In allocating responsibility for losses and liabilities, parties to a real estate transaction rely on express contractual provisions that are negotiated for the transaction at hand, guided by legal principles that apply to transactions generally. In an agreement for the purchase and sale of real estate, the seller customarily makes representations about matters such as its ability to enter into the transaction, litigations affecting the seller or the property, leases and other agreements affecting the property, the seller's disclosure of environmental reports for the property, title to the personal property used in connection with the real estate, and notices from governmental authorities regarding condemnations, assessments and violations with respect to the property.

The buyer, in turn, typically disclaims reliance on actions or statements other than the seller's express representations in the agreement and the buyer's own due diligence. In this way, the seller seeks to limit its exposure to matters that lie within its knowledge and control and that it has had an opportunity to vet, and the buyer seeks to make the seller disclose—and to establish a right to sue the seller after closing for failing to disclose—matters that the buyer is generally unable to uncover through its independent diligence.

In striking this balance, however, the parties are not always aware of the interaction between these contractual provisions and the principles of law operating in the background, particularly laws pertaining to fraud.