Delaware Business Litigation Report

Court of Chancery Holds that Purchasers of Small Business Failed to Prove that Sellers Defrauded Them

Homan v. Turoczy, C.A. No. 19220, 2005 WL 2000756 (Del. Ch. Aug. 12, 2005). Plaintiffs bought a small printing and copying business from defendants, who ran the business successfully for 19 years. However, plaintiffs were not so successful. A year after the sale they filed for bankruptcy, closed down the business, and liquidated the company's assets. In their complaint, plaintiffs alleged that the defendants and their agent fraudulently misrepresented the condition of the business and thus sought rescission of the sales agreement. The court held that by waiting over a year before suing, the plaintiffs forfeited any right to seek actual rescission. As a result, the court's opinion after trial only considered whether plaintiffs were entitled to an award of damages for fraud. The court held that plaintiffs failed to prove their fraud claims, as they failed to prove that the defendants made material misrepresentations of fact or that the plaintiffs reasonably relied upon any alleged misrepresentation. The court found it far more probable that the business failed, not because it was not in a sound condition, but because the plaintiffs devoted inadequate attention to the business and never figured out how to market it. Furthermore, the court noted that plaintiffs failed to show that they relied on false representations because they expressly disclaimed any such reliance in three separate writings. Authored by: R. Christian Walker 302-888-6974 rwalker@morrisjames.com Share