Every transaction to some extent is based on trust. At least a buyer trusts that a seller is not actively trying to defraud him. But, when is that trust reasonable? That question is important because a buyer claiming fraud must, among other facts, show that it was reasonable for him to rely upon the representations he claims misled him. The recent decision in Edinburgh Holdings v. Education Affiliates, Del. Ch. C. A. 2017-0500-JRS (June 6, 2018), illustrates the importance of pleading facts that support a claim of reasonable reliance on a seller’s representations.
Briefly, Edinburgh involved a claim by the buyers of a business that the seller fraudulently represented the business’s future profits. The trial court granted a motion to dismiss the buyers’ claim holding the “buyers were not justified in relying on [the sellers] alleged extra-contractual representations regarding future performance of the business and management capabilities.” Importantly, this result followed even though the sale agreement did not contain an anti-reliance clause.
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