Non Reliance Clauses And Evidentiary Rules In Commercial Negotiations
Non reliance clauses bar extra-contractual dispute claims by establishing contractual estoppel against reliance on pre-closing statements.
breach of warranty
Meaning
A failure to maintain the truth of a factual assertion made in a contract gives rise to a claim for damages by the non-breaching party. When a seller makes an assertion about the state of their business, any inaccuracy constitutes a breach of warranty. This occurrence does not automatically terminate the contract but allows the injured party to seek compensation for the difference in value.
Legal Remedy
Purchasers typically seek financial recovery to return them to the position they would have held had the assertion been true. When a breach of warranty is identified, the non-breaching party can sue for damages or demand indemnification under the contract’s specific provisions. This remedy avoids the need to undo the entire transaction.
Evidentiary Proof
Establishing the falsity of a contractual assertion requires documented evidence showing that the representation was inaccurate at the time of signing. To succeed in a claim for breach of warranty, the claimant must produce records or audited statements that contradict the seller’s initial assertions. This requirement shifts the focus from spoken promises to written, dated evidence.
If the claimant cannot show a discrepancy, the claim fails. Conversely, the defending party can present written disclosures provided during the due diligence phase to show that the claimant had prior knowledge of the true state of affairs.
Financial Damage
Calculation of losses depends on the difference between the actual value of the acquired asset and its represented value. In most corporate transactions, the breach of warranty leads to an adjustment of the purchase price or a draw from an escrow account. This adjustment occurs according to formulas pre-negotiated by the parties.