Question

Elizabeth purchased a business from Phillip. During the pre-contractual negotiations, Phillip said, based on past experience, he expected that the business would earn approximately $1.5 million per year. After that statement was made, but before the contract was signed, Phillip learned that his main supplier was going out of business. Phillip realized that purchasing materials from another manufacturer would significantly cut into his business, likely reducing its expected earnings to $700,000 per year. Afraid that that news would scare off Elizabeth, Phillip decided to keep the new information to himself. Elizabeth completed the purchase of Phillip's business, but was very disappointed when it earned only $700 000 in its first year. She now wants to sue Phillip. Which of the following statements is TRUE?

a. Since Phillip's statement was innocently made, Elizabeth will only be entitled to damages in tort.
b. Phillip cannot be held liable because his statement was an opinion about the future.
c. Phillip cannot be held liable because Elizabeth ought to have independently confirmed his statements.
d. Elizabeth cannot successfully sue unless she can prove that Phillip 's statements regarding the business's profits became a term of their contract.

Answer 1

Elizabeth cannot successfully sue unless she can prove that Phillip's statements regarding the business's profits became a term of their contract.

Step-by-step explanation:

The correct statement is d. Elizabeth cannot successfully sue unless she can prove that Phillip's statements regarding the business's profits became a term of their contract.

In this scenario, Phillip's statement about the expected earnings of the business was made during pre-contractual negotiations.

However, this statement does not automatically become a term of their contract.

Elizabeth would need to show that both parties intended for this statement to be a contractual term and that it was relied upon by her in making the decision to purchase the business.

It is important for parties involved in negotiations to clearly outline the terms of the contract in writing to avoid misunderstandings and disputes.