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Pallante v. Vargish

ESX-L-5303-99 (N.J. Super. Law Div. 2001) (Unpublished)

CONTRACTS; REPRESENTATIONS—A commercial buyer’s abject failure to try to verify the factual underpinnings of a seller’s statements of value cannot form the basis for a finding of fraud or negligent misrepresentation.

A buyer bought a car wash business and leased the premises on which was situated. During negotiations, the seller represented to the buyer that it could expect to gross a particular level of sales and could expect to net a particular profit. The seller furnished the buyer with an analysis he prepared of his income for three years (and of expenses for two years). Those documents substantially verified the oral representation of profitability. The buyer “chose to rely solely upon the written and oral representation of past profitability to predict future viability and failed to take any steps to verify the accuracy of the reports prepared by a seller obviously motivated to maximize the value of the business he was selling.” After closing, the buyer experienced significantly lower gross revenues and significantly lower operating income. A bench trial was held and the Court analyzed the matter as an allegation of fraud and negligent misrepresentation, and not as a breach of the contract. “Absent fraud, mistake, duress, unconscionability or illegality, parties are bound by the agreement executed by them even if it turns out to be a poor deal.” In this case, the Court was not convinced by a preponderance of the evidence that any misrepresentation was made, intentional or otherwise. “The fact that the income and expense information provided to [the buyer] was not substantially accurate was never satisfactorily demonstrated.” Further, the Court cited a 1932 case which held that “[r]epresentations by a seller as to the value of his property are not usually a basis for a claim of fraud… Value is a matter of opinion.” It also held that the failure of a buyer to verify the factual underpinnings of a seller’s statements of value cannot form the basis for a finding of fraud or negligent misrepresentation. “More is expected from buyers in such non-consumer transactions.” Further the buyer failed to demonstrate that its reliance on any representation by the seller was reasonable or justifiable. In the Court’s words, the buyer’s “abject failure to take any steps whatsoever to verify the income and expense history of the business or the condition of the equipment being purchased, doomed its future from the outset. If the business is failing or if you pay too much for it - [buyer] had only himself to blame for the failure to take the necessary steps to verify the claims being made.”


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