Last week we examined an appellate case dealing with a poorly thought out severance agreement. This week's case involves the purchase of an existing insurance agency that didn't produce the post-sale level of business the buyer expected. When business wasn't as good post-sale, the buyer sued the seller for fraud, breach of contract, that the seller failed to shred the old client files as promised, and allegations that the seller improperly diverted business to his wife's competing insurance agency. The seller also sued the buyer when the buyer failed to make the monthly payments on the promissory note for the purchase of the business assets. The seller additionally claimed that the post-sale agency suffered business losses due to the poor management of the buyer.
The case was tried to a Judge. The Court eventually found that the seller failed to shred all the files as agreed and therefore breached the contract. However, the Court noted that the seller's breach was not material, and thus the buyer was not relieved of its obligations to pay on the note. Rather, the Court noted the buyer's after-the-fact arguments of breached contract were hyper technical. Further, the Court found that the buyer fully disclosed all matters to the seller before closing and thus the seller had a complete picture at the time of the sale. Finally, the Court found that the buyer not only owed the remaining balance of the promissory note, but that the payments were accelerated so that the entire balance was now due. In other words, the buyer lost.
Buying or selling a business or its assets requires careful deliberation, time, and attention to details. This process necessarily involves working with professional advisors in the accounting and legal industries. Crafting the correct documents in advance is crucial, although this doesn't guarantee that litigation won't occur. When litigation does arise, as in this case, understanding the issues and big picture as opposed to relying on hyper technical arguments may result in a smoother resolution.
Ensures, LLC v. Douglas S. Oliver, et al., No. M2014-00410-COA-R3-CV, (Tenn. Aug. 31, 2015).