16.2 The Specifications of the Object 465existence of certain characteristics or the absence of unwanted characteristics: (a)
The acquirer is protected by the prohibition of fraud (Volume II). (b) Furthermore,
the object must possess the agreed specifications both in a share deal and in an as-
set deal, and it is a matter of interpretation when parties can be deemed to have
agreed on something (Volume II). (c) In particular, interpretation is influenced by
actual disclosures. If the vendor has disclosed information to the acquirer and that
information was relevant to the acquirer, the court might hold that the parties have
agreed that the object must comply with the information disclosed. This makes the
management of information flows very important especially to the vendor (see be-
low). (d) In some cases, the vendor may be deemed to have an active duty to dis-
close facts which it should know to be relevant to the acquirer (see below). (e) On
the other hand, interpretation is also influenced by the acquirer’s knowledge of
facts. It is a well-known rule that the vendor is not liable for breach of contract if,
at the time of contracting, the buyer knew or should have known about the cir-
cumstances that the buyer invokes as alleged breach.^6 This makes the management
of information flows very important also to the acquirer.
For example, the vendor often makes disclosures in a “Letter of Disclosure” or annexed to
the contract because the acquirer’s knowledge about facts disclosed reduces the vendor’s li-
ability for their existence. Representations and warranties should therefore be read in con-
junction with the disclosure schedules. The buyer bears the risk for things mentioned on the
disclosure schedules. The seller often wants to disclose as much information as late as pos-
sible (when the deal is almost done) because: this can reduce the vendor’s liability; the ac-
quirer does not have time to inspect the information carefully (negative details perhaps go
unnoticed); and this can reduce the risk that the acquirer walks away and uses information
disclosed by the acquirer for business purposes. In contrast, the buyer needs to have enough
time to inspect the draft agreement and disclosure schedules, as well as to perform due dili-
gence.^7 – According to the case law of the German BGH in asset deals, the vendor has an
active duty to disclose facts which may frustrate the purpose of the deal and which thus are
relevant to the acquirer, provided that acquirers would normally have expected such facts to
be disclosed.^8 This rule is applied regardless of the main rule according to which the vendor
of goods has no general duty of disclosure (§ 433 BGB).
There can also be other exceptions to the main rule of caveat emptor. The most
important exception is that the sale of all or practically all shares of the company
can be regarded as an asset deal instead of a share deal in some countries (see sec-
(^6) CISG Article 35(3); DCFR IV.A.–2:307.
(^7) Goldberg L, op cit, pp 219–221.
(^8) BGH, judgment of 28.11.2001 - VIII ZR 37/01: “Zwar ist hier ebenfalls von dem
Grundsatz auszugehen, dass bei Verhandlungen über einen Unternehmenskauf der Ver-
käufer den Kaufinteressenten auch ungefragt über solche Umstände aufzuklären hat, die
den Vertragszweck (des anderen) vereiteln können und daher für seinen Entschluss von
wesentlicher Bedeutung sind, sofern er die Mitteilung nach der Verkehrsauffassung er-
warten konnte ... Überdies trifft den Verkäufer in solchen Fällen ... im Hinblick auf die
wirtschaftliche Tragweite des Geschäfts und die regelmäßig erschwerte Bewertung des
Kaufobjekts durch den Kaufinteressenten grundsätzlich eine gesteigerte Aufklärungs-
und Sorgfaltspflicht.”