Also known as: knowledge qualifier · knowledge qualification · knowledge qualifications · knowledge qual · to the knowledge of
Written by attorneys — see sources below.
A contractual drafting device that limits the scope of a representation or warranty to matters within a party's actual or constructive knowledge. The qualifier reintroduces an element of awareness into statements that would otherwise impose strict liability for inaccuracy and thereby shifts the risk of undiscovered facts back to the recipient.
Kai Kwon retained Kinetic Solutions to locate a cloud vendor. Kinetic Solutions inserted a knowledge qualifier into its recommendation representation stating the statement was accurate to its knowledge. When the undisclosed ownership later surfaced, the qualifier limited liability to matters within the agent's actual or constructive knowledge.
Kyle Knight pressured Kiana Kwan to allow access to her land by threatening suit. The entry consent contained a knowledge qualifier that Kiana knew of no duress. The qualifier limited the representation to facts within Kiana's knowledge at signing.
Kaiser Dynamics acted for both Khalil Kabir and Kava Pharmaceuticals in a single transaction. The engagement letter included a knowledge qualifier requiring disclosure of all facts the agent knew would affect either principal's judgment. When the qualifier was invoked, the agent had to prove it had revealed its dual role and any material information within its knowledge.
Knowledge Partners sold a coolant compounded under a secret formula. Its datasheet used a knowledge qualifier stating the product was safe when used as directed to the manufacturer's knowledge. After workers suffered lung damage, the qualifier limited the representation to facts within the manufacturer's actual or constructive knowledge.
TSC Industries issued a proxy statement containing a knowledge-qualified representation that no material facts had been omitted. Northway challenged the statement after discovering undisclosed conflicts. The knowledge qualifier required Northway to show the omitted facts were within TSC's actual or imputed knowledge at the time of the solicitation.
In February 1969 National Industries, Inc. acquired 34% of TSC Industries, Inc.'s voting securities from Charles E. Schmidt and his family. Schmidt, TSC's founder and principal shareholder, resigned from the board along with his son. Five National nominees then joined TSC's board. Stanley R. Yarmuth, National's president and chief executive officer, became chairman of the TSC board. Charles F. Simonelli, National's executive vice president, became chairman of the TSC executive committee. On October 16, 1969, the TSC board, with the National nominees abstaining, approved a proposal to liquidate and sell all of TSC's assets to National in exchange for National Series B preferred stock and warrants. On November 12, 1969, TSC and National issued a joint proxy statement to their shareholders recommending approval of the proposal. The proxy solicitation succeeded. TSC entered liquidation and dissolution, and the share exchange was completed. Northway, Inc., a TSC shareholder, filed suit on December 4, 1969, in the United States District Court for the Northern District of Illinois against TSC and National. The complaint alleged that the joint proxy statement violated section 14(a) of the Securities Exchange Act of 1934 and Rules 14a-3 and 14a-9. It claimed the statement failed to disclose that the Schmidt interests transfer had given National control of TSC. It also claimed the statement omitted material facts concerning the degree of National's control over TSC and the favorability of the transaction terms to TSC shareholders. The District Court denied Northway's motion for summary judgment on liability. The Court of Appeals for the Seventh Circuit affirmed that a genuine issue of fact existed regarding whether National had acquired control through the Schmidt purchase. This precluded summary judgment on the Rule 14a-3 claim. But the court reversed on the Rule 14a-9 claims and ordered partial summary judgment for Northway. It held that certain omissions were material as a matter of law. The Supreme Court granted certiorari to address the standard of materiality applied by the Court of Appeals.
View caseAn unqualified representation imposes liability for inaccuracy regardless of the speaker's awareness. A knowledge qualifier limits the statement to facts the speaker actually or constructively knows, so the recipient bears the risk of unknown matters.
No. The qualifier still requires the agent to disclose all facts the agent knows or should know would affect the principal's judgment. Failure to reveal a material conflict breaches the duty even when the representation is knowledge-qualified.
The qualifier fails when the manufacturer knows or should know that expected users cannot understand the directions. Liability arises if the manufacturer does not exercise reasonable care to communicate safety information in an accessible form.
…with a written proxy statement containing the information specified in Schedule 14A.” Schedule 14A, Item 5 (e), requires: “If to the knowledge of the persons on whose behalf the solicitation is made a change in control of the issuer has occurred since the beginning of its last fiscal year, state the name of the person or persons who…