The Need to Adapt Contracts To Case Law

Publication Source: Nassau Lawyer

The Need to Adapt Contracts to Case Law

When contract disputes give rise to litigation, the resulting court decisions are often studied and used by the attorneys who argue the cases. Attorneys who could benefit the most from such decisions, however, are the ones who are responsible for drafting the contracts in the first place. As the case law evolves, contract provisions must adapt accordingly to account for the changing scope of the law so as to avoid litigation and to protect the parties from unintended consequences.

One area that has recently developed is the contractual release and waiver of claims of breach of fiduciary duty and fraud. There has never been a better time for transactional attorneys to incorporate principles pronounced by the New York Court of Appeals in preserving and releasing claims in transactions involving fiduciaries.

The typical factual scenario involves owners of a business, whether members in a limited liability company, shareholders in a corporation or partners in a general partnership, who are buying and selling their interests between and among themselves. Of course, owners of a business owe each other fiduciary duties during the course of their relationship.1 When one owner seeks to buy out another, therefore, the issues become quite thorny because of the existence of the normal fiduciary duties. Ordinarily, for example, the fiduciary duty requires one owner to disclose to the other owner, without being asked, information that would be material to the contemplated transaction. Given that many owners are sophisticated business people, however, at least one party to the transaction often wishes to disclaim reliance upon any representations regarding the transaction. Moreover, a fiduciary may wish to obtain a release of any claim of breach of such duty or reliance upon disclosures otherwise required by such duty.

Thus, it is quite important for those drafting the transactional agreements to understand the legal duties between and among the parties and how to limit or preserve those duties effectively in an enforceable agreement.

Recent case law provides valuable insight to guide the contract draftsman.

Read the full article in the attached PDF.

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Kevin Schlosser is a Shareholder at Meyer, Suozzi, English & Klein, P.C., where he is Chair of the Litigation and Alternative Dispute Resolution Department which has a full roster of available private judges from virtually all disciplines of law. Mr. Schlosser also authors the popular blog, “New York Fraud Claims,” which analyzes the latest developments concerning civil fraud claims under New York law.

Reprinted with permission from the Nassau County Bar Association.