Case Law Summaries

Pak v. Han

• Opinion Date: August 3, 2001
• Business Law
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CONTRACTS; PAROL EVIDENCE—In a contract for the sale of a business, a factor as important as gross revenue can be objectively measured and therefore it is not reasonable, as a matter of law, for a buyer to claim reliance on an oral representation from the seller as to the gross revenue previously generated by the business being sold.

A dry cleaning business was sold pursuant to a contract of sale. Much of the purchase price was paid in cash, but the balance was to be paid in 36 monthly payments. Only the first payment was made and the seller sought judgment for the remaining amount, accrued interest, and late charges. The buyer counterclaimed seeking rescission of the contract for fraud and restitution of the cash paid at the time of closing. The buyer claimed that she was defrauded when the seller orally represented to her that the business had annual revenues of what turned out to be nearly three times the actual revenues. The seller claimed that the buyer had ample opportunity to do due diligence prior to closing. In response, the buyer claimed that when she asked the seller for sales receipts, she was told that those receipts were not kept in course of business. The contract contained a provision stating that it was “the entire and only agreement between” the parties and that the contract could “only be changed by agreement in writing signed by both” parties. The buyer claimed that she didn’t understand the contract because it was written in English and her attorney did not explain its terms to her. Instead, the buyer claimed that she relied solely on the seller’s verbal representations to her in Korean. The Court acknowledged that the parol evidence rule prohibited “the introduction of oral promises to alter or vary an integrated written instrument,” but also noted that “the parol evidence rule is not applicable to contracts that are induced by fraud.” Nonetheless, to establish fraud, “a complainant must prove his or her reasonable reliance on a material misrepresentation of fact.” Here, the Court assumed that all of the buyer’s allegations regarding the seller’s misrepresentations were true, but found that the buyer could not have reasonably relied on the seller’s verbal statements. It felt that a fact as important as gross revenue could be objectively measured and therefore it could not be deemed reasonable, as a matter of law, that the buyer relied on oral representations from the seller. The Court also believed that this is especially true where the buyer is represented by counsel. According to the Court, logic dictates that the value of a dry cleaning business is directed tied to gross revenues and that any buyer that would purchase such a business without verifying the business’ sale history, either by sales receipts or by examining the business’ tax returns could not claim reasonable reliance.

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