If I entered into a business purchase agreement and spent 5K on incorporation, etc and then the seller backed out. can I recover my costs?

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If I entered into a business purchase agreement and spent 5K on incorporation, etc and then the seller backed out. can I recover my costs?

Purchase price of $1.25M. I put $20K down (they now want to keep $1K of that for escrow fees). Seller backed out 2 days before close. Was told that seller/agent admit they cannot meet inventory numbers ($200K short) or get accounts payable down to zero (from $300K).

Asked on December 6, 2011 under Business Law, California

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

If you had backed out, the seller would be entitled to keep your deposit. But if the seller backed out and/or failed to meet the requirements/conditions of the deal, he may not keep your deposit but rather must return it--or more accurately, he may only keep the deposit to the extent that the agreement between you specifically would allow him to keep it under these circumstances. Otherwise, the seller's failure to, or decision to not, go through with a deal requires him to return the deposit. It would be like buying a house--if the seller decides to pull out of the deal or fails to meet any contingencies, the would-be buyer gets his money back.


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