Let’s talk about “representations.” That doesn’t mean “let’s come to a complete understanding about representations,” only “let’s talk.”
Does anyone know what “to Seller’s actual knowledge no tenant has alleged a default by Seller under any lease” means? Does it mean that Seller actually knows that no tenant has made such an allegation or does it mean that Seller doesn’t know of any tenant that has made such an allegation? Would there be a difference if it said only, “to Seller’s knowledge no tenant has made any allegation… .”? Does the word “actual” add anything or clarify anything? What if it said, “to Seller’s actual knowledge, without having any duty of investigation, no tenant has made any allegation… .”?
I think there is a battle going on between whether a representation is intended to place the risk of a “fact” being wrong on the party making the representation and whether the representation is really a due diligence question that the representing party is expected to answer truthfully after carefully searching her or his memory. Requiring a careful examination only increases the thoroughness of the “search.”
So, when someone says that something is true to “their knowledge and belief,” it could mean only that she or he only needs to “believe they know it to be true,” even if they are wrong. That’s different than “A” both knows it to be true AND believes it to be true. More about that way down below.
This then leads to a less common construction, “A has no cognitive awareness that such and such… .” This would be intended to protect a representing party who “actually knew,” but truly forgot despite an honest effort to remember.
This blog entry will be long enough without exploring another common qualifier, “materiality.” So, we’ll just note that a representation may be qualified my “materiality,” such as in: “to A’s actual knowledge no tenant has alleged a material default… .”
I’ve looked through a whole bunch of documents to come up with this partial list. In each, “A” could be a person or an entity:
1. A possesses personal knowledge of the statements contained herein …
2. To A’s knowledge …
3. To A’s actual knowledge …
4. To the actual knowledge of A (without any duty of investigation): …
5. To A’s knowledge, without duty of investigation …
6. To the best of A’s knowledge …
7. Based on A’s knowledge or awareness …
8. A represents and warrants that, to A’s knowledge, after due inquiry and investigation, except as disclosed in …
9. A is unaware of …
10. A further warrants and represents, that to the A’s knowledge, without duty of investigation, A is unaware, and has not received notice, that …
The next four are all from the same agreement:
11. To the knowledge of A …
12. A has no knowledge of … or is expected that …
13. To the best of A’s knowledge, information and belief …
14. To A’s knowledge, information or belief …
What’s going on here? Do these really mean different things? Does “To the best of A’s knowledge” mean something different that “To A’s knowledge”? What would “To the worst of A’s knowledge” mean?
And, what does it mean to “know” something?
Here is a definition I found in an agreement, and need to apologize that I can’t find an author to whom it should be attributed:
“Knowledge” or “to the knowledge of” and similar phrases mean (a) in the case of an individual, a particular fact or matter actually known or which could be expected to be known after reasonable inquiry in the ordinary and usual course of the performance of his or her professional responsibilities, and (b) in the case of an Entity, if any individual who is serving as an executive officer or manager has, or at any time had, actual knowledge or could have been expected to know after reasonable inquiry in the ordinary and usual course of the performance of his or her professional responsibilities, of such fact or other matter.
Here’s a problem with that definition of “knowledge.” It says: “‘knowledge’ … mean(s) … a … fact or matter actually known … .” It also says that to have “knowledge,” you don’t really need to “know” something, it could also mean that you should have known it.
I have no competence whatsoever in Epistemology, the branch of philosophy concerned with the nature, scope, and limitations of knowledge. So, I’m not “even going there.” Ludwig Wittgenstein wrote “On Certainty,” exploring relationships between knowledge and certainty. This writer is an engineering graduate. ‘Nuf said.
What I will do however, is borrow from a footnote in the National Venture Capital Association’s “Series A Preferred Stock Purchase Agreement”:
An important point of negotiation is often whether the Company will represent that a given fact (a) is true or (b) is true to the Company’s knowledge. Alternative (a) requires the Company to bear the entire risk of the truth or falsity of the represented fact, regardless whether the Company knew (or could have known) at the time of the representation whether or not the fact was true. Alternative (b) is preferable from the Company’s standpoint, since it holds the Company responsible only for facts of which it is actually aware.
Yes, I’ve looked for case law on the topic, but only in a superficial way. I kind of stopped after looking at an insurance case, William Penn Life Insurance of New York v. Sands, 912 F.2d 1359 (11th Cir. 1990), where a man truthfully answered an insurance application based on his “knowledge and belief” that he did not have cancer or a blood disorder. He later discovered that he did. The court held that since there was no evidence that he knew of the disease at the time the application was completed, there could not be a misstatement because the application was based on his “knowledge and belief.” A Florida court, relying on the Sands case, said: “the only requested information was the disclosure to the best of the insured’s knowledge and belief. This is exactly what was provided … nothing more, nothing less.”
“The use of the term, ‘to the best of my knowledge and belief,’ recognizes it is impossible for any person to legitimately provide absolute assurances or guarantees. Individuals can only make assertions on what they know or have knowledge of, not to what they don’t know.” (Source unknown).
Here is a footnote from Skinner v. Aetna Life and Casualty, 804 F.2d 148, 256 U.S.App.D.C. 150 (1986):
Judge Bork and I believe the use of the twin qualifiers [knowledge and belief] requires that knowledge not defy belief. In our view, the test to be applied in this case is clear. What the applicant in fact believed to be true is the determining factor in judging the truth or falsity of his answer, but only so far as that belief is not clearly contradicted by the factual knowledge on which it is based. In such event, a court may properly find a statement false as a matter of law, however sincerely it may be believed. To conclude otherwise would be to place insurance companies at the mercy of those capable of the most invincible self-deception-persons who having witnessed the Apollo landings, still believe the moon is made of cheese.
On the other hand, the third member of our panel, Senior Judge Wright, believes this test gives undue weight to the word “knowledge” which, he feels, cannot be isolated from the phrase of which it is an integral part. In his view, the phrase “to the best of my knowledge and belief” is merely legal shorthand signifying that the parties have chosen a subjective test for the truthfulness of prior representations. By the same token, he acknowledges that a person’s belief may be so unreasonable and out of step with reality that to submit the question to a jury would expose the opposing party to manifest injustice.
Here is a practical example that I think I remember from an otherwise long forgotten court decision. A son represented that certain work had been performed at a property. It might has dealt with a septic tank, an appropriate vehicle for this comment. He represented that, to his knowledge and belief, the tank was in good operating condition. What apparently transpired, however, was that he saw his father doing the work and “knew” that his father was a capable and talented craftsman. So, his knowledge came from this belief, but he was wrong. My recollection is that the court said there was no misrepresentation because the “belief” element modified the “knowledge” element.
Where does this leave me, and consequently, where does it leave the reader? Nowhere yet – because we’re all still Ruminating.
Please share your thoughts by adding your comments to this entry. That way, when we revisit this topic, we’ll have a foundation upon which to stand.
A problem with using “to the best of my knowledge” is that it seems to imply that the person making that representation has a heightened level of knowledge. So, if a client makes a representation to the “best of my knowledge” he or she is implying that, in making that statement, he or she conducted a certain amount of due diligence in order to verify the truth and accuracy of the statement. So, if one did not investigate, then how can he or she represent as to a state of facts “to the best” of his or her knowledge. The other issue is with the use of the word “best.” If the term “best of knowledge” means that the party making the representation must do some digging to verify the truth and accuracy of the statement, to what ends must he or she investigate? What does “best” mean? Does the party making the representation need to spend $50,000; $100,000 or every last penny to make sure that statement is correct. If not, is it really to the “best” of his or her knowledge?
I agree that “to the best of my knowledge” is confusing. I always took it to mean “as far as I know.” I used to avoid “to my knowledge” because I thought it meant that I was saying I actually do know that X is true — similar to the requirement that an affidavit in support of summary judgment must be based on the affiant’s actual knowledge. Lately I have been adopting the style of Ken Adam’s Manual of Style for Contract Drafting, which simply speaks of “to my knowledge”. Adams’ book does leave open whether to define knowledge. It seems to me best to define knowledge if you want to limit a company’s knowledge to that of certain employees or agents, and to disclaim investigation in most cases.
In this day and age, as far as “best” goes a court may have to look around in the various blacklines to see who asked for “best” to be inserted. I agree with Steven that I think it means there is more duty to investigate. But that is relative. It may also depend on what year the document was negotiated. Ten years ago “best” was a limiting word. Then people started using “actual …without duty to investigate.” That’s when it shifted to an expanding word for me. As far as ethics, is it bad to agree to “best” standard as an expander even if I presume the other party is asking for it because they think it is limiting? Maybe– because what I am trying to do is clarify what the parties mean and playing such semantic games doesn’t do that.
I am also of the opinion that the parties most in need of representations and warranties from the party in the position to provide the knowledge probably have the least bargaining power to get meaningful disclosures from represenations and warranties. Think of the difference in a start-up franchisee vs a big box retailer asking the Landlord to put in writing that all of the building systems are in good working order and condition.
I think Jack and Crystal come to the same conclusion – that (i) you start with “to my knowledge”, then (ii) if desired, add “actual” as a limiting word , then add (iii) “and without duty of independent inquiry” to cut off any duty to exert some due diligence. This seems to me to be the safest practice. Crystal, to your point about ethics: while the purpose of putting an agreement down on paper is to make that agreement clear, I don’t think it’s my job to lecture or instruct the other side that it may be asking for a expanding word when you believe it is a limiting word. Lawyers often allow the other party to live with its belief of what a word does – expand or limit. Is this trickery? In most cases I don’t think so. We’re all educated adults. And for all you know, the other person may be right and you may be wrong and you may be doing your client a disservice. A bit of relativism here. See the disagreement between Judge Bork and Judge Wright in Ira’s post. However, when I think the other lawyer is making a bad mistake, I point that out and recommend that he/she not do that. Then it’s up to them. Most situations are not as obvious as when people thought the world was flat and that the moon was made of green cheese.