A guarantee is a contractual clause whose violation gives the innocent the right to claim damages, but not to consider the contract as rejected. A guarantee may therefore, with a condition allowing the innocent party to consider the contract as rejected, and an „intermediate“ (or „innominate“) term that may give the innocent party the right to treat the contract as rejected, depending on the nature and consequences of the breach.2 One of the main ways in which a buyer will attempt to protect himself in a transaction is one of the most important options in which a buyer will attempt to protect himself. in a transaction. that the seller is obliged to take guarantees on the transaction in the company. If it later turns out that the warranty was inaccurate and the buyer loses, the buyer may have corrective action against the seller. Loss caused by a breach of compensation can often be easier to quantify than a loss caused by a breach of the warranty, since the counter-arguments of reduction and removal do not apply. The compensated party can simply claim the full amount of damage caused to it by the compensated event that occurred. A breach of the warranty is an offence. If a guarantee is breached (i.e. if it is found to be false), the victim can claim damages from the entitled party.
The purpose of this damage is to put the victim in the same position as he would have been if the breach of the warranty had not occurred. The specific calculation of damages and the factors taken into account vary depending on the type of contract and the type of guarantee that was breached. In most cases, the loss of debt due and payable (based on the size of compensation) relates to quality issues such as the profitability of the target company. In the event of a breach of the guarantee, the amount of damage is calculated taking into account the market value of the target company if the guarantee were true and deducting the actual market value of the target company3. From the buyer`s point of view, compensation is more advantageous – the recovery procedure is less cumbersome and there are no general compensation regulations. However, the allowances are strictly interpreted and, if there is any doubt as to their construction, they are resolved in favour of the party compensated. Guarantees are interpreted by courts that apply ordinary building principles, that is, by finding what a reasonable person would mean by the language in which the parties have expressed their consent. Another method to protect the buyer`s interests is the so-called compensation clause, which is normally used in a share purchase agreement when the due diligence examination reveals irregularities in the company`s tax treatment. For the buyer, it is less difficult to make claims against the seller under an agreement with such a clause than on the basis of guarantees. In the case of a security application, the buyer must prove that the seller breached the warranty and prove that the buyer was not aware of the breach and that he suffered damage as a result of the breach. In this case, the success of the debt may depend on the establishment of specific provisions of the share purchase agreement. A warranty is subject to contractual mitigation rules, i.e.
the buyer is responsible for reducing the losses resulting from the breach of the warranty. On the other hand, the buyer is not clearly obliged to reduce his loss in the context of compensation. However, it can be concluded (in the absence of explicit words) that the parties must intend to seek compensation in the event of a breach of payment corresponding to compensation for breach of interest.