Buyer of manufacturing business discovers obsolete and malfunctioning equipment. Recovers damages from seller.
M&A Stories
September 5, 2021
Introduction:
In this blog post, we discuss a case where a buyer of a manufacturing business faced issues with the purchased assets and took legal action against the seller. The seller had represented and warranted that the assets were sufficient for the business’s operation, leading to a post-closing legal dispute.
The Deal:
The buyer acquired the assets of a manufacturing business involved in selling chemical calibration devices and standardized instruments for various chemicals. The seller assured that the assets were suitable for carrying on the business operations as previously conducted.
The Lawsuit:
After the acquisition, the buyer found five pieces of equipment that were either malfunctioning or not working at all. This discovery led to the buyer filing a lawsuit against the seller in a Texas state court. Eventually, the jury awarded the buyer $46,000 in damages to cover the costs of replacing and renting the faulty equipment.
This case is referred to as McKinley v. Kin-Tek Analytical, Inc., No. 01-19-00642-CV, Court of Appeals of Texas, First District, Houston, (Opinion issued August 5, 2021).
Conclusion:
The case illustrates the importance of sellers accurately representing the sufficiency and condition of assets in acquisition agreements. Buyers can protect themselves by ensuring sellers also state that the assets are in good operating condition, thereby reducing the risk of potential disputes in the future.
By John McCauley: I help people manage M&A legal risks.
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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