QUESTION
If a business seller sign stating that the business is free of debt, but later is found that it is not. Is this considered fraud?
Asked on Jun 28th, 2016 on Business Law - Texas
More details to this question:
6 month ago we bought a business and the seller sign a paper stating that the business was free of debt, but later we found that there are several city permits from previous year that wasn't paid and in order to get the new permit we have to pay the previous year unpaid permit. There is also some taxes that have not been paid that must be paid also. So what I need to know is if this can be considered fraud and if there is chance to start some legal actions against the seller as that person did not said the true during the transaction. Thanks.
1 ANSWER
1 Award
If the seller misrepresented the debts of the business, then it may be considered fraud. Fraud requires a knowing misrepresentation upon which you relied to your detriment.
Here, it appears that you relied on the seller's statement that the business was debt free when you decided to enter into the transaction, and now, as the owner of the business, you must pay these outstanding obligations in order to operate the business, which you just bought.
So, as to fraud, the question is whether the seller knew about the permit and tax issues when he represented there were no debts.
There are other potential causes of action which may also apply to your situation, e.g. negligent misrepresentation and breach of contract.
Answered on Jun 29th, 2016 at 7:13 AM