Purchaser's Knowledge Of Inaccurate Vendor Representations & Sandbagging Tactics

Introduction

In virtually all transactions, parties make representations and warranties to build trust and induce contracting with each other, especially for facts not verifiable through due diligence.¹ Representations are often subject to intense negotiations, and their accuracy is vital since untruths give rise to misrepresentation claims by the other party.

An issue can arise if a purchaser becomes aware, before closing, that a material representation of the vendor is inaccurate or untrue. Upon such a discovery, a purchaser has three options. It may (i) disclose this discovery to the vendor and terminate or (ii) disclose and seek to renegotiate the agreement based on the new facts, or (iii) it may remain silent on the discovery and commence an action after closing for the misrepresentation of the vendor.