NSW Stock at Value Paid - Claim Money Back Under Commercial Law?

[Basically_KT]

Hi there,

I have bought a business (due for settlement soon), however, I have already paid the vendor for SAV. Once paid, I discovered a cockroach infestation and have had to throw out most of the stock we paid for. Since it is not good or saleable stock (as specified in the contract), can we claim back this money? Or is it on us, under Commercial Law, as we didn't discover the infestation until after we handed the money over?

 

[Rob Legat - SBPL]

I'm not familiar with NSW business contracts, but would consider they work roughly the same as Queensland ones.

If settlement hasn't happened yet, you shouldn't have paid anything past a deposit. Look to the terms of your contract as (a) stock adjustment before settlement and (b) at whose risk the business and stock is pending settlement. There may be insurance coverage.

If there's a stock adjustment/stocktake prior to settlement, that's your opportunity to negotiate on price.

If there's a separate agreement for the purchase of stock which has already been completed, you may be out of luck unless you can prove negligence on the part of the business owner.

 

[Adam1user]

Hello Rob,

I like to ask, whether the owner can argue that the purchaser did not do/perform all the inspections beforehand (purchaser responsibility), therefore, it would not fall under the terms you mentioned, and therefore, the sale should go ahead? As the terms you mentioned don't relate to this issue?

As I understand, the stock adjustment relates, for example, if the stock should be 1000 units as per the contract and the buyer found 900 units only? as you can see the infestation does not relate to this?

Thanks

 

[Rob Legat - SBPL]

It will depend on the terms of the contract. Because stock is a variable thing, most contracts provide some form of the following:

- The terms of the contract may (or may not) apply for a maximum figure for stock;

- On or just before completion of the contract, the seller and buyer carry out a stocktake;

- The parties agree on a figure for the stock to be paid at settlement on the basis of the stocktake. This is where you take into account not just its value, but whether it's "good and saleable";

- If the figure is above the maximum under the contract (if included), the buyer may exclude some of the stock from what is purchased. They can generally elect to take it all, if they choose; and

- If the parties can't agree on the value, there's a mechanism for some independent expert to arbitrate the value.

Most contracts won't bother with units, but the standard conditions can always be varied. It's entirely possible the contract may provide the buyer will pay a set maximum figure for stock and take up to X units of this and Y units of that.