Corporate Law News

INSIGHT: Drafting New York Contracts—Does Your Agreement Really Mean What It Says?

Feb. 11, 2019, 9:01 AM

Commercial agreements regularly provide that New York law will govern their terms. There are a number of reasons why parties may choose New York law, but they should consider how that decision may impact their rights and expectations under the agreement.

This article addresses how the selection of New York law may affect commercial agreements, including:

  • the application of New York’s statute of limitations,
  • the parties’ ability to delay or toll claims arising under New York law, and
  • the parties’ ability to insulate themselves from potential liability under the agreement through disclaimers of liability.

Borrowing Statute

First, New York’s borrowing statute (C.P.L.R. 202) may significantly impact the time that a party has to sue for breach of contract.

Last year, the New York Court of Appeals ruled that the New York borrowing statute and Ontario, Canada’s shorter statute of limitations applied to the parties’ dispute, even though the agreement contained a broadly drafted choice-of-law provision stating that it would be “enforced” in accordance with New York law. 2138747 Ontario, Inc. v. Samsung C & T Corp., 31 N.Y.3d 372, 374–76 (2018).

The Court of Appeals noted that the agreement did not expressly provide that New York’s six-year statute of limitations for breach of contract actions would apply, and as a result, the Court applied Ontario’s shorter two-year statute of limitations. Id. at 374–75, 381.

While the Court did not decide whether a more specific provision calling for the application of New York’s longer statute of limitations would have been enforceable, it noted that the parties were free to contract “as they wish” in the absence of “some violation of law or transgression of a strong public policy.” Id. at 377.

Therefore, if parties want to try to take advantage of New York’s limitations period (or any other jurisdiction’s), they should make that wish as clear as they can in their agreements.

Tolling Agreements

New York law can also impact the parties’ ability to delay the deadlines by which claims have to be pursued.

In Deutsche Bank National Trust Co. v. Flagstar Capital Markets Corp., the Court of Appeals considered an accrual clause that provided that certain causes of action against a seller of residential mortgage-backed securities would not accrue until the purchaser made a demand upon the seller to comply with the purchase agreement. 32 N.Y.3d 139, 144–45 (2018).

After rejecting the argument that this demand was a condition precedent to bringing an action, the Court of Appeals also concluded that, to the extent this language expressed the parties’ intent to delay commencement of the limitations period, it was inconsistent with New York law and public policy. Id. at 148–49, 153.

The Court first explained that while parties can agree that a shorter statute of limitations will apply, they may not extend the statutory limitations period before a claim actually accrues. Id. at 151.

Additionally, even if the agreement to extend the statute of limitations is made after the claim accrues, it is enforceable with respect to a claim for breach of contract only if the agreement complies with General Obligations Law § 17-103. That section provides that an agreement to extend the statute of limitations is enforceable only if made after the claim accrues and only if the agreement extends the limitations period by no more than six years from the date the agreement was made. Id. at 153; see also N.Y. Gen. Oblig. Law § 17-103.

That six-year period must be express in the agreement—an agreement providing that it will expire following notice from one of the parties, even if that could occur within six years, does not comply. If an agreement does not comply with GOL § 7-103, it has no effect at all. Therefore, if a party wishes to extend its time to bring a breach of contract claim, it must ensure that the extension complies with GOL § 17-103.

Disclaimers of Liability

Finally, contracting parties frequently seek to limit their liability for claims alleging that the parties relied in some way on each other (usually in a buyer-seller relationship). These types of provisions are often referred to as “big boy” clauses and are generally enforced by New York courts.

That said, general boilerplate disclaimers of reliance are not sufficient. See Danann Realty Corp. v. Harris, 5 N.Y.2d 317, 320 (1959).

Rather, while exacting specificity is not required, a party drafting the disclaimer should try to make it reasonably specific to the transaction at issue in order to cut off potential claims of reliance. For example, courts have approved language stating that a plaintiff “expressly acknowledges” that no representations were made as to a purchased property and “acknowledges that it has inspected the premises and agrees to take the premises ‘as is.’” Id. (emphasis omitted).

Similarly, courts have accepted language providing that sellers were “not relying on any representation” by a buyer and that the buyer had “no fiduciary duty” to them in connection with the transaction. Pappas v. Tzolis, 20 N.Y.3d 228, 231 (2012).

Even with specific disclaimers, however, one must keep in mind New York’s “peculiar knowledge” exception, under which disclaimers are not enforced if the allegedly misrepresented facts are peculiarly within the defendant’s knowledge. This is a fact intensive inquiry and generally considers the information at issue and whether the plaintiff could have learned it through the exercise of reasonable diligence. See, e.g., Basis Yield Alpha Fund (Master) v. Goldman Sachs Grp. Inc., 980 N.Y.S.2d 21, 30 (N.Y. App. Div. 2014).

Author Information

Kevin F. Meade is a counsel in Weil, Gotshal & Manges LLP’s Complex Commercial Litigation group. He has represented clients in a broad variety of industries, including financial services, investment management, transportation, natural resources, and managed care.

Aaron J. Curtis is an associate in Weil’s Complex Commercial Litigation practice group, where he focuses on various commercial, securities, and bankruptcy disputes in both state and federal courts.

To read more articles log in. To learn more about a subscription click here.