Are Parties Free to Contract As Long As the Terms of Contract Are Lawful and Do Not Violate Public Policy ?
In Blue Chip Emerald LLC v. Allied Partners Inc. (299 AD2d 278, 750 N.Y.S.2d 291 [1st Dept 2002]), the Court held that, at the time that the parties entered into a buy-out agreement, which included terms similar to those in the Certificate, the parties owed each other a fiduciary duty, and the disclaimers of such duty, allegedly agreed to as the result of fraud, were ineffective.
In that case, the court refused to dismiss a claim of breach of fiduciary duty on the part of the directors of a limited liability company, but that company's agreement contained an exculpatory clause immunizing directors from liability for violation of the duty of care, not, as here, a clause eliminating fiduciary duties.
In Continental Ins. Co. v. Rutledge & Co. (750 A2d 1219 [Del Ch 2000]), the court held that a contractual clause permitting partners to engage "in other business activities of every kind and description" does not allow self-dealing, when acting within the limited partnership.
Delaware Limited Liability Company Act 18-1101 (c), provides, in relevant part, that:
to the extent that . . . a member or manager . . . has duties (including fiduciary duties) to a limited liability company or to another member or manager . . . [those] duties may be expanded or restricted or eliminated by provisions in the limited liability company agreement; provided that the limited liability agreement may not eliminate the implied contractual covenant of good faith and fair dealing. 6 Del C 18-1101.
Similarly, under New York law, parties are free to contract as they wish, so long as the terms of their contract are neither unlawful, nor in violation of public policy.