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DCV Holdings3/24/2005
omes necessary to examine the extrinsic determine the parties' intentions in drafting this section. Evidence of what was deleted from the original draft sheds light on the intended meaning of "liabilities."
The buyer's original version of § 3.9 included a clause that made Sellers liable for any condition that could result in future detriment to the buyers:
No Undisclosed Liabilities. Except as set forth in Section 3.9 of the Disclosure Schedule, none of the Companies has any liabilities or obligations of any nature (whether absolute, accrued, contingent, unasserted, determined, determinable or otherwise) and there is no existing condition or situation which could be reasonably expected to result in any such liabilities or obligations, except. . . (emphasis added) .
This assignment of future liability was not acceptable to the sellers. Roger Wells, the sellers' lead negotiator, testified that the sellers refused to agree to the highlighted clause regarding "no existing condition" because it made them liable for unforeseen future events:
The discussion we had was, again, that the Sellers were not willing to sign a contract that obligated them for consequences of unknown events they didn't know about. And this was a clause that could certainly do that. And so we took it out.
The sellers steadfastly resisted indemnifying the buyers from liabilities that might develop following the sale. Following discussion and debate, the buyers agreed to sellers' removal of the clause in question, thereby indicating a mutual understanding that in the context of § 3.9 the word "liabilities" meant actual liability at the time of the sale, not any liability that could accrue in the future. The Court finds that the extrinsic evidence shows that the agreed-upon intention of the parties was that the sellers would not be liable for future liabilities. When the parties signed the Purchase Agreement in August 1997, no "liabilities" had arisen from DuCoa's antitrust activity.
Equally contentious during the contract negotiations was the question of whether the warranties and representations would be based on the sellers' actual knowledge at the time of the sale. The parties do agree that the "knowledge of Sellers" was intended to mean only what Halter and James knew with an obligation on their part to make due inquiry. In the first draft of the Purchase Agreement, the buyers did not include any "knowledge qualifiers," the clauses which allocate risk to the buyer if the seller did not have knowledge of the subject of the representation and warranty. In its initial form, § 3.13 was a blanket representation that the companies' business had been conducted lawfully:
Compliance with Law. The Business is not being and has not been Conducted, and none of the Companies has been, or is in violation of any applicable Law, except for violations which in the aggregate would not have a Material Adverse Effect.
The sellers wanted a knowledge qualifier, and they added one to the draft. At trial, Mr. Sikorski testified that Winward's position had been that the Sellers should bear the risk of the companies' lack of compliance with the law, whether Mr. Halter and Mr. James were aware of it or not. Mr. Sikorski also stated that he had been well aware that the sellers wanted to include knowledge qualifiers so that buyers would bear the risk on topics of which sellers were not knowledgeable. Roger Wells concurred. He testified that by June the parties had reached an understanding that the sellers would not accept responsibility for unknown eventualities. Based on this understanding, Mr. Wells added knowledge qualifiers to the draft and also defined the sellers' kn
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