When You Sell or Buy a Business, Avoid Disputes – Only Sign a Clear, Comprehensive, and Well-Drafted Sale and Purchase Agreement.

The owner of the equipment sold the equipment to the buyer; they signed an asset purchase agreement. But the equipment was financed as the owner had borrowed $330,000.00 from the bank with the loan secured by a lien and security interest on the equipment. After the sale, the buyer made the loan payments to the bank; the buyer promised the seller to make the payments, but the buyer also intended to have these payments conditional on the buyer’s use and ultimate acceptance of the equipment and its suitability.

When the buyer determined the equipment was not suitable, they stopped making payments on the loan. The bank then sued its borrower, the seller, and also sued the buyer. The bank claimed that the buyer was liable to the bank for the loan. The trial court initially granted summary judgment for the bank, finding the buyer liable directly to the bank. The appellate court disagreed, so the dispute went back to the trial court to head toward trial.

These are the salient facts of  OTI Fiber, LLC, v. Centerstate Bank, N.A., Case No. 2D20-1196 ( 2nd DCA August 11, 2021).  If the asset purchase agreement had clarified that the buyer’s payments were conditioned on the suitability of the purchased equipment, the lawsuit and the appeal probably could have been avoided.  If the agreement had explicitly stated that the buyer had no direct liability to the bank, the lawsuit and the appeal could have been avoided.

Agreements need to address each contingency; the lawyers drafting the agreements need to foresee each possible or at least probable contingency. An experienced lawyer who drafts a solid agreement assists the client to get the deal done and minimize the risks of disputes.

Bill McEachern is an attorney for Moorhead Law Group.

Bill’s experience includes but is not limited to commercial law transactions and litigation; asset-based lending, asset sales, and leasing; business sales; corporate, partnership, and LLC matters; and bank and lender representation.