Buying a business: price reduction or fee collection

Buying a ready-made business. Price reduction or chargeback. Arbitrage practice.

When buying a ready-made business, a buyer may have a number of problems. And they are not always associated with a violation on the part of the seller. It also happens that problems arise that are not dependent on the parties. And also, there may be inflated expectations of the buyer from the acquired business. When concluding a contract, the buyer seeks to protect himself as much as possible by including the conditions necessary for him. But in any case, one should remember about the literal interpretation of the contract. If the contract provides for a reduction in the price of the contract in the presence of certain circumstances by agreement of the parties, then such a price reduction unilaterally is unacceptable.

Case plot:

A business purchase agreement was entered into between two individuals, under which the seller undertook to transfer to the buyer an indivisible business consisting of software, property, rights to lease agreements, use of telephone numbers, exclusive rights to websites, domain name administration rights, social networks, rights to a trademark. In addition, the seller undertook to sell a share in the company. The buyer made a partial payment before the transfer of the things stipulated by the agreement to him. Despite the fact that the seller fulfilled the obligation to transfer things in full, the buyer did not pay the remaining amount.

In this regard, the seller applied to the court for the recovery of the debt under the agreement. The buyer filed a counterclaim to reduce the purchase price of the business, recover unjust enrichment under the agreement, forfeit for violation of the terms of the agreement on the prohibition of the disposal of the founder's borrowed funds on the company's current account until the information is entered into the Unified State Register of Legal Entities about the change of the general director of the company.

The buyer asked the court to reduce the purchase price of the business, citing the terms of the agreement to reduce the value of the business if the company enters into fewer lease agreements with schools. The reduction is made in the amount of 5 to 15% for each contract not concluded, depending on the percentage of net profit. The buyer believed that a 15% reduction in the price of the business for each contract not concluded with the school was reasonable.

Having examined all the evidence in the case, the court decided to satisfy the claims of the seller, satisfy the counterclaims in part, namely, to reduce the amount of the contractual penalty.

Judicial act: Decision of the Arbitration Court of the Moscow Region dated May 21, 2021 in case No. a41-55431/2020

Court's findings:

1. The buyer at the time of the purchase of the business carried out its inspection, had no complaints.

2. Reducing the cost of selling a business is provided for by the agreement through the conclusion of additional agreements, that is, by agreement between the parties.

3. Since the buyer turned to the seller with a notice of a reduction in the purchase price only 2 months after the seller filed a claim for debt collection, it can be concluded that the buyer had no claims before the seller filed a claim.

4. The seller did not dispute the fact that funds were debited from the company's settlement account, which, under the terms of the contract, could not be withdrawn for any reason, in any amount before the information about the new general director of the company was entered into the Unified State Register of Legal Entities.

5. The seller's argument that the funds were not spent for personal purposes, but for settlements with counterparties, is not justified, since the guarantee established by the agreement was violated.

6. The agreement provides for a penalty that exceeds the withdrawn amount by 10 times. In accepting the seller's application to apply the provisions of Article 333 of the Civil Code of the Russian Federation, the court came to the conclusion that the amount of the penalty was reduced due to disproportion to the consequences of the breach of obligation.

Comments:

1. The buyer made an unreasonable claim to reduce the value of the business, referring to the relevant terms of the contract. However, the buyer interpreted the specified condition in a way that was beneficial to him. The specified condition of the contract establishes only the possibility for the parties to agree on a reduction in the cost, but does not oblige the seller to reduce the cost of the business at the request of the buyer. In addition, the percentage of reduction in value was taken as the maximum, that is, the buyer independently determined the percentage of reduction absolutely unreasonably.

2. At the same time, the buyer did not take into account the fact that any unconcluded lease agreement with the school is his entrepreneurial risk and is not at all a basis for an unconditional and arbitrary reduction in the value of the business in violation of the rights of the seller.

3. The court found that part of the lease agreements were concluded, and the other part was not concluded through no fault of the seller, but because these agreements were not approved by the Department of Education. At the same time, before the business transfer transaction, the seller entered into a number of lease agreements for premises that do not require approval. This was quite enough for the normal functioning of the business, and the buyer could not have been unaware of the state of affairs of the organization before the conclusion of the agreement to purchase the business. Also, the buyer did not independently attempt to coordinate the lease agreements with the authorized body.

4. The penalty collected under the counterclaim and its amount, determined by the court, taking into account Article 333 of the Civil Code of the Russian Federation, are justified and fair. Based on the principle of freedom of contract, the parties agreed on the condition of the penalty as a guarantee of the buyer. This condition should be interpreted literally, but the amount of the contractual penalty was clearly overstated, so the court reduced the amount of the penalty.

Please note that in 2020 the law firm Vetrov & Partners was marked by the industry rating of law firms Pravo.ru-300 in the nominations Arbitration Proceedings, Dispute Resolution in Courts of General Jurisdiction and is one of the regional companies throughout Russia in these nominations.

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