Explore the legal journey of a pressure washer business sale, uncovering payment disputes, court battles, and key lessons for M&A professionals.
M&A Stories
October 22, 2018
In a recent M&A tale, the owner of Midwest Cleaning Systems, a pressure washer business in northeast Iowa, faced challenges recovering the unpaid purchase price from his buyer. Let’s delve into the details.
Background:
A business owner, with 32 years of experience, decided to sell Midwest Cleaning Systems (the seller). The buyer, one of four interested parties, signed an asset purchase agreement on September 23, 2014.
Terms of Agreement:
The buyer agreed to pay $40,000 at closing, with the remaining $80,000 plus interest due by December 1, 2015. A security agreement granting the seller a security interest in all assets was executed simultaneously.
Payment Delay:
The buyer misunderstood the payment deadline, leading to a delayed payment of $40,800 on December 2, 2015. Despite the seller’s flexibility, Buyer made only a partial payment of $144.66 by March 1, 2016.
Legal Action:
The seller filed a petition on November 23, 2016, seeking to foreclose on collateral (pressure washer business assets). The buyer claimed the seller misrepresented an exclusive Alkota Dealer territory, leading to the payment dispute.
Court Proceedings:
The trial court found the seller in breach of the agreement, denying the seller’s claims and ordering court costs. The seller appealed, and the court of appeals reversed the decision in the seller’s favor.
Lesson Learned:
Key issue: Lack of clarity regarding an exclusive distributorship. The buyer should review the distribution agreement before signing the asset purchase agreement. It is advisable to secure representations in the agreement regarding the exclusivity of the distribution arrangement.
Case Reference:
This case is referred to as Valley v. Kiel, No. 17-1666, Court of Appeals of Iowa (October 10, 2018).
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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