Would one have valid legal claim for breach of purchase and sales agreement for business assets when contract was illusory?

Asked over 1 year ago - Blacklick, OH

1. Initial purchase and sales agreement for (1) purchase of real estate and (2) business operations of store.

2. Bank financed real estate. Business operations financing not obtained by certain date. Seller financed on interim basis but "switched" original contract language to business assets.

3. Arrangement outside of contract for previous owner to continue operating business for new owners. No formal agreement but this arrangement ensued. Previous owner paid monthly sum by check to new owners for 1 - 2 yrs.

4. Then previous owner unilaterally ceased business operations, including workers that directly impacted customer relations, took permits and other business assets. New owners left owing seller note that defaulted due to no business operations. Seller won judgment on cognovit note.

Attorney answers (2)

  1. R. Russell O'Rourke

    Contributor Level 13

    1

    Best Answer
    chosen by asker

    Answered . There are a number of possible problems here. The contract doesn't appear to be "illusory" in the strictest sense of the term from what you have said, but possibly that there was a financing contingency for the business which may have been waived. It isn't clear if a) there is a waiver by either buyer or seller; or if the change to an asset only purchase was a condition of the parties continuing with the Agreement. It also isn't clear whether that switch was an agreed or unilaterally, seller imposed switch. Also important is whether there was a non-compete clause in the agreement to keep the seller from competing.

    Assuming you are the buyer, you will need to have a business lawyer file for relief from the Cognovit judgment against you to keep them from taking EVERYTHING. At the same time they will probably sue the seller for any damages for breach of contract, possible fraud, breach of the non-compete, maybe breach of a fiduciary duty, possibly more, as well as defend against the Cognovit judgment based on the seller's actions.

    There may be more claims and defenses, but speculating here, without benefit of reading the documents and talking with you would be only that, speculation. You need to find a business lawyer to help you now!

    IF YOU FOUND THIS ANSWER HELPFUL PLEASE MARK IT SO. The answers provided by R. Russell O’Rourke, Attorney-at-Law... more
  2. Timothy Dale McKinzie

    Contributor Level 7

    Answered . I am not sure either that the contract was illusory, but your question as stated is. It is unclear what your role is in this transaction. Assuming you are the Buyer/New Owner, it makes little sense that you would buy a business and trust the prior owners to run it for you, unless they were blood relatives. If you were going to do it anyway, you should have hired a local business attorney to draft an agreement between you and the prior owners that would ensure that they could not cease the business operation without you knowing it and being able to step in and take over the operations yourself. At this point, you need to get an attorney to file a motion to set aside the cognivit judgment (which incidentally was not won, they only needed to have any attorney confess judgment against you). Those are very onerous. You need a business attorney right away. Your salvation may lie in the relationship, if any, between the Seller and the previous owner. If Seller made representations that you relied upon that the Prior Owner was reliable, you may have a sufficient counterclaim to broker a settlement with the Seller.

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