Three More Contract Drafting Lessons That Keep Showing Up in Court

by Tracy Work

This is the second in a series exploring contract drafting lessons backed by landmark cases and leading legal scholarship. If you missed the first installment, it covered ambiguity, undefined terms, and the surprisingly shaky ground beneath “best efforts” clauses. This time, we turn to three more provisions that routinely generate disputes: conditions precedent, merger clauses, and exclusive remedies.

The audience hasn’t changed. Whether you’re a transactional attorney refining templates or a business professional who reviews, negotiates, or signs contracts, these lessons belong in your toolkit.

4. If You Want a Condition Precedent, Say So

Here’s a scenario that plays out more often than it should. Two parties sign a contract. One provision says a party “shall” do something before a particular event. The other party assumes that requirement is a condition precedent, meaning if it isn’t satisfied, the obligation on the other side never kicks in. But the contract doesn’t actually use the words “condition precedent.” When a dispute arises, a court has to decide: was that provision a binding condition, or just a promise?

The Fourth Circuit addressed exactly this question in Howard v. Federal Crop Insurance Corp., 540 F.2d 695 (4th Cir. 1976). A federal crop insurance policy required that “tobacco stalks shall not be destroyed until the Corporation makes an inspection.” When farmers destroyed their stalks before the inspection, the insurer denied the claim, arguing the provision was a condition precedent to coverage.

The court disagreed. It pointed out that the same policy used the phrase “condition precedent” explicitly in a separate provision but omitted it here. That inconsistency mattered. The court articulated a controlling rule: contract provisions will not be construed as conditions precedent unless the contract explicitly says so. The court also cited the Restatement (Second) of Contracts § 227, which favors interpreting ambiguous language as a promise rather than a condition, specifically to avoid the harsh result of forfeiting contract benefits.

Why this matters in practice. Conditions precedent carry serious consequences. If a condition isn’t met, the other party’s obligation simply doesn’t arise. There’s no breach, no claim for damages, nothing to enforce. That’s a much more severe outcome than a broken promise, which at least gives the injured party a cause of action.

Yet drafters routinely leave this distinction to implication. A software agreement might say the vendor “shall deliver a test environment prior to acceptance testing” without specifying whether delivery of that environment is a condition precedent to the buyer’s obligation to begin testing, or simply a promise whose breach gives rise to a damages claim. Those are very different legal outcomes, and the contract should make clear which one the parties intended.

The practical takeaway: Whenever an obligation is meant to be contingent on something else happening first, use explicit language. Phrases like “as a condition precedent to,” “only if,” or “provided that” remove ambiguity. And if you use “condition precedent” in one part of your agreement, make sure you haven’t inadvertently weakened a similar provision elsewhere by omitting it.

5. Your Merger Clause Probably Isn’t Doing What You Think It’s Doing

Almost every commercial contract includes a merger clause (sometimes called an integration clause). It usually reads something like: “This Agreement constitutes the entire agreement between the parties and supersedes all prior negotiations, representations, and agreements.” Most people treat it as standard boilerplate, a reliable shield against claims based on anything said or promised outside the four corners of the contract.

It isn’t.

Vice Chancellor Strine drew a bright line in ABRY Partners V, L.P. v. F & W Acquisition LLC, 891 A.2d 1032 (Del. Ch. 2006). He held that a standard integration clause is not sufficient to bar a fraudulent inducement claim based on extra-contractual representations. In other words, if the seller made false statements during negotiations that induced the buyer to sign, a boilerplate merger clause won’t keep those statements out of court.

To effectively disclaim reliance on outside representations, the agreement needs something more: a separate, explicit anti-reliance provision in which the buyer contractually affirms that it did not rely on any statements outside the written agreement. And even that has limits. Strine made clear that an anti-reliance clause cannot insulate a seller from claims of intentional fraud regarding the contract’s own representations. You can contractually disclaim reliance on side conversations, but you can’t use contract language to shield yourself from deliberately lying in the contract itself.

Why this matters beyond M&A. The ABRY Partners framework is a Delaware Chancery opinion rooted in an acquisition dispute, but the principle extends directly to procurement and technology agreements. Think about everything that happens before a software contract gets signed: product demos, RFP responses, sales presentations, proof-of-concept results, statements of work developed over weeks of back-and-forth. If the final agreement contains only a generic merger clause, those pre-contract communications remain potential fodder for a fraudulent inducement claim.

This is particularly relevant when the contract incorporates exhibits, schedules, or SOWs by reference. A merger clause that says “this Agreement constitutes the entire agreement” but doesn’t address whether attached or referenced documents are part of the integrated whole creates exactly the kind of gap that generates litigation.

The practical takeaway: Don’t rely on a merger clause alone. Add a separate, clearly labeled no-reliance provision in which each party acknowledges that it has not relied on any representations outside the agreement. Specify which documents are part of the integrated agreement and which are not. And remember that no amount of contractual language will protect a party that makes knowingly false representations in the contract itself.

6. If Your Remedy Isn’t Labeled “Exclusive,” It Probably Isn’t

Contracts frequently include provisions that limit the buyer’s remedies to repair or replacement of defective goods, or that cap the seller’s liability at the contract price. Sellers often assume these provisions lock out all other remedies. But under the Uniform Commercial Code, that assumption is wrong unless the contract says otherwise in plain terms.

The New Jersey Supreme Court made this clear in Kearney & Trecker Corp. v. Master Engraving Co., Inc., 107 N.J. 584, 527 A.2d 429 (1987). The case involved a $167,000 machine tool that the seller couldn’t fix despite repeated attempts. The contract included both a limited repair-or-replace warranty and a separate consequential damages exclusion. When the repair remedy failed, the buyer argued it should be entitled to consequential damages. The seller pointed to the exclusion clause.

The court held that these two provisions are analytically independent. A limited remedy (repair or replace) is tested under UCC § 2-719(2): if the remedy “fails of its essential purpose” because the seller can’t actually deliver on it, the limitation falls away. A consequential damages exclusion is tested separately under UCC § 2-719(3): it stands or falls based on whether it is unconscionable. In this case, when the seller proved unable to fix the machine and the buyer was left with no adequate remedy at all, the court struck the consequential damages exclusion as unconscionable.

The critical detail that many drafters miss is found in UCC § 2-719(1)(b): resort to a contractual remedy is merely “optional unless the remedy is expressly agreed to be exclusive.” If the contract says the buyer’s remedy is repair or replacement but doesn’t say that this is the buyer’s sole and exclusive remedy, the buyer may still pursue other remedies available under the UCC.

Why this matters for technology and procurement contracts. Software license agreements and procurement contracts almost always include some form of limited remedy, often paired with a consequential damages waiver and a liability cap. If those provisions aren’t drafted as independent, separately enforceable clauses, the failure of one can drag the others down with it. A repair-or-replace warranty that fails because the vendor can’t fix a critical defect could, as in Kearney & Trecker, open the door to the very consequential damages the contract was designed to exclude.

The practical takeaway: Three things matter here. First, state explicitly that the remedy is the “sole and exclusive” remedy. The magic words matter. Second, keep the consequential damages exclusion in a separate clause with its own enforceability language, so it can survive independently even if the primary remedy fails. Third, include a fallback remedy, such as a refund of fees paid, so that even if the primary remedy proves inadequate, the buyer isn’t left with nothing. A court is far less likely to strike down a limitation framework that guarantees some minimum level of relief.

The Thread Continues

The pattern from the first article holds: courts enforce what is explicit and decline to infer what the drafter left ambiguous. A condition precedent that isn’t labeled as one won’t be treated as one. A merger clause standing alone won’t bar fraud claims. A remedy that isn’t called “exclusive” isn’t exclusive.

These aren’t exotic edge cases. They’re the everyday provisions that appear in virtually every commercial agreement, and they fail with surprising regularity because drafters rely on assumptions instead of clear language. The fix, as always, is specificity: say what you mean, label what matters, and never assume a court will read between the lines in your favor.