the Zealous

In the early 20th century, the limited liability afforded by the corporate form was in its nascency. Lawyers consequently resorted to contract language to shield shareholders from liability for the corporation’s debts, using the so-called “no recourse against others” clause.

Today, most lawyers take corporate liability protection for granted, and probably assume that such a clause is unnecessary. Yet, trust in the supposed impenetrability of the corporate veil could be misplaced.

From Randy T. Austin, The Reasonable Man Did the Darndest Things, 1992 BYU L. Rev. 479 (1992):

Obviously the Reasonable Man spends most, if not all, of his time doing reasonable things. Indeed, the very essence of the Reasonable Man is his unparalleled propensity to act reasonably. Oddly, however, the Reasonable Man has been spotted doing some rather peculiar things, peculiar at least for the Reasonable Man. For example, the Reasonable Man has been observed disobeying the direct requests of a gunman at point blank range. He has been seen driving through puddles splashing muddy water on unsuspecting pedestrian, jumping out of a moving car, and even running people over occasionally. In addition, he has been known to flip-out periodically, some have even seen him leaving people to die although he could have saved them. One of his most famous acquaintances claims that the Reasonable Man gets out of his car at every railroad crossing to check for oncoming trains. One judge has even suggested that the Reasonable Man may even turn down box seats to watch a baseball game from the bleachers.

Among the nearly infinite variety of legal agreements in use today, the non-disclosure agreement for general bilateral business discussions is by far the most ubiquitous. If measured only by the frequency of its use and the significance of its impact, a company’s NDA template is arguably its most important. The $200 million verdict against Oculus for breach of a rather simple NDA speaks volumes as to how critical such an agreement can be.

Every company has its own unique general use NDA template; paradoxically, many companies sign the opposite party’s template more often than not. The party larger in size, reputation, market cap, or perceived importance usually wins the battle of the NDA form. This NDA ritual takes place hundreds of times a day all over the world.