The old owner refused to pay back money for the Gift cards sold by her before she sold the shop

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The old owner refused to pay back money for the Gift cards sold by her before she sold the shop

I’ve just bough a nail shop from Ms A a month ago. Right before she sold it to me, she had sold a lot of VIP cards to customers (unknown number), with this gift card, customer can used it instead of money; It would not be a problem if there are so much customer with gift cards come to my shop for receiving the service. I can’t exchange it for money. Talked to the old owner for getting back the money from her, she rejected to pay. We don’t know how much VIP card sold by her, but only the severe from seeing our effort spent each days for nothing. Can I sue Ms A? Thanks for you advice.

Asked on June 23, 2009 under Business Law, Michigan

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 12 years ago | Contributor

Were the sales of the gift cards disclosed as part of the sale of the shop? They should have been, since they affect the balance sheet--the unredeemed cards are liabilities of your shop, and would offset the value you paid.

For example: say the bizness is worth $500k, but that $25k of gift cards were sold, which means you're on the hook for up to $25k of lost revenue. Using an overly simple way of looking at it, that reduces the value of the biz by $25k, same as it would be if there was a $25k judgment or unpaid loan against the biz.

So if she did not disclose the existence of this liability when you were buying the biz, she committed fraud. You could sue her because the liability reduces the value of what you purchased, so the purchase price should have been lower.

If she did disclose it, including more or less the amount  (technically, she should have disclosed the exact amount, but in the real world, if she was close you're not going to get a judgement against her), then you could not sue.


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