overdue amount along with a small penalty. The covenant not to sue ensures that the supplier will not take legal action to recover the delayed payment as long as the customer complies with the terms of the settlement.
An example of a covenant not to sue in a contract
Here’s how a covenant not to sue might look in an agreement:
“The Supplier agrees not to bring any legal action against the Customer for the late payment of invoices, provided the Customer pays the overdue amounts within 30 days.”
Conclusion
A covenant not to sue allows parties to avoid litigation by agreeing not to pursue legal action under specific circumstances. It can be a valuable tool in resolving disputes and maintaining smoother business operations, offering an alternative to going to court. By understanding and including such clauses in contracts, businesses can better manage risks and settle conflicts efficiently.
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.