What your mom taught you about telling the truth is still good advice. While it may seem to go without saying, at least one judge has reaffirmed your mother’s rule: “it’s not okay to lie,” even if your contract says you don’t have to tell the truth. In Abry Partners V, L.P. v. F&W Acquisition, LLC, the court had to decide whether a very explicit disclaimer of all warranties and representations would be enforced to limit the liability of a company that had knowingly made false representations to induce the sale of the business to another company.
On its face, the disclaimer was very clear – the company that made the false representations had no contractual duty to tell the truth to the acquiring company, and any liability for false statements was limited to a predetermined amount. While the exact wording of the disclaimer may be too long to repeat here, it might as well have said: “Company A may make any false statement or misrepresentation to Company B to induce the sale, and Company B’s only legal remedy shall be capped at XYZ dollars.” This kind of disclaimer was written in two different sections of the sales contract.
Yet writing something in a contract doesn’t necessarily make it so. Judges have broad discretion regarding the enforcement of contract terms. Even though both Company A and Company B were sophisticated businesses with teams of legal professionals to advise this multi-million dollar transaction, the judge in this case held that it would be against public policy to enforce the disclaimer and to protect the company that made false representations.
What’s the moral of this story? Honesty isn’t just the best policy – it’s the law of the land, and no wording in a contract will change that. Further, as a general rule, you can’t rely solely upon the wording of a contract to forecast the outcome of potential legal disputes. Ultimately, courts strive to preserve justice, and a judge may easily override overbearing or unfair contracts.