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Misrepresentation Of Information While Selling Business

Question

Abigail had built up a successful online business, selling dresses and skincare products that were imported from Korea. She decided to sell the business as she wanted to take a break from work. She was approached by Bernard, who expressed an interest in purchasing the business. He asked why the business had been so successful. Abigail replied that it was because “there are no other online shops that sell the same Korean brands as my e-commerce shop” and showed recent newspaper articles that featured her shop to prove her statement. Bernard read the newspaper articles and nodded happily.

Abigail further told Bernard, “I believe that the annual profits for my shop is about $1.5 million.” Bernard asked his accountant, David, to verify and investigate Abigail’s stated level of profits for her business. David confirmed Abigail’s statement but, unknown to Bernard and David, the firm only made around $150,000 profit per year. Bernard asked for a few weeks to consider the proposal to buy Abigail’s business.

During those few weeks, Abigail discovered another e-commerce shop, KFashion, was about to start operations and sell similar brands as Abigail’s e-commerce shop. Abigail failed to inform Bernard of this. Finally, Bernard agreed to purchase Abigail’s business. He subsequently discovered, within a month, the true level of profits as well as the launch of KFashion. Bernard wants to rescind the contract for the purchase of Abigail’s business and has come to you for advice.

Explain to Bernard if he is entitled to rescind the contract, taking into account any limitations imposed by law on his right to rescind. In your analysis, you should identify and evaluate the actions (including any failure to act) of, and the relevant statements made by, Abigail. In your answers, you are required to cite the relevant case law to support your views as well as demonstrate well-developed written proficiency in the flow and content of your analysis.

 

Summary

The question belongs to Law and it discusses about a case where an online business owner tries to sell her business to another person despite hiding the fact that a competitor firm has started and can reduce profits.

Total Word Count 440

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