The better alternative of the warranty qualifier “to the best of Seller’s knowledge…” is the phrase “to Seller’s knowledge“. In this blog, I will discuss the use and further elaboration of this funny phrase in the transaction agreement.
For examples, see the blog parallel to this one (click here).
In the above examples, instead of making a straightforward warranty, a party can qualify a requested warranty by stating that as far as it knows, what is being warranted is correct. This is typically accomplished by the phrase To the best of Seller’s knowledge, or a more succinct version To Seller’s knowledge (knowledge is a constant and not a variable: it is either ‘present’ or ‘absent’ but not ‘to a certain extent’ or ‘merely in a certain quality’ – hence, the word best is redundant).
If warranties are qualified to a party’s knowledge, it makes sense to specify what the scope of it entails. For example:
A person’s knowledge, awareness or words of similar import means the knowledge of Messrs. Boukema, Verwijmeren and Wiggers who, after due and careful inquiry, have actual knowledge of the facts and events in relation to or on the basis of which the relevant statement is made.
A specification what a party’s knowledge entails is important because already the knowledge of any employee is attributable to the employer, and therefore to the Seller. Especially if the acquired company employs a great number of employees it would be appropriate to identify the relevant functions (e.g., the Acquired Companies’ president, chief executive, CFO, certain or all financial controllers, chief development officer, production site directors) or to name the members of senior management (including any staff members of matters that are dealt with at group level: patent attorneys, members of group financial and tax departments etc.).
Furthermore, a qualified party’s knowledge still assumes that each and every case of infringement would be reported to senior management. If it was not, the seller would be released from its warranty. Therefore, the knowledge can be assumed to have been present if reasonable or due inquiry into the business organization would have revealed that a fact or event was present (or absent). Such inquiry should in all cases be made as part of negotiating warranties (and preparing disclosures). Anyhow, such inquiry implies an imputation of knowledge against a standard of reasonableness and permits an objective assessment and judgement of what should have been the case.
