How does due diligence differ from due care Why are both important - Essay Example

Due Diligence and Due Care Due diligence is by definition, the act of investigating, checking, or assessing the action of a person or business entity prior to the signing of a contract. It is the method by which a standard of care is established in order to ensure that the principles of valuation and share holder value analysis are met on a uniform level. This investigation is normally a voluntary act that helps to answer certain questions pertaining to the method by which a contract or deal is closed by a person or company with other business associates.

Due care on the other hand, is most often defined as the test of liability for negligence whenever there is a question as to whether a person acted in an ordinary and reasonable manner in terms of certain instances considered to be an issue at the time. Each person who enters into a business arrangement, negotiation, or contract usually based upon certain everyday concerns that can be addressed without having to take extra ordinary measures. Due care insures that the agreement was not entered into in a haphazard manner by either party and that the contract or arrangement does not have any adverse effect on the parties concerned.

Both due diligence and due care are important aspects of contractual agreements because these two factors, once proven to exist in any contract, could be used to negate or void any agreement based upon legal standards. It is therefore imperative that both parties entering into any agreement ensure that due care and diligence are properly exercised in the creation of the contract and its terms and conditions.