Corporate & Securities Law

New Article on Extra-Contractual Liability

By Ken Adams

The August 2009 issue of The Business Lawyer contains a great article by Glenn D. West and W. Benton Lewis, Jr. of Weil Gotshal entitled “Contracting to Avoid Extra-Contractual Liability?Can Your Contractual Deal Ever Really Be the ‘Entire’ Deal?.” Click here for a copy.

Glenn is getting into the habit of writing articles that are essential reading for anyone looking to establish a solid foundation for their contract drafting. (In this July 2008 post I mentioned his article on consequential damages.)

Here’s the abstract for the new article:

Although business lawyers frequently incorporate well-defined liability limitations in the written agreements that they negotiate and draft on behalf of their corporate clients, contracting parties that are dissatisfied with the deal embodied in that written agreement often attempt to circumvent those limitations by premising tort-based fraud and negligent misrepresentation claims on the alleged inaccuracy of both purported pre-contractual representations and express, contractual warranties. The mere threat of a fraud or negligent misrepresentation claim can be used as a bargaining chip by a counterparty attempting to avoid the contractual deal that it made. Indeed, fraud and negligent misrepresentation claims have proven to be tough to define, easy to allege, hard to dismiss on a pre-discovery motion, difficult to disprove without expensive and lengthy litigation, and highly susceptible to the erroneous conclusions of judges and juries. This Article traces the historical relationship between contract law and tort law in the context of commercial transactions, outlines the sources, risks, and consequences of extra-contractual liability for transacting parties today, and surveys the approaches that various jurisdictions have adopted regarding the ability of contracting parties to limit their exposure to liability for common law fraud and misrepresentation. In light of the foregoing, the authors propose a series of defensive strategies that business lawyers can employ to try to limit their clients? exposure to tort liability arising from contractual obligations.

I would have drafted differently the three pages of model provisions included at the end of the article. But when the time comes for me to create my own version of those provisions, I’ll have pored over Glenn’s article beforehand.

Full post as published by AdamsDrafting on September 18, 2009 (boomark / email).