The supplier says that the buyer impliedly assumed the contract by accepting office and cleaning supplies for five years after the closing at the contract’s price.
M&A Stories
January 23, 2023
Introduction
When purchasing the assets of a business, buyers have the freedom to choose which supply contracts they wish to assume. These contracts can be explicitly referenced as assumed liabilities in the purchase agreement. However, it is important to note that there might be other contracts that the buyer inadvertently acquires without assuming them.
The Case
In this particular case, the seller had signed a rental agreement with a supplier for office and cleaning supplies back in 2013. The buyer acquired the business assets from the seller in 2015 but did not explicitly assume the rental agreement in the purchase agreement.
Despite not assuming the rental agreement, the buyer continued to accept office and cleaning supplies from the supplier at the agreed-upon rental agreement price. However, after five years, the buyer ceased using the supplier and closed down the facility.
The Lawsuit
The supplier filed a lawsuit against the buyer, alleging breach of contract, as the buyer terminated the rental agreement in the middle of its term. The buyer defended itself by arguing that it was not bound by the rental agreement because it did not explicitly assume it.
Court Ruling: The court determined that the buyer may have implicitly assumed the rental agreement’s terms by accepting office and cleaning supplies from the supplier for five years. This suggests that the buyer’s actions could be seen as an assumption of the contract, even though it was not expressly stated in the purchase agreement.
See Domestic Uniform Rental v. Custom Ecology Of Ohio, Inc., No. 358591., Court of Appeals of Michigan, (December 22, 2022).
Conclusion
The litigation is still ongoing, and this case serves as a lesson for buyers. Continuing to use a seller’s supplier after the transaction may be sufficient to subject the buyer to the terms of supply contracts that were not explicitly assumed in the purchase agreement.
By John McCauley: I write about recent legal problems of buyer and sellers of small businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my books: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles and Selling Assets of a Small Business: Problems Taken From Recent Legal Battles
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