Sandbagging Clauses


Summary

This clause provides both a pro-sandbagging provision and an anti-sandbagging provision. This clause includes practical guidance and drafting notes. "Sandbagging," in the context of an M&A transaction, occurs when a buyer makes a claim against a seller after the closing of an acquisition based upon the seller's breach of obligations or warranties under, or an inaccuracy in one or more of the seller's representations contained in, the applicable purchase agreement, even though the buyer knew of the breach or inaccuracy before closing. At first blush, such a claim might seem unfair to a seller, and even the name "sandbagging" suggests an inherent unfairness to this practice. Moreover, the concept of sandbagging might appear to be at odds with the element of reliance in a breach of contract claim. However, there are many practical considerations with respect to risk allocation and expediting contract negotiations that might justify allowing the buyer to sandbag the seller post-closing. In...