Legal Question in Business Law in California

Without reviewing the purchase agreement it really is impossible to advise you on this.

Based upon your question alone, the practical answer is that, if the seller is unwilling to enforce the purchase agreement, you are free to continue operating the company. If the company is making money, you may want to keep going. The prudent thing to do would be to set aside money when you can to pay the balance due on the sale, so if the seller changes his mind down the line, you will be able to pay him. There is a possibility that the seller could be waiving some of his rights under the contract. But as Mr. McCormick says, a review of the purchase agreement would be necessary to figure this out. Remember that every one has a breaking point. Even if the seller doesn't want the company back now, if his situation worsens, his mind may change. Likewise, if your situation significantly improves, and the company becomes more successful, he may want payment after all.

I provide information about the law designed to help people safely manage their own legal needs. But legal information is not the same as legal advice -- the application of law to an individual's specific circumstances. I do not know all the facts of your case, and do not represent you. Although I strive to make sure the information I provide is accurate and useful, I recommend you consult a lawyer who can learn the details of your case more completely, to insure that the information I provide, and your interpretation of it, is appropriate to your particular situation.

If it makes you money, keep running the company and hope for the best. If he never sues, you'll be ok, and can pay on the debt as you can. There is no point trying to get an 'agreement' with him since he already said he wouldn't do that.

(1) One option would be to send a letter stating what you've discussed and memorializing that you're continuing to operate the business based on these representations; that you have offered to perform under the agreement by transferring the business back to him and he does not want it. Your post does not indicate how long it has been since the default, but at some point in time (e.g. 4-years on breach of written agreement) the statute of limitations will run and any rights he may have had will be terminated. The memo will make it harder to change his mind as time progresses toward that limitations period.

I agree; each of the foregoing answers, although approaching the question from somewhat different angles, all give correct advice. Here's yet another approach to drop into the mixer:

Let's suppose the seller takes you to court in a year or two, or at least before the statute of limitations runs. Meanwhile, the company has become very successful under your management and is valuable, making his suit potentially worthwhile for him. What are your defenses?

All of them seem to depend, in some way or another, on the extent to which a written contract can be modified orally. I would call your attention to Civil Code section 1698, which deal with oral modifications to written contracts. Specifically, 1698(b) says "A contract in writing may be modified by an oral agreement to the extent that the oral agreement is executed by the parties" Arguably, you have an oral agreement to continue to own and operate the company in exchange for his not taking it back. I think there has been an execution by the parties of those terms, or at least a sufficient part performance.

Next, 1698(c) says "Unless the contract otherwise expressly provides, a contract in writing may be modified by an oral agreement supported by a new consideration." This defense would require looking at the written agreement to see if it says anything about oral modifications. Also, there is the question of a new consideration, but I think that can probably be argued, since placing the former owner back in a position of responsibility for the business is a sufficient detriment to constitute a new consideration.

Finally, 1698(d) suggests other defenses based on waiver, estoppel, and novation. In particular, I think the seller has waived his right to ask for payment or return of the company in the future.