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Representations, Warranties and Due Diligence in
Mergers and Acquisitions
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Att. Leyla Orak
In this month’s Newsletter article, we will assess the impact of
conducting legal due diligence on the responsibilities of the parties for
merger and acquisitions. This article shall primarily assess the warran-
ty against defects of a seller arising from a sale and purchase agree-
ment and then the effects of legal due diligence on such liability shall
be analyzed.
Warranty against Defects Arising from Sale and Purchase
Agreements
The main obligation of the seller under a sale and purchase agree-
ment towards the buyer is to transfer the ownership of the goods that
are sold to the buyer. The seller warrants that the good shall be
delivered to the user without any defects, which is a secondary obliga-
tion to the obligation to transfer the ownership. The warranty against
defects is a statutory obligation and it does not require an express
representation of the seller that the good lacks any defects.
Types of Indemnities against Defects
A defect is a deficiency on the sold good, arising from the good not
possessing the qualities mentioned and promised by the seller, or
decreasing or abrogating the value or the benefits of the good as per the
agreement, which hampers the benefit of the buyer from the good.
The obligation to warranty against defects arises in two situations:
in case the good lacks the qualities mentioned and promised by the
seller and in case the good lacks the reasonably expected qualities.
Warranty from Declared Qualities
The seller may make specific representations and promise the
qualities of the sold goods in the sale and purchase agreement. Quality
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NEWSLETTER 2012
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Article of January 2012