Legal Question in Business Law in California

Sales of business, missing inventory, AR/AP responsibility

My family and I just recently purchased a hardware & appliance business. The signed addendum to the sales agreement states that the seller must conduct normal operations and that the inventory value at the time of the addendum was $150,000. It also expressly states that the seller will not conduct a clearance sale. It has recently become apparent that the seller 1) did sell items below cost 2) failed to re-order inventory in the preceding months of the change-in-ownership 3) collected on numerous outstanding invoices while we as the new owners had to fill those orders with new inventory I had to purchase 4) due to paperwork delays, continued doing 2 weeks longer than the agreed ownership transfer date while failing to pay rent and continuing to collect on invoices during this time.


Asked on 8/30/07, 4:40 pm

4 Answers from Attorneys

Cathy Cowin Law Offices of Cathy Cowin

Re: Sales of business, missing inventory, AR/AP responsibility

You need to have an attorney review this situation immediately. You are welcome to call me to discuss this in more detail. You are invited to learn more about my practice at cowinlaw.com on the internet.

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Answered on 8/30/07, 5:25 pm
Jeb Burton The Burton Law Firm

Re: Sales of business, missing inventory, AR/AP responsibility

What you are describing appears to be, at the minimum, a breach of your contract. Depending on a more detailed analysis of the facts, you might have a claim for fraud as well. I would get on this as soon as possible, before the sellers assets are no longer available or the sellers themselves are no longer available. You should speak to an attorney ASAP.

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Answered on 8/30/07, 5:33 pm
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Re: Sales of business, missing inventory, AR/AP responsibility

Each of the items enumerated is likely a breach of contract, and taken together they show bad faith and fraud.

You should retain a business attorney at once, and the attorney's first step after sufficient investigation to verify the charges you have made, would be to file suit and at the same time seek a temporary restrianing order preventing the seller from further disbursing either the proceeds of sale (what you paid for the business) or any other asset traceable to the business (payments from customers, for example).

Further, you should be on the alert for liabilities that weren't disclosed or that turn out to be much larger than disclosed. Hidden liabilities may include threatened lawsuits, employee vacation, etc. liability, customer refund demands or warranty obligations, and on and on.

If you have not paid the full purchase price yet, your attorney should seek a court order suspending your liability to pay pending resolution of your complaints.

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Answered on 8/30/07, 5:42 pm
Terry A. Nelson Nelson & Lawless

Re: Sales of business, missing inventory, AR/AP responsibility

The simple answer is that you have a claim against them for breach of agreement. Either you resolve it between yourselves, or you file suit if it is worth doing so.

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Answered on 8/31/07, 2:49 pm


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