Independent Due Diligence Blunts Justifiable Reliance Argument In Real Estate Purchase Transaction. – Real Estate and Construction
Independent due diligence dulls legitimate arguments of trust when buying a property.
December 29, 2021
Marshall, Dennehey, Warner, Coleman & Goggin
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The Pennsylvania Superior Court recently upheld that the court is dismissing willful misrepresentation, negligent misrepresentation, and fraud in the inducement claims against a sales agent who drafted a prospectus and the owner of a real estate complex on which the buyer performed his own due diligence, on closing a Transaction that was ultimately financially unsustainable. The plaintiff requested additional documentation (which revealed financial discrepancies) and consulted an accountant and attorney before purchasing. The prospectus also stated in the relevant part that the broker had not checked the books or records and did not guarantee the accuracy of the information and that the lease excluded any claims outside of the document.
Thus, the court found that if the plaintiff had completed his own due diligence after receiving the prospectus, he would not be able to meet the required element of legitimate expectations.
From a practical point of view, this case assists in defending the lack of legitimate confidence at the summary judgment stage where a plaintiff was performing their own due diligence, including requesting additional information, identifying inconsistencies in the financial records, and engaging outside experts advisory role. These activities undermine a plaintiff’s alleged reliance on representations or misrepresentations where independent efforts have been made to independently verify or investigate the information provided.
Legitimate Reliance is a required element of a claim for negligent misrepresentation, willful misrepresentation, and fraud. Therefore, the availability of this argument, that is, a party’s failure to satisfy legitimate reliance on any of the above causes of action, has far-reaching implications for the practice of dispositive filing in Pennsylvania, particularly in the context of professional defense, which is often associated with proliferation engaged of information so customers can make financially motivated decisions.
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