Can I back out of a contract due to misrepresentation?
I entered into a contract to buy a business on the 23rd of June. The seller represented (and put it in the contract) that the company did not have loans, and that there was no more than $30k owed to various vendors, etc. He also stated that he had the lease on the building until the 15th and took money for the rent until the 15th (he put this in the contract also).
The building owners came and said that he was behind on the rent, and he had no right to sublease. I've found so far a $98k loan, outstanding health insurance bills, vendor bills, etc., going up another $40k probably.
He is holding the website and phone number hostage now. I'm locked out of the building. Can I just walk away from this contract at this point, given how misleading he was? I've paid, but I'm more concerned with the customers that are owed work.
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The misrepresentations could be just negligent, or if intentional, could be fraud. Especially if the landlord is saying a new owner cannot just take over the location, that—for many kinds of business—is a big difference in what is being purchased.
If you are willing to give up what you paid, then a reasonable approach would be as follows: send written notice of your intent to cancel/terminate the contract due to the misrepresentations, including but not limited to (and list the key ones); that as a result of those misrepresentations, any amounts paid by you are to be returned to you.
Then, if the seller returns those funds, great. If not, you can then decide to just walk away or to pursue them in a lawsuit. If the seller attempted to sue you seeking to enforce the contract, you will want to keep all evidence of the misrepresentations.
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I entered into a contract to buy a business on the 23rd of June. The seller represented (and put it in the contract) that the company did not have loans, and that there was no more than $30k owed to various vendors, etc. He also stated that he had the lease on the building until the 15th and took money for the rent until the 15th (he put this in the contract also).
The building owners came and said that he was behind on the rent, and he had no right to sublease. I've found so far a $98k loan, outstanding health insurance bills, vendor bills, etc., going up another $40k probably.
He is holding the website and phone number hostage now. I'm locked out of the building. Can I just walk away from this contract at this point, given how misleading he was? I've paid, but I'm more concerned with the customers that are owed work.
Lexi, Chatbot
I'm sorry to hear about the situation you're facing with the business purchase contract. Have you consulted with a lawyer regarding this matter?
Not yet.
Lexi, Chatbot
Have you gathered all the documentation related to the contract and the misrepresentations made by the seller?
Yes.
Lexi, Chatbot
Is there anything else the lawyer should know before I connect you? Rest assured they'll be able to help with misrepresentation in the contract.
Yes
Wendy
Hello. My name is Wendy and I am an attorney, though I may not be licensed in your jurisdiction. I can certainly provide information related to this contract issue. Does the contract provide for any specific remedy or entitlement if either of you (here the seller) violates any provision of the contract?
It does not.
Wendy
Have you paid anything yet to this seller?
I did pay.
Wendy
Do you owe any more to complete the purchase?
There is money that he wants to be paid that has not been collected by customers yet for work completed—roughly $40k. In the contract he agreed that this $40k owed could be held against if there is more than $30k in payables that are owed by the company.
Wendy
It does sound to me like you have two real options: back out of the purchase based on the misrepresentations in the contract and then attempt to get the funds you did pay returned to you (by a lawsuit if necessary); or go through with the sale knowing that the situation is different than you were told.
Is it legally realistic to back out of the contract because of the misrepresentations?
Like bad faith, etc.?
Wendy
Yes, it is reasonably possible to back out due to the numerous misrepresentations. The challenge will be if the other party claims you cannot back out and will not return what you have paid. If that turned out to be the case, you might find yourself in a lawsuit for a court to decide who is required to do what.
At this point I would rather cut my losses and not even seek what I paid.
I signed onto this as an LLC. Are my personal assets liable for anything involved with this LLC?
Wendy
The misrepresentations could be just negligent, or if intentional, could be fraud. Especially if the landlord is saying a new owner cannot just take over the location, that—for many kinds of business—is a big difference in what is being purchased.
If you are willing to give up what you paid, then a reasonable approach would be as follows: send written notice of your intent to cancel/terminate the contract due to the misrepresentations, including but not limited to (and list the key ones); that as a result of those misrepresentations, any amounts paid by you are to be returned to you.
Then, if the seller returns those funds, great. If not, you can then decide to just walk away or to pursue them in a lawsuit. If the seller attempted to sue you seeking to enforce the contract, you will want to keep all evidence of the misrepresentations.
There's no way it could be negligent in my opinion, but I understand.
Wendy
I agree that the types of misrepresentations you describe are almost certainly intentional (fraud). I do hope the information helps.
I'm going to take one moment to see if I have any other questions about this, if you could be patient with me.
Wendy
Of course.
Would you recommend paper mail or an email to give notice on this?
Wendy
I have gotten to where I typically do both.
Thank you for the time.
Wendy
Have a good day.
Wendy
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