Article courtesy of Jeff Dutson of King & Spalding
Seller corporation entitled to recover full purchase price under asset purchase agreement from purchaser corporation’s owners.
Shorter Bros., Inc. v. Vectus 3, Inc., No. 1190876, 2021 WL 2622054 (Ala. June 25, 2021).
A company that owned delivery trucks and operated delivery routes (the “Seller”) entered into an asset purchase agreement (the “APA”) with a company (the “Purchaser”) formed by two brothers (the “Owners”) to purchase the rights to the Seller’s contract for delivery routes and nine delivery trucks (the “Assets”). The APA obligated the Purchaser to wire the purchase price of $400,000 for the Assets at closing. Due to concerns that the Purchaser would not obtain the financing loan it needed to wire the purchase price at closing, the APA contained a financing contingency provision that required the Purchaser to (i) pay a weekly rental fee for the delivery trucks, a $40,000 payment two months after closing, and monthly payments and (ii) diligently seek to secure the financing loan to pay-off remaining balance including interest. The Purchaser failed to obtain the financing loan and as a result began paying the weekly rental fees, $40,000 payment, and the monthly payment. After several months, the Purchaser ceased making any payments.
The Seller commenced an action against the Purchaser and the Owner (i) asserting claims of breach of contract, unjust enrichment, and conversion and (ii) seeking to pierce the corporate veil and hold the Owners personally liable for the Purchaser’s actions. The trial court entered summary judgement in favor of the Seller and awarded damages in an amount equal to the purchase price.
On appeal, the Supreme Court of Alabama (the “Court”) affirmed the trial court’s ruling to pierce the corporate veil to hold the Owners personally liable for the Purchaser’s actions. Specifically, the Court found that the evidence submitted by the Seller showed that the Owners did not observe the corporate form and that their misuse of the corporate form left the Seller with little recourse. With respect to the Seller’s counter-appeal for a higher damages reward, the Court found that the Seller’s total damages calculation was flawed and, thus, they could not find that the trial court erred in rejecting it.
