FORT LAUDERDALE BUSINESS LITIGATION: CONTRACT DISPUTE FROM SALE OF BUSINESS

Purchasing a business can be a complicated matter. Multiple documents such as contracts promissory notes, and financial schedules may can obligate the parties in different ways during the sales process. Sometimes a business sale goes bad. Maybe the buyer or seller wants to back out or a party does not comply with its contractual obligations. These circumstances can often result in litigation. The Fort Lauderdale business litigation attorneys of the Mavrick Law Firm represent businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

An example of a business sale gone bad that devolved into litigation is North Bay Green Investments, LLC v. Cold Pressed Raw Holdings, LLC, 388 So. 3d 266 (Fla. 3d DCA 2024). Two companies entered into a joint venture to create and operate an organic juice business. The companies established a separate holding company for the joint venture, with each company owning 50% of the holding company. The two companies later decided to end the joint venture and separate their businesses. They then entered into a series of contracts to govern the separation. Among these contracts was an agreement in which one company would purchase the other company’s shares in the holding company. The two companies entered into a promissory note in which the purchasing company agreed to pay $200,000 to the selling company. The purchasing company was to make an initial payment of $25,000, then pay the remainder through quarterly installments of $25,000. The principal of the purchasing company also signed the promissory note in a personal capacity.

After entering into the promissory note, the selling company transferred its assets in the holding company to the purchasing company. The purchasing company then made the initial $25,000 payment, but did not make any additional payments. The selling company then filed a lawsuit against the purchasing company and its principal, alleging various claims of breach of contract. The purchasing company filed various counterclaims, including fraudulent inducement, breach of contract, breach of the covenant of good faith and fair dealing, rescission of the contract, and breach of fiduciary duty. The primary claim in the counterclaims was that the selling company failed to transfer certain assets to the purchasing company as part of the sale.

After a bench trial, the trial court ruled in favor of the selling company. The trial court found that the selling company had no contractual obligation to deliver assets to the purchasing company, since the contract was completely silent on the matter. The trial court also found that there was no basis for voiding the contract. The trial court also found that the purchasing company had elected a remedy of rescission of the contract instead of damages, and, therefore, the trial court entered judgment for the selling company on the various claims that requested damages.

The purchasing company then appealed, and the selling company cross-appealed. The appellate court mostly affirmed the trial court’s decision. The appellate court found that the trial court properly held that the purchasing company had elected the remedy of rescission, which foreclosed its claims of damages. The appellate court also held that the selling company did not breach the contract relating to any failure to transfer assets because the contract was silent on transfer of assets. However, the appellate court reversed the summary judgment the trial court issued to the principal of the purchasing company. The appellate court held that because the principal signed the promissory note in his personal capacity, the principal was individually liable to pay the note.

North Bay Green Investments, LLC is an example of how a business sale can go wrong. There are several lessons to take from this case. One party took issue with not receiving certain assets from the selling company, but the sales contract was silent on the transfer of assets. This shows the importance of having well-drafted and complete legal documents when engaging in a business sale. This case also shows the significance of understanding the risk of signing sales documents in a personal capacity, as, in North Bay, a corporate principal became liable for the entire sales price.

The Fort Lauderdale business litigation attorneys of the Mavrick Law Firm represent businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.