Round Rock, TX asked in Consumer Law, Contracts and Business Law for Texas

Q: i owned a business & had a equipment lease for a credit card machine. i sold the business and leasing co. demands paymen

i asked co. if they wanted equip. back, they said yes. i returned it, they still want money, what are my options

1 Lawyer Answer
John Michael Frick
John Michael Frick
  • Frisco, TX
  • Licensed in Texas

A: It depends on the language of the equipment lease, the type of business, and the PSA pursuant to which you sold the business.

If the Lessee on the equipment lease is the business entity you sold, and you did not personally guaranty the lease, and the business entity you sold is a corporation or limited liability company, the leasing company ("Lessor") can only seek payment from the business entity; but if the business entity you sold is a partnership, the Lessor can also seek payment from each general partner of the partnership.

The PSA pursuant to which you sold the business could have conveyed the business entity by transferring ownership of the entity (loosely, a sale of equity) or it could have conveyed the business entity by transferring ownership of the assets of the entity (loosely, an asset purchase agreement).

An asset purchase agreement technically can, but usually doesn't, also convey some or all of the liabilities of the business to the Buyer. Something like a credit card machine, which might be useful for the continued operation of the business, could be an exception under certain circumstances, but since you said you returned the machine, probably not in your case. In that instance, the original entity that is named as Lessor can be sued by the Lessee, and the money it received from the Buyer for its assets is available to pay the Lessor anything due under the lease. If the Lessee is a limited liability company, the Business Code prohibits it from making any distribution to members (i.e. giving you as a member any money from the sale) until the company's trade debtors (like the leasing company) have been paid.

A sale of equity (called a stock purchase agreement if the entity is a corporation) usually leaves the business entity whose equity is being acquired liable as the Lessee on an equipment lease. But such an agreement may include indemnity obligations requiring the Seller to indemnify the Buyer for certain liabilities, very likely including any undisclosed liabilities.

It is not uncommon for PSAs, whether they are asset purchase agreements or stock purchase agreements, to have specific provisions addressing capital equipment leases. Most forms used as guides for the preparation of such an agreement include sample provisions which the parties can customize according to their needs and the substance of their agreement.

You should take the equipment lease and PSA pursuant to which you sold the business to an attorney practicing in the area of either business litigation or commercial litigation or commercial collections for a more detailed explanation, preferably to the attorney who prepared the PSA when you sold your business as he/she will be more familiar with the terms of that particular agreement and will be able to provide an answer quicker, and therefore, cheaper.

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