Selling a business without transferring the customer base – What to do?
You have just bought a craft business and you notice that the seller has not passed on his customer base or the business telephone list associated with the business.
Despite having paid the transfer price in full, the transferee is continuing to run the business as if nothing had happened?
First of all, you need to make sure that your property qualifies as business premises.
Secondly, you can take action for failure to transfer the customer base on three legal grounds.
What is a fonds artisanal?
Artisanal businesses are civil activities carried out by an operator (the artisan) who is subject to the sole proprietorship regime.
A craftsman is someone who earns most of his professional income frommanual labour.
The transfer of acraft business (known as the transfer of a craft business) is not subject to any special provisions. The provisions of the Commercial Code relating to the sale of a business are therefore excluded (Cass. com. 29-10-1963, D. 1964.51: exemption from publication).
Reclassification of a small business as a business
Nevertheless, it is advisable to comply with the formalities for the transfer of a business to avoid the possibility of the business being reclassified as a business.
Case law uses two criteria to distinguish a craftsman from a trader(Cass. com., 21 May 1985: Bull. civ. IV, no. 16):
- the number of employees, and
- the proportion of professional income derived from manual work.
For example, a taxi driver operating a single vehicle belonging to him is a craftsman.
However, the taxi business becomes commercial if the company employs more than ten people.
In this case, the transfer of the taxi business will be subject to the same legal rules as the transfer of a business.
As a result, you can claim that the transferor has breached the legal rules governing the transfer of a business if any of the rules set out in this section are breached.
What should you do if you sell a business without a customer base?
A taxi business consists of the following elements:
- a customer base, without which the
- a vehicle,
- special equipment, and
- a parking permit.
If you are the transferee, you have three options for taking action against your transferor in the event of the transfer of a business without a customer base:
Action for nullity based on consideration
There are two possible arguments in support of this claim:
| Argument no. 1 Failure to mention the customer base in the transfer deed (lack of consideration) | Argument no. 2 Transfer of an administrative parking permit without customers (illusory consideration) |
Lack of consideration is where the seller undertakes to transfer ownership of something that does not exist.
On the basis of article 1168 of the Civil Code, case law equates an imbalance between the parties’ performances with a lack of consideration.
In this case, the contract at issue could not be described as a transfer of a taxi business, but as a simple transfer of a meaningless administrative parking permit.
As aresult, you can bring an action to have the transfer declared null and void on the grounds that the deed does not include a customer base. | Case law deduces from article 1169 of the French Civil Code that the parties must agree on real consideration at the time the contract is formed. (Cass. civ. 1e, 3 July 1996, “Point club vidéo” ruling).
In a contract of sale, the delivery of the thing is the consideration for the payment of a price that is not derisory, and vice versa. However, if your seller transfers to you the administrative parking permit without transferring his customer base or the business telephone line attached to the business, you can argue that there is no real consideration in order to have the contract annulled. |
Action for annulment of the sale for lack of subject matter
Article 1583 of the Civil Code states that the essential elements of a contract of sale are the thing and the price.
A sale is therefore only possible on two conditions:
- The thing exists (within the meaning of article 1601 of the Civil Code), and
- The thing is identified, in the sense that the performance that is the object of the obligation must be possible and determined or determinable(article 1163 of the Civil Code).
Failing this, the contract is void for lack of subject matter(Cass. civ.3e, 24 Jan. 2019, no. 17-25.793).
Case law has ruled that a transfer of company shares resulting from their disappearance as a result of a merger by absorption is null and void for lack of purpose (Cass. com., 26 May 2009, no. 08-12.691).
Claim for restitution of the sale price and damages for breach of the warranty against the risk of eviction
- What is the warranty against the risk of eviction?
The guarantee against the risk of eviction is an undertaking given by the transferor to ensure that the transferee has peaceful possession of the thing transferred after delivery (article 1628 of the Civil Code).
In this respect, the assignor undertakes to :
- refrain from interfering with the purchaser’s peaceful possession of the property (personal eviction), and
- guarantee the transferee against disturbances by third parties (third-party eviction).
- What are the penalties?
Article 1630 of the Civil Code provides for four cumulative penalties for breach of the warranty against the risk of eviction:
1° restitution of the price ;
2° restitution of the fruits, where the owner is obliged to return them to the person who evicted him;
3° costs incurred on the buyer’s warranty claim, and those incurred by the original claimant;
4° finally, damages and interest, as well as the costs and fair costs of the contract.
For more information on how the law applies to you, you can contact our team of lawyers, who will draw up a strategy tailored to your situation.
