Fraud is not only telling someone something that is not true, it is knowingly telling someone something that is not true. It is very difficult to prove.
In addition, in a sale and purchase agreement, the seller and the purchaser typically give representations and warranties to each other about themselves. For example, they will each represent and warrant that they have the legal capacity and authority to enter into the transaction, that the transaction will not conflict with any laws applicable to them or any other contracts to which they are parties, that there is no litigation that is reasonably likely to impede the transaction, etc.
The seller also gives representations and warranties about the company or assets being sold. McLane may have given Crane representations and warranties about the network, its business, financial condition, contracts, actual and threatened litigation and other matters. The seller may qualify the representations and warranties with disclosures. For instance, a seller may represent and warrant, "Except as disclosed in and qualified by Schedule 5, the company is not in material breach of any material contract to which the company is a party." A representation and warranty may also be qualified for knowledge. As an example, the seller may represent and warrant, "There is no litigation pending or, to the knowledge of the Seller, threatened against the company."
If there is a breach of representations and warranties, the breaching party will be liable to the other party for damages. There is usually a minimum of damages that must be reached before a claim can be made, plus a maximum, plus time limits.
The parties will commonly also have a disclaimer and waiver that states that other than the representations and warranties given in the agreement, there are no other representations or warranties applicable to the transaction. This includes any representations or warranties provided by law, except for those that cannot be disclaimed or waived. Neither party can disclaim or waive liability for fraud. There is also typically an exception for forward-looking statements, projections, etc. The seller does not want to be liable for these.
Under Texas and New York law, courts tend to interpret these provisions strictly as written. For example, even if the purchaser could have discovered something by due diligence or knew or should have known about an issue, if the seller gave a representation and warranty that turns out not to be true and correct, the seller may be liable for breach. The parties sometimes deal with this by having the purchaser represent and warrant that the purchaser has no knowledge of any facts or circumstances that would cause the representations and warranties of the seller to be untrue or incorrect, but purchasers are generally unwilling to give such a representation and warranty for obvious reasons.
So due diligence and caveat emptor are not the end of the analysis. If McLane gave representations and warranties that are proved to have been untrue or incorrect at the time of signing the agreement or closing the transaction, then he may be liable to Crane for damages, even if Crane could have looked harder or figured something out himself.
