Sandbagging, in the field of mergers and acquisitions law, refers to the act of claiming a breach of a contractual representation or warranty despite having known at the time of the contract that it was untrue.[1]
Delaware and New York law both generally permit sandbagging when a contract is silent on the point, whereas California law does not allow it unless the contract explicitly permits it.[2] New York case law indicates that sandbagging is not allowed in cases where the information about the falsehood of the representation or warranty came directly from the seller.[3]
English law provides that "purchaser's knowledge" precludes post-closing remedies for breach of warranty, but that a contract may allow sandbagging based on pre-closing constructive knowledge or imputed knowledge (as opposed to actual knowledge).[4]
Ontario case law has not dealt with default rules for sandbagging but has indicated that sandbagging may be permitted by contract. The civil code of Quebec imposes a requirement of good faith in the exercise of contractual rights which would likely preclude sandbagging.
The Japanese Civil Code does not allow sandbagging unless the contract explicitly permits it.[5]