Of Fine Lines, Blunt Instruments, and Half-Truths: Business Acquisition Agreements and the Right to Lie

Abstract:     
In this article, I expand upon a happy coincidence (for scholars) in reconciling the overlap between contract and fraud. Both the recent book by Ian Ayres and Gregory Klass and the Delaware Court of Chancery in Abry Partners Acquisition V, L.P. v. F& W Acquisition, LLC addressed the issue of promissory fraud - the making of a contract as to which the promisor had no intention of performing. Each treatment, however, in focusing on fraudulent affirmative representations, falls short of (a) recognizing the fundamental aspect of deceptive promising in a complex deal, namely the half-truth, (b) articulating an appropriate doctrinal principle to address it, or (c) capturing the social and linguistic context that makes the deceptive half-truth so insidious.

The archetypal facts in Abry frame the issue. When the parties to a business acquisition agreement purport to limit the buyer's reliance to those representations and warranties set forth in the agreement, just what obligations of truth-telling have the parties contractually released? We need to grapple with the inter-relationship of law, language, mutual understanding, and trust. The language of the law (and the contract) is a blunt instrument by which to map to track the subtle fine lines of a complex agreement. I will contend that there is a kind of special arrogance in the illusion onto which lawyers hold - that the uncertainties and contingencies of the world are in their power to be controlled, and to the winner of the battle of words go the spoils. The correct doctrinal result is to presume in the transactional speech acts (including the contract), as we do in everyday life, a default of truth-telling, to permit the parties freely to contract around the rule, but to require narrow construction of the exceptions and disclaimers.

Keywords: contract, fraud, misrepresentation, mergers and acquisitions, warranties, disclaimers, reliance

JEL Classifications: K13, K20, K23

Working Paper Series