What happens to property that was sold to me during the sale of a business if it did not belong to the seller?

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What happens to property that was sold to me during the sale of a business if it did not belong to the seller?

I recently purchased a business by way of an asset purchase agreement. The agreement contained many reps and warranties that everything involved in the sale belonged to the Seller. Included in the asset list (that the Seller produced) is a piece of equipment valued at about $10,000. Now a third party has come forward saying that he actually owns the equipment and that it was only lent to the Seller because he had no place to store it. The kicker is that the third party is actually the Seller’s lawyer who is quite good and has already helped the Seller wiggle out of other instances of fraud

Asked on July 18, 2012 under Business Law, North Carolina

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

IF the third party can prove he is the owner, he can recover the property. However--

1) If you do lose the property to the third party, you can certainly sue the seller for breach of contract and possibly (even likely) also fraud, if he/she knew or should have known this. In that case, even if you bought from a corporation or LLC, you may be able to reach the seller personally as well as suing the company, since his/her tortious act could provide a basis for personal liabilty.

2) You don't need to take  the third party's representations at face value--you can refuse to turn it over if you believe that is not the true state of affairs and let him sue you to recover the property. He'd have to prove in a court of law that he owns it.

3) If you have reason to believe that the laywer is collaborating with the seller to try to defraud you, you could potentially sue the lawyer as well (and report him to the state bar's ethics/disciplinary committtee). So, say that he, as the lawyer, helped created and review the asset purchase agreement...if he did not list this property as excluded from sale, that could provide evidence of wrongdoing ("selling" it to get more money, then claiming it was not saleable to recover it).


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