A buyer’s lead lawyer once asked me, around midnight on the last drafting pass before signing, whether we could just delete the sandbagging clause and call it a day. The seller had pushed in an anti-sandbagging carve-out two drafts back, the buyer had countered with a pro-sandbagging insert, and the markup was now a three-way sentence with five commas and a parenthetical. He wanted to know whether silence would actually leave his client worse off.
The honest answer is one most deal lawyers do not give cleanly. In Delaware, silence does not leave the buyer worse off. It leaves the buyer roughly where most clients want to be — and a fair number of the anti-sandbagging clauses being papered in 2026 actually trade away a default the seller’s lawyer thought it was buying.
The sandbagging fight is one of the most over-drafted and under-understood corners of a private acquisition agreement. It is also one of the few places where reading the case law carefully changes the negotiation posture in a way the standard form does not capture.
The Delaware default is pro-sandbagging — but it is not a Supreme Court rule
The conventional summary is that Delaware is a pro-sandbagging jurisdiction. The summary is correct as far as it goes. The Court of Chancery has, in a now-familiar line beginning with the 2007 Cobalt Operating v. James Crystal Enterprises opinion and continuing through Universal Enterprises Group v. Duncan Petroleum in 2013 and the more recent Arwood v. AW Site Services in 2022, treated contractual reps and warranties as bargained-for allocations of risk that do not require reliance for recovery. A buyer who knew about a breach can, on the Chancery’s view, still sue on the breach after closing, because the rep was the seller’s promise that the fact was true, not an inducement the buyer must show it relied on.
That framing is sensible. A representation is a contract term, not a tort. The buyer pays for the rep with negotiating concessions or with a higher price, and the seller’s later defense that “you knew anyway” treats the rep as a tort rather than a bargain.
The complication is that the Delaware Supreme Court has never actually decided the issue cleanly. The closest the Court has come is dicta in Eagle Industries v. DeVilbiss Health Care in 1997 and a handful of footnotes since, none of which squarely confront a buyer who had pre-closing knowledge and then sued on the rep. Every time the issue has come up, the case has resolved on something else — a fraud claim that required reliance, a contractual provision that obviated the question, or a factual finding that the buyer in fact did not know. The Court of Chancery has been confident in stating the default; the Supreme Court has been careful not to lock it in.
That matters at the drafting table. A buyer who walks into a Delaware-governed agreement with no sandbagging clause is operating on a default the Chancery has stated firmly and the Supreme Court has never disturbed. A seller who wants to flip that default has to do real drafting work to do it. And a buyer who insists on a pro-sandbagging clause is, much of the time, asking for a belt and suspenders the contract was already wearing.
The fraud carve-out is where the real fight lives
The reason the Supreme Court has been able to duck the pure sandbagging question is that most live disputes involve fraud claims rather than breach-of-contract claims, and the doctrinal posture is different for fraud. A common-law fraud claim still requires reliance. A buyer who actually knew, with documentary proof in its own files, that a particular rep was false, will struggle to make out a fraud claim even in Delaware. The contractual claim survives; the fraud claim does not.
That asymmetry has consequences a clean reading of the case law makes obvious but the standard form usually misses. A buyer who wants to preserve both claims should not be drafting a pro-sandbagging clause; the contractual claim is already protected. It should be drafting a non-reliance clause carefully to preserve fraud claims based on the contractual reps themselves, and it should be making sure the disclosure schedules are not constructed in a way that imputes broad knowledge to the buyer’s deal team. The seller who wants to defang the fraud claim is the one with work to do — and the way to do it is to push aggressive non-reliance language, not to negotiate an anti-sandbagging clause whose actual function is to limit contractual recovery the seller probably could not have prevented anyway.
The 2022 Arwood decision is the cleanest current articulation of where the line sits. The Chancery reaffirmed that knowledge does not defeat a contract claim, but emphasized that the non-reliance and integration clauses do real work on the fraud side. A drafter who treats the sandbagging negotiation as a single fight is paying for one clause and getting half the protection.
Anti-sandbagging clauses, drafted the way they usually are, overshoot
The standard anti-sandbagging clause says, roughly, that the buyer cannot recover for any breach of a rep or warranty to the extent the buyer had “actual knowledge” of the breach before closing. The clause is usually accepted by the buyer’s side without much push because the diligence partner views it as a fair allocation — if the buyer actually knew, the buyer should not get to collect.
That framing collapses three different concepts the contract should keep separate.
First, “actual knowledge” needs a defined-term anchor. Whose knowledge counts? The deal team, the broader company, the company’s outside advisors, the bankers? A clause that does not name a knowledge group invites litigation about whether the buyer’s outside accountant’s awareness of an environmental issue is imputed to the buyer. A buyer with any leverage at all should fight for a closed list of named individuals — the same approach a well-drafted seller’s knowledge qualifier uses.
Second, “before closing” sweeps in disclosures the seller actively makes during the gap period — and that is the move the seller’s lawyer wanted to win all along. The seller’s disclosure schedule supplement, delivered three days before closing, becomes a get-out-of-jail-free pass under a broad anti-sandbagging clause. A buyer should narrow this to knowledge that existed at signing, or, at minimum, exclude information the seller affirmatively delivers in the gap, so that the seller cannot disclose its way out of a known breach.
Third, the clause should be paired with disclosure-schedule mechanics. The cleanest way to keep an anti-sandbagging clause from doing too much work is to limit what counts as “disclosure” — only documents listed by section number on the schedule, only those expressly cross-referenced in the data room, only items called out in writing, not constructive notice from a 10,000-document VDR with no schedule cross-reference. The deal-terms asymmetry on disclosure scheduling shows up in almost every middle-market deal we work on.
A buyer who concedes all three of those points has given up real money. A seller who manages to extract all three has bought itself an insurance policy whose premium the buyer is paying.
Pro-sandbagging clauses are often vestigial in Delaware
The pro-sandbagging clause, by symmetry, often does less than the buyer’s lawyer thinks. In Delaware, the default already runs in the buyer’s favor. A clean pro-sandbagging insert mostly confirms the default. The only situations where it adds real protection are governing-law clauses that point somewhere other than Delaware or New York — California, in particular, leans anti-sandbagging on the case law as it currently stands, and a few other states have unsettled rules.
The drafting move that does add protection is different. A pro-sandbagging-plus-fraud-preservation clause — pairing a confirming pro-sandbagging statement with carefully drafted fraud carve-outs from any non-reliance language — gives the buyer a contractual claim that survives knowledge and a fraud claim that may survive knowledge if the misrepresentation was scienter-bearing. That two-track approach is what the cases actually reward. The single-line pro-sandbagging clause does not.
The middle path most agreements should land on
When I am running drafting from the buyer’s side on a Delaware-governed deal, my first instinct is to leave the sandbagging clause out entirely. The default is favorable. A negotiated clause invites a counter, and the counter usually carries more risk than the original silence. I push for tight non-reliance carve-outs that preserve fraud claims, tight disclosure-schedule mechanics that prevent gap-period dumps from immunizing breaches, and a closed list of named buyer-side knowledge holders. Those three moves do more work than any sandbagging clause and leave the underlying default doing the heavy lifting.
From the seller’s side, my instinct is the opposite — push for an anti-sandbagging clause and define the buyer’s knowledge group broadly. But I am candid with my seller clients about what the clause actually buys. A well-drafted anti-sandbagging clause does not defeat a contract claim outright; it shifts a factual dispute from the merits to the knowledge inquiry, which most buyers will still survive on summary judgment. Its real value to the seller is in claims handling and reserve setting, not in the underlying merits. If the seller wants to defeat the merits, the non-reliance language is the lever to push, and the disclosure schedules are the place to do the careful work.
For M&A buyers and sellers who are looking at the standard form and trying to figure out whether to fight the sandbagging clause at all, the practical answer is usually that the time would be better spent on the disclosure schedules and on the non-reliance and fraud-carveout language. Those clauses do more work than the sandbagging fight, and most agreements under-invest in them by an order of magnitude.
The doctrinal background — Chancery confident, Supreme Court not yet binding, fraud claims operating on different rules than contract claims — is summarized clearly in the April 2025 Harvard Corporate Governance commentary on the Chancery’s latest sandbagging guidance, which is the most current short tour of where the lines sit.
If you are drafting or negotiating sandbagging or non-reliance language on a pending deal, feel free to reach out to my firm manager, Magda, at Magda@montague.law, or fill out our contact form. Mention you read this post.
— John
