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good is a fungible good (CO art. 202, 203). The buyer shall select its
option in line with its benefits. However, under certain circumstances
where the parties have not reached a consensus with respect to the
chosen option, a lawsuit may be filed where the judge may rule on
another option different from the chosen option. For instance, in case
of a termination lawsuit, the judge may decide on the purchase price to
be decreased instead of termination if it determines that the loss to be
incurred by the buyer and seller are clearly disproportional. The parties
may further provide in the agreement the option of the buyer to request
the seller to repair and eliminate the defect.
Impact of a Legal Due Diligence on Warranties
In merger and acquisition of companies, the transferring and
acquiring parties execute a share purchase agreement. This agreement
is regarding the transfer of a target company or enterprise and such
enterprise shall be purchased through transfer of shares or assets. The
transfer transaction is a sale and purchase agreement of an asset or
share certificates, as a result of which the seller has the obligation of
warranty against defects explained above in mergers and acquisitions.
In practice, the buyer conducts due diligence on the enterprise in order
to confirm that the purchased enterprise possesses the qualities defined
in the sale and purchase agreement.
Types of Due Diligence
The examination conducted on the sold good may be in relation to
legal, operational, strategic or financial matters. Financial due dili-
gence comprises of a detailed investigation of the economic and finan-
cial situation of the target enterprise Strategic due diligence is an
examination on the characteristics and inclinations of the market in
which the target operates. Operational due diligence is the investiga-
tion of the management, and information and product technologies of
the target.
The legal due diligence on the other hand analyzes the legal struc-
ture (establishment, bodies, permits, employees, facility agreements,
distribution, license and similar material agreements, legal disputes,
assets, intellectual property rights and similar aspects).
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NEWSLETTER 2012