Sunday, December 24, 2006

Lipshaw on Business Acquisition Half-Truths

Posted by Jeff Lipshaw

Some time earlier this year I posted a short essay, developed from a blog conversation among Gordon Smith, Frank Snyder, and me, about contractual disclaimers of truth-telling and reliance.  Treasures Larry Ribstein was kind enough to comment on it over at Ideoblog.  Since then I have given several talks about it (as has been noted, I am about to move on to my next gig, and as has further been noted elsewhere, you can't get move on to your next gig without giving a job talk).  As job talks are really just faculty colloquia onTomato training wheels, it turns out I have gotten immeasurably valuable comments, corrections, brickbats, Bronx cheers, well-aimed tomatoes (you say tomahtoes), and other affects of opprobrium and praise. 

I have now substantially redrafted and converted the essay into an article, now renamed (slightly) Of Fine Lines, Blunt Instruments and Half-Truths:  Business Acquisition Agreements and the Right to Lie, which is available on SSRN.  While it still discusses (in even more gory detail) the Abry case that was the source of the original blog discussion, I had the good fortune of the new book by Ian Ayres & Gregory Klass, Insincere Promises, being published in the interim, and that provides a nice complement and, I think, support to my thesis.  Here is the 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.

I know it's not that time of the year just yet, but if you happen to be a law review editor reading this and want to save me some trouble (and forking over the ExpressO fees), feel free to give me a shout.

* The picture is of a book of cartoons entitled Treasures of Half-Truth, by Pat Bagley, the editorial cartoonist for the Salt Lake Tribune.  You can see the original the book at

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