Legal Question in Business Law in California

Re: Business Ethics

How well documented is your purchase transaction? Lawyer-drafted sale-of-business agreements routinely contain a provision whereby the seller represents and warrants that the books, prepared as of the period(s) ending just before the sale closing date, fairly and accurately represent the financial condition of the business, that there are no undisclosed liabilities, etc.

You are looking at possibly two legal disputes. The first might be with the clients who claim to have prepaid in cash. Do you believe them? Do any of them have receipts or canceled checks? These clients probably have valid claims against the business if they are telling the truth; oral contracts can be enforced if they can be proven, and the business changing hands (if it is a corporation or LLC) would not eliminate its liability on its contracts.

The second dispute is with the seller. Failure to disclose these contracts sounds like fraud. If the selling price for the business were $7,500 or less, I'd consider taking the seller to Small Claims Court.

Having said all of this, I hasten to add that making a proper evaluation of your situation could not be done without interviewing you and at least skimming the transaction paperwork. I don't know the form of business organization, whether you bought assets or stock, what the books looked like, what representations were made by the seller, whether you have paid the full price already, whether compliance with the Bulk Transfer Act was required, and on and on.