Today I want to talk about how a seller of an Ohio bar and grill business (we will call “Seller”) learned a painful lesson about how to handle a buyer (“Buyer”) who does not make his promised post-closing purchase price payments.
Here are the facts from the Ohio state court:
(Seller) … and … (Buyer) … entered into an asset purchase agreement for the sale of a bar and grill, and liquor permit. (Buyer) … began operating the tavern, but made only one full payment and one partial payment on a … note that he issued to … (Seller). (Seller) … obtained a … judgment and then sold all of the assets included in the asset purchase agreement, including the liquor permit, to another … (purchaser). (Buyer) … brought this action against … (Seller) …, raising … a conversion claim relating to the sale of the bar assets to a third party. The magistrate who conducted the trial found that … (Seller’s) … sale of the bar assets to another … (purchaser) … was an unauthorized act of dominion over assets belonging to … (Buyer). The magistrate ordered damages of $25,000 for the liquor permit, $30,000 for the bar assets, $20,000 in punitive damages, and attorney fees in the stipulated amount of $24,000. The court approved and adopted the magistrate’s decision over objections by … (Seller).
Seller appealed and lost. So, at the end of the day Seller owes Buyer $99 K. That included $20 K in punitive damages (a sort of penalty for taking matters in his own hands) and Buyer’s attorney fees of $24 K. Seller does have a judgment against Buyer and likely the only asset Buyer has is this judgment Buyer has against Seller. Not a good result for Seller.
This Ohio Court of Appeals case is referred to as Boaeuf v. Memphis Station, LLC,, 2018 Ohio 745 – Ohio: Court of Appeals, 8th Appellate Dist. No. 105799.
Comment. Seller could have sold the bar and grill assets after Buyer walked away without this bad result. This would be done by securing Buyer’s post-closing payment obligations with the assets of the bar and grill business – through a security agreement and a financing statement. Then Buyer could sell the bar and grill assets in accordance with the procedures provided for in the Uniform Commercial Code. He would then have the proceeds from selling the assets the second time and not have to pay Buyer punitive damages and legal fees of $44 K.
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
Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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