Explore a real M&A case study from Round Rock, Texas, where a failure to release a lease guaranty led to a legal dispute. Learn valuable insights into the consequences and lessons learned.
M&A Stories
December 29, 2018
In an M&A case from Round Rock, Texas, a husband and wife owned a wine business. They sold their company through a membership interest purchase agreement on December 30, 2009. The deal included the company’s shopping center lease, which was personally guaranteed by the sellers. The landlord did not release the sellers from their personal lease guarantee when the company was sold.
The purchase agreement explicitly stated that the buyer would not extend the lease term without obtaining a release from the landlord regarding the sellers’ personal guaranty. The sellers considered this promise crucial to the deal.
In 2011 and 2012, the buyer extended the lease without obtaining the release, eventually selling the company, and assigning the lease to new owners. When the new owners defaulted on the lease, the landlord sued both them and the sellers as guarantors.
The sellers settled with the landlord and sought reimbursement from the buyer, who refused. Subsequently, the sellers filed a lawsuit in a Texas state court, alleging that the buyer breached the purchase agreement by failing to terminate the guaranty and failing to indemnify them.
After several legal arguments and an appeal, the courts ruled in favor of the sellers.
This case underscores the importance of ensuring lease guaranty release at the time of the deal, as it can save significant time and expenses in litigation.
Case Reference:
Gano v. Diaz, No. 03-17-00119-CV, Court of Appeals of Texas, Third District, Austin, (Filed: June 28, 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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