Is a business brokerrequired to conduct due diligence before representing to a buyer the net profit ofa business?

I relied solely on the broker’s reputation as having a perfect record with BBB, and 100% feedback satisfaction, and also their reputation as being a premier seller/ buyer and broker, as due diligence for buying a vending route. Broker Represented: –Machine 1= $700 net/ month, Location 1= 150 Employees have access to the machine –Machine 2= $600 net/ month, Location 2= 130 Employees have access to the machine Actual –Machine 1= $200 net/ month, Location 1= 100 Employees have access to machine –Machine 2= $150 net/ month, Location 2= 100 Employees have access to machine Can I rescind?

Asked on November 4, 2011 under Business Law, Maryland


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

There are actually two different issues presented by your question.

1) Can you rescind? The answer is maybe...if a contract is founded on fraud, or a deliberate misrepresentation, it can often be rescinded; it can also often be rescinded if there was some fundamental mistake, such that the contract was premised  on a set of facts which did not exist. However, in both instances, if the party which wants to rescinid had access to the true state of facts, or could--and should--have determined them for itself, then they may negate the right to rescind; the law imposes an obligation to not go into a deal or transaction or contract with eyes closed, but rather to take reasonable steps to ascertain the true state of affairs. Depending on the exact circumstances, it may be that you should have verified this information before enteringin to the deal--for example, asked to review the actual financials; visited the locations and/or spoken to someone at the locations; etc.--and so might not be able to rescind. It is certainly an option worth exploring, however, and since the facts are so critical, you should discuss this in person with an attorney who does business litigation.

2) Does the broker have an obligation to conduct due diligence? As a general matter,  no--the broker is not a fiduciary of yours. However, if the broker represented that he had conducted due diligence (instead, for example, of saying that he was relying on the information provided to him by the seller, and that the buyer needs to conduct his own due diligence), he may be bound by that representation and you may have a cause of action against him. This is something else to discuss with your attorney.

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