Legal Question in Business Law in California

I bought a business from a corporation that I found out after the sale was dissolved. They presented themselves as still being in business and never disclosed that they were dissolved. In fact, they were still buying and selling as usual. I paid much too much for the business because they falsefied their tax returns and In the course of buying the business the sellers also assigned their lease to me which was way above market value. The land lord was aware - and think might have been envolved in what I consider to be fraud. Do I have a case?


Asked on 6/01/11, 3:56 pm

5 Answers from Attorneys

Aaron Feldman Feldman Law Group

It sounds like you were purchasing the business, not the corporation. So I am not sure how significant it is that the corporation was not in good standing. The fact that you relied on false financial information is an issue and an attorney would need to review the purchase agreement to see if you waived any rights. Many agreements contain due diligence provisions that state that you are not relying on information, etc.... The lease they assigned was the lease they had. Many leases entered into before the economic downturn are at rates that are no longer competitive, but I don't think they misrepresented their lease. They offered to assign the lease and you accepted it. They did not have any obligation to renegotiate their existing lease. You need to take your purchase agreement and related documents to a lawyer and have them reviewed.

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Answered on 6/01/11, 4:17 pm
Terry A. Nelson Nelson & Lawless

Depends. If you can prove actual fraudulent concealment and misrepresentation of the books, income, sales, inventory, orders, capital value, etc., then sure, you can sue. If you were simply negligent by failing to conduct an effective 'due diligence' investigation about what you were buying, then a law suit is going to be money and time wasted. Now, if you think you can prove what is needed, feel free to contact me to discuss the actual facts, costs, risks and rewards of suing.

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Answered on 6/01/11, 5:22 pm
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

The "dissolved corporation" part of your argument is a waste of time, as I tried to point out in my previous answer to your mid-day version of your question. As far as the tax returns go, most businesses that "fudge" their returns will be trying to look LESS profitable than they really are. You should have had them give you permission to ask the IRS for copies of the as-filed originals.

As far as fraud goes, you will need to plead and prove a material mis-representation of fact, or concealment of a material fact; that you relied upon the misrepresented or omitted fact in deciding to buy or how much to pay, that such reliance was reasonable, and that you suffered harm as a result of your reliance.

If you can do so based on admissible evidence, a suit for fraud may be worth while, and you should discuss the possibilities with a lawyer. However, the status of the corporation as dissolved adds nothing to your possible complaint, nor is it likely that the overpricing of the premises lease adds anything unless it was concealed. Courts will not compensate you for paying too much.

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Answered on 6/01/11, 9:41 pm
Shawn Jackson The Jackson Law Firm, P.C.

Well, the first question is whether you bought the shares of the assets of the corporation. Second, I would assume that you have a written purchase agreement that spells out the various seller warranties on such transferring of assets or shares. So, in order to fully answer your question, you will want to select an attorney and provide him/her with a copy of the purchase agreement. Often your rights and responsibilities will be detailed in the signed agreement.

By Grace...

Shawn Jackson ESQ. (707) 584-4529

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Answered on 6/03/11, 1:15 pm
Daniel Bakondi The Law Office of Daniel Bakondi

Yes, please email me some basic facts about the business, what kind, how much you paid, key issues.

Best,

Daniel Bakondi, Esq.

[email protected]

415-450-0424

The Law Office of Daniel Bakondi, APLC

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San Francisco CA 94102

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Answered on 7/22/11, 1:50 pm


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