Legal Question in Business Law in California

Re: Trying to get more money after escrow has closed.

Closing of escrow in a real-estate transaction usually (nut perhaps not always) completely carries out the terms of the agreement of sale, and the deal is substantially final upon close of escrow including recording of the deed.

However, in sale of a business, close of escrow is much less often the final transaction required to carry out the buyer's and seller's obligations under the contract(s) covering the sale of the business.

Without studying the contracts, no one could say for sure whether the buyer's requests for further performance are legitimate or off base. One of the more common post-closing conditions in a business-sale agreement is adjustment of the purchase price based upon post-closing results. Other items often left for post-closing cleaning up are settlement of claims that weren't dollarizable at the closing, and the like.

It is also possible that the buyer may be attacking the deal based upon a claim of fraud or misrepresentation. This would be independent of any performance yet due under the contract.

Re: Trying to get more money after escrow has closed.

Escrow empowers a neutral third party designee to hold "ownership title" until the transactions associated with a sale are completed by both buyer and seller. Under the facts you have presented, your friend would NOT be liable for "new terms" after escrow has closed and title has been handed over to the buyer by the escrow agent. Thus, your friend should retain an attorney ASAP to at least review the sales/purchase agreement to make sure she is not overlooking something having legal bearing within the contract itself that the buyer is now trying to assert thru legal action. If the buyer has no rights to demand what they are demanding of your friend, the case should be thrown out. Have your friend retain an attorney ASAP while its still relatively early, and before things possibly get out of hand as time goes on per se. If your friend would like further, affordable assistance, have her contact us directly.

Re: Trying to get more money after escrow has closed.

If your friend sold the business via an escrow, then presumably, there is a written contract between the seller (your friend) and the buyer (the person now making these demands) which will dictate whether your friend is obligated in any way in response to these demands of the buyer.

Moreover, there would have been escrow instructions signed by both seller and buyer; and these also may speak to whether there are any obligations owed by your friend.

At the same time, the contract and/or escrow instructions may make it clear that your friend owes nothing to the buyer.

Typically, during escrow, the buyer conducts what is known as "diligence". And presumably, the terms of contracts, revenue streams, outstandng accounts receivable, etc., would have been disclosed/discovered during escrow.

Your friend should retain an attorney if she is sued and/or if she needs to respond to a demand made by the buyer. Moreover, if the buyer is alleging fraud, it is likely that your friend will need an attorney. We are attorneys familiar with the peculiar issues of business litigation. If/when your friend would like to discuss the matter further, your friend should contact us.