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Due Diligence in Modern Mining Deals: How to Protect Your Client From Buying a Pig in a Poke

Dean R. Massey, Proceedings of 33d Annual Rocky Mountain Mineral Law Institute (1987)

From a traditional perspective, due diligence is the investigation undertaken by the buyer during the period between the execution of a purchase and sale agreement and the closing of a transaction. In ordinary contract negotiations, a tension [2-3] develops between the seller's desire to limit the scope of his representations and warranties and the buyer's desire to expand them. Ultimately an accord is reached and an agreement executed. The due diligence investigation then emerges as a bridge between the respective positions of the buyer and seller in the contract negotiations. Due diligence functions to limit the seller's potential exposure to claims of fraud, misrepresentation, or failure to disclose, by providing the buyer with a full and fair opportunity to inspect the premises and confirm the representations and warranties. Accordingly, in most transactions in which the buyer and seller are of approximately equal sophistication, the seller often emerges with substantial contractual protection from future liabilities relative to the buyer. Therefore, the buyer cannot depend upon representations and warranties alone. In most cases, the buyer's sole protection from buying into unforeseen liabilities associated with the properties, i.e., buying a pig in a poke, may ultimately lie in its ability to complete a satisfactory due diligence inquiry that verifies the representations