Sinclair on Warranties and Indemnities on Share and Asset Sales

This practical text contains precedents and commentary on warranties and indemnities on share sales. It provides guidance for all parties – purchasers and vendors - who deal with a sale and purchase agreement (“sale agreement”) for either a company or business.

Format: Hardback
Publication date: 26 April 2023
Publisher: Sweet & Maxwell Ltd

This comprehensive and practical text serves as a valuable resource for those involved in the sale and purchase of shares, offering precedents and insightful commentary on warranties and indemnities. Designed specifically for commercial lawyers, it stands as the sole title dedicated to addressing this critical aspect of such agreements. Whether you are a purchaser or vendor engaged in a sale and purchase agreement for a company or business, this book provides invaluable guidance and expertise to ensure successful transactions and mitigate potential risks.

Introduction:
The sale and purchase of shares is a complex legal process that requires careful consideration and negotiation. Warranties and indemnities play a crucial role in protecting the interests of both purchasers and vendors, as they provide assurances and remedies in case of any unforeseen circumstances or disputes. This text aims to provide a comprehensive understanding of warranties and indemnities in share sales, covering key topics such as the nature of warranties, the scope of coverage, and the obligations of parties.

Nature of Warranties:
Warranties are promises made by the seller to the purchaser in a sale and purchase agreement. They are designed to provide the purchaser with certain protections and assurances regarding the condition of the shares being sold. The nature of warranties can vary depending on the specific agreement and the circumstances of the sale. Common warranties include the following:

• Title: The seller warrants that they are the lawful owner of the shares and have the right to sell them.
  
• Good title: The seller warrants that they have good and marketable title to the shares, free from any encumbrances or legal disputes.
  
• No liens: The seller warrants that there are no liens or other legal claims against the shares.
  
• No encumbrances: The seller warrants that there are no encumbrances or other legal restrictions on the transfer of the shares.
  
• No material defects: The seller warrants that the shares are free from any material defects or errors.
  

Scope of Coverage:
The scope of coverage of warranties can vary depending on the specific agreement and the circumstances of the sale. Generally, warranties cover only those matters that are known to the seller at the time of the sale. However, some warranties may also extend to future events or conditions that the seller has reason to believe may affect the shares. For example, a warranty may cover the ability of the company to continue to operate in the future or the accuracy of financial statements.

Obligations of Parties:
Both purchasers and vendors have obligations under a sale and purchase agreement regarding warranties and indemnities. The purchaser has the obligation to carefully review the warranties provided by the seller and to take reasonable steps to investigate any potential issues or defects. If the purchaser discovers that a warranty is false or misleading, they may have the right.

• right to rescind the sale agreement: The purchaser may have the right to rescind the sale agreement if the seller fails to perform any of their warranties.
  
• right to claim damages: The purchaser may have the right to claim damages, including the cost of purchasing the shares, any losses incurred as a result of the breach of warranty, and any other reasonable expenses incurred in connection with the sale.
  

Indemnities:
Indemnities are promises made by the seller to the purchaser in a sale and purchase agreement. They are designed to protect the purchaser from any losses or damages that may arise from the seller's breach of warranty or other obligations. The nature of indemnities can vary depending on the specific agreement and the circumstances of the sale. Common indemnities include the following:

• Breach of warranty: The seller agrees to indemnify the purchaser for any losses or damages that may arise from the seller's breach of any warranty.
  
• Negligence: The seller agrees to indemnify the purchaser for any losses or damages that may arise from the seller's negligence or other wrongful conduct.
  
• Third-party claims: The seller agrees to indemnify the purchaser for any losses or damages that may arise from third-party claims against the shares.
  

Enforceability of Warranties and Indemnities:
Warranties and indemnities in share sales are generally enforceable unless they are deemed unconscionable or illegal. Unconscionability refers to a situation where the terms of the warranty or indemnity are so unfair or one-sided that they would be considered unenforceable by a court. Illegal warranties or indemnities may include those that violate public policy or legal requirements.

Conclusion:
In conclusion, the sale and purchase of shares is a complex legal process that requires careful consideration and negotiation. Warranties and indemnities play a crucial role in protecting the interests of both purchasers and vendors, as they provide assurances and remedies in case of any unforeseen circumstances or disputes. This text aims to provide a comprehensive understanding of warranties and indemnities in share sales, covering key topics such as the nature of warranties, the scope of coverage, and the obligations of parties. By understanding the principles and requirements of warranties and indemnities, purchasers and vendors can negotiate effective sale and purchase agreements that minimize risks and ensure successful transactions.

ISBN-13: 9780414112032
Edition number: 12 ed