## Facts

- American Family Brands, Inc. (AFB) agreed to purchase a closely held business owned by members of the Giuffrida family.
- The acquisition agreement contained express representations and warranties, including a “no material adverse change”/“no worsening” warranty concerning the company’s financial condition since the last audited financial statements.
- The warranty was drafted to survive for two years and was described as waivable only by AFB.
- During pre-closing due diligence, AFB learned the company’s earnings had sharply declined.
- AFB nevertheless proceeded to sign and close the transaction.
- After closing, the business’s financial condition did not improve, and AFB sued the sellers for breach of the financial-condition warranty and sought damages.

## Issues

1. Under Pennsylvania law governing a business acquisition agreement, must a buyer prove reliance on an express warranty to recover for its breach, particularly where the buyer had pre-closing knowledge that the warranty was inaccurate?

## Decision

- The court rejected the sellers’ argument that AFB’s pre-closing knowledge negated any “reliance” and therefore barred the warranty claim.
- The court treated the claim as a contract-based breach of express warranty, not as a fraud or misrepresentation claim requiring justifiable reliance.
- The court held that Pennsylvania law did not require proof of reliance as an element of a breach of express warranty claim in this setting.
- The sellers were not entitled to judgment on a reliance-based “anti-sandbagging” theory; AFB’s breach-of-warranty claim was permitted to proceed.

## Legal Principles

- An express warranty in an acquisition agreement functions as a contractual promise that allocates risk; liability turns on breach and resulting loss, not on tort-style inducement.
- Justifiable reliance is generally associated with fraud or misrepresentation claims and is not necessarily an element of a pure contract claim for breach of an express warranty.
- A buyer’s pre-closing knowledge of facts suggesting a warranty’s inaccuracy does not, by itself, bar enforcement of the warranty absent clear contractual language (or a clear waiver) negating that right.
- Where the agreement provides for warranty survival and unilateral waiver by the buyer, courts may treat that structure as supporting post-closing enforcement even if adverse information was known before closing.

## Conclusion

The court applied Pennsylvania law to allow a buyer to pursue damages for breach of an express financial-condition warranty in a business acquisition agreement without proving reliance, even though the buyer learned before closing that the warranted condition may have been false.


Giuffrida v. Am. Fam. Brands, Inc., No. 97-4240, 1998 WL 196402 (E.D. Pa. Apr. 23, 1998)