Reference no: EM132296720

Olufsen Publishing Company (Olufsen) decided to buy an integrated business system consisting of new printers for its primary business together with other peripheral equipment.

Michael Kane, Chief of Olufsen’s Purchasing Department, told his subordinate, John Mel, to make the purchase from Semi Systems (Semi), a manufacturer and supplier of business equipment. When Mel told Kane that Semi Systems had a reputation for shoddy equipment, Upman said: “Don’t worry – even though Semi Systems has that reputation, their price is very low, and if something goes wrong, we’ll sue them for fraud and end up getting a further price reduction!”

After his conversation with Kane, Mel met with a sales representative for Auto, and made a contract for the needed equipment with Semi on behalf of Olufsen. At the insistence of Olufsen, and with the assurance by Semi’s sales representative that only new parts and components would be used, the contract with Semi contained, among its terms, a specification that only new components or parts would be used in assembling the equipment to be delivered to Olufsen.

At the time of the making of the contract, the Auto representative was aware that at least some of the components and parts would be used or refurbished, rather than new. This was not told to Mel or anyone else at Olufsen.

Soon after delivery to Olufsen, a series of break-downs occurred. A repairperson Olufsen hired to fix the equipment brought to Olufsen’s attention that many of parts which had failed showed serious signs of wear and prior use, were not new, and that that situation probably existed throughout the system.

Olufsen started a lawsuit for fraud against Semi, since Olufsen had already lost profits on printing jobs they were unable to accept due to the breakdowns, and had decided to use another supplier for future equipment purchases.

Please decide if Olufsen should be successful in its lawsuit. In so doing, mention all the legal rules or elements necessary for success in a fraud lawsuit, and choose and mention facts from the problem which, together with your analysis, show that each necessary element or rule has (or hasn’t) been met.