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

UPDATED: Jul 18, 2012

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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


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 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).

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although AttorneyPages.com has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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