Facts

In April 2006, JFTC Inc., a Modesto printing and publishing company, entered into negotiations with 2455153 LLC, dba Litho Communications (Litho), to sell a portion of its printing business. The parties agreed orally to what was known as the "Premium Business and Equipment Purchase Agreement," whereby JFTC would sell to Litho the premium portion of its business along with its printing and bindery equipment for $1,467,000. Because creditors, both secured and unsecured, held security interests in the equipment, JFTC agreed to use the payment from the agreement to satisfy the obligations. Litho also agreed orally to assume the remaining three years of the lease where JFTC's business was operated for $16,000 a month. This allowed Litho to continue operating the business out of the same location.

Litho paid the requisite deposits, took possession of the premises, hired staff, and began operating the business. Litho paid about $16,000 in rent for May. Litho also made additional payments to JFTC bringing the total paid to $507,000. JFTC used the entire sum paid to arrange for a release of some, but not all, of the security interests. At that time, about $50,000 was still needed to secure the complete release of the security interests. On May 24, 2006, Litho provided a check for an additional $242,000. However, allegedly in contravention of their agreement, Litho began removing all equipment from the leased premises. In the process, Litho caused extensive damages to the building. On June 2, 2006, all equipment was successfully removed from the premises and Litho stopped payment on the $242,000 check. Litho made no further rent payments after this time.

PLAINTIFF'S CONTENTIONS:
JFTC claimed that a valid and enforceable agreement was in place with $960,000 remaining due.

DEFENDANT'S CONTENTIONS:
Litho claimed, in its cross-complaint, that they were first informed that there were no security interests on the property. Once JFTC's representative was confronted with the existence of the interests, Litho was assured that the consideration would be used for their release. However, when Litho insisted that JFTC obtain release of the interests, the request was refused. Litho claims that JFTC breached the sales agreement by failing to provide clear and unencumbered title at the time of sale, unbeknownst to Litho.

Damages

JFTC claimed $960,000, the balance remaining on the alleged contract. Litho claimed $612,000, the money expended on the equipment.

Result

The court found that no legally binding agreement was formed except for the sale agreement, which was breached by JFTC and therefore rescinded. Litho is entitled to all funds paid for the equipment and, upon full repayment, JFTC is entitled to the return of the equipment.

Other Information

FILING DATE: April 4, 2007.