A buyer may decide to acquire shares or assets or accept certain terms in a sale and purchase agreement (SPA) based on verbal representations made by a seller.

If these verbal representations turn out to be false, does the buyer have any cause of action against the seller?

The seller may be liable for pre-contractual misrepresentations.

However, SPAs typically have an ‘entire agreement’ clause which excludes liability for pre-contractual misrepresentations save for fraudulent misrepresentations.

A buyer should consider the following:

1.      Inform the buyer’s lawyer any verbal representations made by the seller which influence the buyer’s decision on whether to make the acquisition or accept certain terms and conditions. The buyer’s lawyer could then take this into consideration when conducting due diligence.

2.      Inform the buyer’s lawyer to include the seller’s verbal representations in the SPA.

3.      If the seller is not willing to render the representations in writing, it is a red flag. Consider why the seller is reluctant to include the representations in the SPA.

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This post was first posted on Linkedin on 13 April 2023.