Explore the intricacies of M&A contract disputes in this gripping blog post by John McCauley. Delve into a recent clash between buyer and seller over the ownership of a $150,000 certificate of deposit post-closing. Uncover the importance of meticulous contract drafting and the role it plays in resolving disputes. Learn valuable lessons from the court’s intervention in a case marked by ambiguity, emphasizing the complexities inherent in M&A transactions.
M&A Stories
June 19, 2018
In the realm of M&A, a recent post-closing dispute has surfaced, underscoring the importance of meticulous contract drafting. The clash unfolded between a buyer and seller regarding the ownership of a certificate of deposit worth $150,000.
The asset purchase agreement outlined that the buyer would acquire all assets, excluding those explicitly designated as excluded. While a detailed schedule accompanied the contract listing the assets, the excluded assets schedule was left incomplete.
The crux of the disagreement emerged after the closing, centering on the aforementioned certificate of deposit. Notably, it was absent from both the detailed schedule of purchased assets and the excluded assets schedule due to the latter’s non-completion.
The buyer, seeking to reclaim the certificate of deposit, took legal action against the seller. Both parties aimed for a swift resolution by referencing the asset purchase agreement in court. However, the court intervened, deeming the contract ambiguous.
According to the court, the absence of the certificate of deposit on the schedule of purchased assets and the excluded assets schedule left the contract open to interpretation. No specific category, such as “cash and cash equivalents,” encompassed the disputed certificate of deposit.
In light of these ambiguities, the court determined that further discovery, hearings, and possibly a trial would be necessary to resolve the dispute, emphasizing the intricacies involved in such cases.
Commenting on the situation, it is noted that excluding or including cash and cash equivalents in asset deals is not uncommon. Hindsight reveals that the buyer could have secured the certificate of deposit by explicitly listing cash and cash equivalents in the purchased assets schedule. Conversely, the seller might have retained ownership by including these assets in the schedule of excluded assets.
Case Reference:
This case is referred to as In Re HC Liquidation, Inc., No. 1:13-bk-16079-SDR, Adversary Proceeding No. 1:18-ap-1005-SDR, United States Bankruptcy Court, E.D. Tennessee (June 12, 2018).
By John McCauley: I help people start, grow, buy and sell their businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
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Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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