Question

Joe sells his dry cleaning business to Shirley. During the negotiations, Joe tells Shirley that the...

Joe sells his dry cleaning business to Shirley. During the negotiations, Joe tells Shirley that the business has turned a profit for the last five years. In reality, the business operated at a loss for each of those years. Which of the following statements best follows?

1.Joe's statement regarding profitabilty is not material.

2.Joe's statement regarding profitability might support a claim for misrepresentation or fraud.

3.Joe's statement regarding profitability might support a claim for misrepresentation, but not fraud.

4.Joe's statement regarding profitability is only his opinion, so would not support any cause of action that Shirley might allege.

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Answer #1

Option 2) Joe's statement regarding profitability might support a claim for misrepresentation or fraud.

Joe's statement regarding profitability might support a claim for misrepresentation or fraud because Joe is knowingly making a claim knowing that he has suffered a loss for the last 5 years but still she says to Shirley that he has made a profit in order to sell Shirley his business. Since, this is an example of an act which is intentionally done by one party so as to influence the other party to enter into a contract, this might support a claim for misrepresentation or fraud.

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