“The devil is in the details” is the lawyer`s raison d`être. Such a detail, on which merger and acquisition lawyers sing and argue about it, are the qualifications of knowledge in the representations and guarantees of a sales contract, as well as the corresponding definition given to the knowledge in the sales contract. The main point of contention is often not the existence of the qualifier in an agreement, but the way it is defined. The ABA study shows that 18% of acquisition agreements define knowledge as real knowledge. This definition is more favourable for the seller because of its narrow scope; Sellers would be responsible only for a misrepresentation of the facts in their actual knowledge, without any obligation to investigate. On the other hand, 72% of knowledge is considered a constructive integration of knowledge. This definition is less favourable for the seller because it transfers knowledge in certain circumstances. Of the agreements that include the concept of constructive knowledge, 89% are insinuating when facts should have been known after an appropriate investigation or investigation, while 7% are incorporating knowledge that some people should have known in the course of their duties. “Knowledge of the seller” or “knowledge of the seller,” or any other qualification of similar knowledge, refers to the actual or constructive knowledge of a director or agent of the seller or company, upon request. In addition, one of the most important distinctions between actual and constructive knowledge is the obligation to investigate imposed by a standard of constructive knowledge. Even if a party is subject to a real standard of knowledge, it cannot simply be ostrich. In a recent U.S.
Supreme Court case, the doctrine of voluntary blindness was adapted by criminal law and applied in the context of a civil patent infringement proceeding. The Supreme Court described the doctrine as follows: Home > Corporate Finance > Qualifiers of Knowledge in Sales Contracts: Trends and Reflections Therefore, if the buyer insists that these people be involved in the knowledge, the seller must decide whether and when the agreement will be passed on to those third parties. In these cases, strong confidentiality agreements, combined with a “stay bonus” or similar incentive, are essential. The difference between these two representations is how the risk of the unknown is attributed. The qualification of knowledge in the second example serves to pass on the seller to the buyer the risk of an imminent unknown dispute. This type of knowledge qualification is often considered acceptable when it comes to a potential third-party claim (and often viewed by buyers as an unacceptable risk transfer tool in other contexts). On the other hand, buyers generally argue for a standard of constructive knowledge: when negotiating a share purchase agreement (“SPA”), the parties generally spend a lot of time discussing representations and guarantees. However, references to the seller`s knowledge leave a great deal of room for interpretation, which could lead to disputes between the parties. In negotiated sales contracts, the insurance and guarantees provided by the seller are sometimes qualified by the seller`s knowledge. In such agreements, it is essential to clearly define the standards for what constitutes the knowledge of the seller. According to the 2014 American Bar Association`s (ABA Study) Canadian Private Target M-A Deal Points Study, 90% of acquisition agreements opened to the public in 2014 involving Canadian objectives and acquirers contain a defined knowledge standard.