Giuffrida v. American Family Brands
United States District Court for the Eastern District of Pennsylvania
1998 WL 196402 (1998)
- Written by Rich Walter, JD
Facts
Following long months of hard bargaining, members of the Giuffrida family (defendants) agreed to sell their company to American Family Brands, Inc. (AFB) (plaintiff). The sale contract contained a warranty, good for two years and waivable only by AFB, guaranteeing that the Giuffrida company’s finances had not changed for the worse since its last formal audit nine months earlier. However, during the preclosing due-diligence period, AFB’s research disclosed a recent sharp drop in the Giuffrida company’s earnings. Nevertheless, AFB proceeded to sign the contract and close on the sale. After the company’s finances failed to recover, AFB sued the Giuffridas in federal court. The diversity case was governed by Pennsylvania law. AFB charged the Giuffridas with having breached the contract’s no-changes warranty. The Giuffridas argued in their defense that, given AFB’s due-diligence findings, AFB could not claim to have relied on the warranty. It was unclear whether, in breach-of-warranty cases involving the sale of a business, Pennsylvania law required proof that the buyer relied on the seller’s warranty.
Rule of Law
Issue
Holding and Reasoning (O’Neill, J.)
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