QUESTION 3

Zig and Yul have been negotiating the sale and purchase of Zig’s accounting business. As well as the business, Zig is selling the office property in which the business is conducted. Having inspected the accounts and noting that Zig had six long-term and large clients who brought in a substantial sum of profit, Yul was happy to agree with the asking price of $750k.

In the final discussion just before signing the contract, Yul said to Zig “I’ve just heard that there is a bad infestation of white ants in this part of town. How’s the timber here?” to which Zig replied “Seems OK but you can have it checked if you like. By the way did you hear the news about the local factory which makes car mirrors?” Yul replied “Oh yeh, I heard something about them moving.” Following this conversation they both signed off on the contract.

Yul did not make any inspection for white ants and sadly three months later he discovered the property needed some expensive work done to the roof because the timber had been damaged by white ants. His problems did not stop there because the local factory which Zig had mentioned had not moved to other premises; they had closed their business shortly after Yul bought Zig’s business. Yul discovers they had informed Zig that this was going to happen several months previously.

When inspecting the accounts, Yul had noticed that they were one of Zig’s larger clients but had not thought any more about them. All this meant that the profits Yul had expected had diminished considerably and now he thinks that Zig had cheated him. He thinks Zig should take back the business and refund his money which of course, Zig refuses to do.

Please discuss the arguments that each party will raise in regard to this issue and conclude who has the stronger argument.