Explore the complexities of M&A transactions through a cautionary tale highlighted in a recent Ohio court case. Dive into the legal quagmire faced by a seller due to a buyer’s failure to honor post-closing payment commitments. Learn how meticulous planning and adherence to legal protocols can safeguard against pitfalls in M&A deals.
M&A Stories
May 18, 2018
In the realm of M&A transactions, a cautionary tale emerges from a recent Ohio court case involving the sale of a bar and grill business. The protagonist, a seller (hereafter referred to as “Seller”), found themselves entangled in a legal quagmire due to a buyer (let’s call them “Buyer”) failing to honor post-closing payment commitments.
The narrative unfolds with Seller and Buyer entering into an asset purchase agreement for the sale of a bar and grill, alongside a liquor permit. Buyer commenced operations at the tavern but faltered in meeting their financial obligations, making only one full payment and a partial payment on a promissory note issued to Seller.
Subsequently, Seller, faced with Buyer’s delinquency, sought recourse through legal channels, obtaining a judgment and ultimately selling all assets, including the liquor permit, to a third-party purchaser. However, this unilateral action proved contentious, leading to a legal battle initiated by Buyer, citing a conversion claim concerning the sale of bar assets to a third party.
In the courtroom drama that ensued, the magistrate ruled against Seller, deeming the sale of assets to be an unauthorized act, awarding damages totaling $99,000, inclusive of punitive damages and attorney fees. Despite Seller’s appeal, the verdict stood, leaving them saddled with the hefty financial burden.
The crux of Seller’s predicament lies in the failure to safeguard post-closing payment obligations effectively. A prudent approach would have involved securing Buyer’s commitments with the bar and grill assets, utilizing mechanisms such as a security agreement and financing statement. By adhering to the procedures outlined in the Uniform Commercial Code, Seller could have mitigated risks and avoided punitive damages and legal fees.
In hindsight, the case underscores the importance of meticulous planning and adherence to legal protocols in M&A transactions. Proactive measures to secure payment obligations can avert potential pitfalls, safeguarding the interests of all parties involved.
Case Reference: Boaeuf v. Memphis Station, LLC,, 2018 Ohio 745 – Ohio: Court of Appeals, 8th Appellate Dist. No. 105799.
By John McCauley: I help people start, grow, buy and sell their businesses.
Email: jmccauley@mk-law.com
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Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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