Purchasers of Businesses Should Not Rely On the Representations of the Sellers

Prospective business purchasers should diligently verify the accuracy of a sellers representations because misrepresentations made by sellers sometimes are inactionable under Florida law. Florida courts routinely apply the doctrine of caveat emptor, otherwise known as the buyer beware doctrine, to preclude misrepresentation claims that arise out of commercial transactions. See Transcapital Bank v. Shadowbrook at Vero, LLC, 2017 WL 3169271, at *4 (Fla. 4th DCA July 26, 2017) (citing Wasser v. Sasoni, 652 So.2d 411, 412 (Fla. 3d DCA 1995) (“[T]he doctrine of caveat emptor, or ‘buyer beware,’ is still the common law rule applied to purchasers” in commercial transactions)). The buyer beware doctrine places the burden of diligence on consumers. Prospective business owners must, at a minimum, try to make an assessment of a seller’s representations concerning the business before purchasing the business. Courts are generally not sympathetic to seemingly imprudent would-be plaintiffs. The Fort Lauderdale office of the Mavrick Law Firm advises businesses sellers and prospective purchasers on issues concerning the sales of businesses.

Exceptions to the buyer beware doctrine exist. Purchasers may be able to prevail in misrepresentation claims if they can prove that: 1) a trick was employed to prevent the purchaser from making independent inquiry; 2) the purchaser did not have an equal opportunity to become apprised of the misrepresented fact; and, 3) the seller disclosed some facts but failed to disclose the whole truth. Transcapital Bank, 2017 WL 3169271, at *5. However, the exceptions do not apply to commercial transactions between sophisticated parties. See Wasser v. Sasoni, 652 So. 2d at 413 (“where the parties are equally sophisticated, and have an equal opportunity to discover a defect…a negligent purchaser is not justified in relying upon a misrepresentation which is obviously false, and ‘which would be patent to him if he had utilized his opportunity to make a cursory examination or investigation’”). Courts expect relatively sophisticated buyers to use their acumen to screen out deceptive tactics.

If prospective purchasers have any doubt regarding the viability of the buyer beware doctrine, the Fourth District Court of Appeal’s recent decision in Transcapital Bank v. Shadowbrook at Vero, LLC, is instructive. The court found that the buyer beware doctrine entitled the defendants to a judgment as a matter of law on the plaintiffs’ fraudulent misrepresentation claim. See 2017 WL 3169271, at *5 (“Even if … defendants … misrepresented the property’s appraised value, such a misrepresentation would not be actionable under the doctrine of [buyer beware] in the absence of … fraudulent means in preventing a prospective purchaser from making an examination of the property under consideration”). Therefore, prospective purchasers have a duty to protect themselves when evaluating the representations of the seller of a business. Moreover, if purchasers have doubts about the validity of a seller’s claims, they may want to protect their interests by avoiding certain contractual terms that could prevent a misrepresentation claim. See Wasser v. Sasoni, 652 So. 2d at 413 (holding that contractual provisions such as “integration clauses … are recognized as valid defenses to claims of fraud [ and misrepresentation]” when there is no evidence that the contract induced by fraud.) Moreover, fraud can be difficult to prove as “there must be evidence of ‘the [speaker’s] knowledge that the representation is false.” MDVIP, Inc. v. Beber, 42 Fla. L. Weekly D1248 (Fla. 4th DCA May 31, 2017). In sum, purchasers who do not make best efforts to evaluate a business do so at their own peril.

Peter T. Mavrick has successfully represented many buyers and sellers of businesses in commercial disputes. This article is not a substitute for legal advice tailored to a particular situation. Peter T. Mavrick can be reached at: Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311.