Explore the legal ramifications of signing M&A closing documents prematurely, illustrated through Payne v. Cunningham. This blog delves into a notable 2016 case involving a car dealership sale, highlighting the crucial importance of timing in avoiding unforeseen legal consequences. Learn from real-life scenarios to navigate M&A transactions effectively.
M&A Stories
November 19, 2018
In a notable 2016 case, a stock purchase agreement involving the sale of a car dealership in two phases led to unforeseen legal consequences. The buyers were to acquire 21% initially for $500,000, followed by the remaining 79% for $3 million after the company’s debt reached a specific level.
The snag occurred on the May 31 closing date for phase one. Despite the deliverables being in place, the buyers lacked financing to fulfill the purchase. To proceed, the parties executed the stock purchase agreement and closing documents, placing them in escrow pending payment.
Disputes arose over whether the company owner agreed to extend the payment deadline. The buyers claimed an undefined extension, but the company owner rescinded the entire transaction on June 27, rejecting a check tendered by the buyers on July 18.
Legal battles ensued, with the trial court ruling that the buyers had the right to seek monetary damages for the breach but not to compel the owner to complete the sale. The appellate court, however, disagreed, emphasizing the rare opportunity the buyers had in controlling the dealership. It ordered the court below to conduct a trial to determine whether the seller breached the acquisition documents, and if so, order specific performance of the transaction.
This case underscores the importance of timing in signing closing documents. Waiting until the buyers secured financing could have prevented the legal complications that followed.
Case Reference:
Payne v. Cunningham, Nos. ED 105712 and ED 105850., Missouri Court of Appeals, Eastern District, Division Four (Filed: April 24, 2018).
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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