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The Board Made a Wrong Decision – Can (Should) it be Held Liable?

The board of directors made the decision to acquire a company for $100 million.  The negotiations and the due diligence process were difficult, but the board finally approved the acquisition and the transaction closed.  After closing, the acquirer determined that the value of the acquired company’s assets were greatly overstated and the acquiring company took a loss on its books.  The shareholders of the acquiring company have met to determine whether to file litigation against the directors.

In Illinois, courts have ruled that the “business judgment rules acts to shield directors who have been diligent and careful in performing their duties from liability for honest errors or mistakes of judgment”.  Absent “bad faith, fraud, illegality or gross overreaching, the courts are not at liberty to interfere with the exercise of business judgment by corporate directors”.  Thus, just because a board made the “wrong” business decision, does not mean that the directors are liable to the shareholders.

While the courts are reluctant to make business judgments for companies, this does not always prevent shareholders from “second guessing” decisions of the board.  Illinois law provides that a corporation may indemnify its directors and officers from any liability if such director or officer “acted in good faith and in a manner he or she believed to be in, or not opposed to, the best interests of the corporation”.  Since the law is permissive, in order for a corporation to attract quality persons to serve as an officer or director, it may wish to agree to indemnify such person in such situations.  It is important from the corporation’s perspective to draft such an agreement, in a manner that, while protecting the “well-intended” officer or director, also protects the company.  If you have any questions about directors’ and officers’ liability to the corporation, or would like to discuss your company’s legal concerns, please feel free to contact the business lawyers at Levin Ginsburg.

For more information, please contact:

Morris R. Saunders at: (312) 368-0100 or msaunders@lgattorneys.com

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Is the Confession of Judgment Provision In My Contract Enforceable?

Answer: In a consumer transaction, no.¹ In a commercial transaction, it depends.

A typical “confession of judgment” provision in a commercial contract (e.g., a promissory note) authorizes the creditor upon a default under the agreement to obtain a judgment for the amount owed without notice to the debtor(s) or guarantor(s), and allows the creditor to immediately execute on the judgment. The clause will most likely contain a “warrant of attorney” authorizing the appointment of an attorney to appear for the debtor, to waive personal jurisdiction and service, and to consent to an amount due and owing by the creditor. Thus, a party in default under an agreement containing a confession of judgment provision often first learns about the lawsuit against him after collection efforts have begun, when his bank accounts have been frozen or a lien has been recorded against his property. Courts will permit this judicial “shortcut” only if (a) the contractual provision is enforceable in the first place, and (b) the creditor takes the right steps to obtain the judgment after a default.

On the first point, a judgment by confession is void where it requires extrinsic evidence to prove the underlying debt. The Illinois Supreme Court in Grundy County Nat. Bank v. Westfall, 49 Ill.2d 498, 500–01 (1971) has held: “Judgments by confession are circumspectly viewed. … ‘The power to confess a judgment must be clearly given and strictly pursued, and a departure from the authority conferred will render the confessed judgment void.’ The extent of the liability undertaken must be ascertainable from the face of the instrument in which the warrant is granted. … ‘A judgment by confession must be for a fixed and definite sum, and not in confession of a fact that can only be established by testimony outside of the written documents, required by the statute to be filed in order to enter up a judgment by confession.” See also Ninow v. Loughnane, 103 Ill.App.3d 833, 836 (1st Dist. 1981); State National Bank v. Epsteen, 59 Ill.App.3d 233 (1st Dist. 1978). Numerous other courts have likewise held that a guaranty or underlying instrument purporting to grant power to confession judgment that is all-encompassing—for example, one that refers to “any and all debts, liabilities and obligations of every nature or form of the debtor,” including future debts, is so broad as to be void. Thus, if your confession of judgment clause is broad-sweeping or does not clearly describe the extent of the debtor’s liability, or if proving the amount owed requires reference to other documents extraneous to the instrument itself, the confession of judgment clause – and any judgment later obtained thereon – is void. While it is certainly advisable for clients finding themselves on the defensive end of this situation to act quickly, Illinois law permits a void judgment to be attacked at any time.

As to the second point, because the confession of judgment remedy is a creature of an Illinois statute, it must be strictly construed. See 735 ILCS 5/2-1301(c).  Voidness issues aside, that section requires the creditor to file a confession judgment suit only in the county in which (1) the note or obligation containing the confession of judgment clause was executed, (2) one or more of the defendants reside, or (3) in which any real or personal property owned by any of the de­fendants is located.

Because Illinois courts view judgments by confession with some skepticism, the law affords various remedies and means of challenging them not covered by this article. For further information on how to defend a judgment by confession case or to use such a provision offensively, contact:

Katherine A. Grosh at:

(312) 368-0100 or kgrosh@lgattorneys.com.


¹ A “consumer transaction” is defined as the “sale, lease, assignment, loan, or other disposition of an item of goods, a consumer service, or an intangible to an individual for purposes that are primarily personal, family, or household.” 735 ILCS 5/2-1301(c). If the instrument authorizing the judgment by confession in a consumer transactions was executed prior to September 24, 1979, however, it is still enforceable. Id.

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Unexpected Liability for Service Providers

With “hacking” and identify thefts becoming all too common place, each service provider must place more and more emphasis on protecting itself from legal liability caused by not only its own actions, but the actions of the company(ies) to whom it outsources. This article provides an introduction to contracting for service providers with an eye toward gaining legal platform upon which to adequately defend itself, if necessary.

In addition to government compliance, which will vary depending upon the industry, any company that collects personal information during the course of providing its services must take steps to safeguard itself from legal liability arising due to unwanted disclosures.  One way to provide a legal safety net is to consider the applicable issues in the service provider’s agreement.  The following is an abbreviated checklist.

  1. Whether personally identifiable information will be provided to service provider’s employees, and if so, what measures are taken to narrowly tailor the need to expose such information to only those employees or third parties who need to know in order to provide the service.  In considering this, a service provider may want to consider identifying types of employees or third parties that may be exposed to such information, or even listing such persons and having them sign a confidentiality agreement with respect to such information.
  2. When does a service provider have to notify a customer of a security breach?   Is there an obligation to notify customers of a potential privacy-related compliance issue?  Or, only when a security breach has occurred?  If a security breach is defined, service providers will be required to undertake all tasks from notification to remediation and payment for such remediation upon receipt of a complaint.
  3. While necessary, service providers will want to limit their contractual obligations to comply with compliance with IT management standards such as the International Organization for Standardization certification.
  4. If the service provider receives credit card information of customers, then at the very least, the following issues must be considered:
    1. Limitation of access of personal information to authorized employees or parties
    2. Securing business facilities, data centers, paper files, servicers, backup systems and computing equipment (mobile and other equip with info storage capability;
    3. Implementing network/ device application, database and platform security
    4. Securing info transmission storage and disposal
    5. Implementing authorization and access controls with media, apps, operating systems and equipment
    6. Encrypting highly sensitive personal information stored on any mobile media
    7. Encrypting highly sensitive transmitted over public or wireless networks
    8. Strictly segregating personal information from and info of service provider or its other customers so that personal information is not commingled;
    9. Implementing appropriate personnel security and integrity procedures and practices (conducting background checks, and providing appropriate privacy and info security training to service providers’ employees.

If you have any questions regarding your liability for disclosure of personal information, please contact:

Natalie Remien at:

nremien@lgattorneys.com or (312) 368-0100.

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