If someone is buying a business on a rent-to-own basis and did not make all payments, can they get a loan using the business as collateral?

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If someone is buying a business on a rent-to-own basis and did not make all payments, can they get a loan using the business as collateral?

Agreement to buy this business was made verbally no written contract, payments were not made. The buyer borrowed large amount of money from individual and put the equipment of business up as a security. The lender knew of verbal agreement and did not contact business owner to inquire on ownership. The buyer then left leaving business and not wanting any further interest in business. is the original business owner have legal responsibility to repay loan?

Asked on November 8, 2010 under Business Law, Kansas

Answers:

M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

No, I do not think that you would have any liability as to the third party.  The buyer did not acquire ownership to the business or the equipment and he would not have until the last payment was made.  The third party was foolish to loan him money without a copy of a written contract to purchase that showed that he had something tangible to put up as collateral.  The loan was between the third party and the potential purchaser.  You have no agreement with the third party.  I would, however, take all the documents that you have, as well as your knowledge of the agreement to purchase, to an attorney in your area and to speak with him or her about it just to protect yourself.  Good luck.


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