Fabricare Article January/February, 2009

I'M SELLING MY DRY CLEANERS. SHOULD THE BUYER'S DEBT BE SECURED?

It's a scientific fact that green is easy on the eyes. That may partly account for the fact that sellers prefer to receive cash, bank, heavy bread, bones, buckage, a bundle, cabbage, lettuce, cake, heavy coin, jack, lace, dough, copper, dinero, doowacky, do re mi, gold or loot, rather than the buyer's IOU when selling a coin laundry.

If, however, as a seller, you are merely receiving chump change, birdseed, chickenfeed or peanuts as a down payment, and must take back the buyer's promissory note for the balance of the purchase price, read further.

When you obtain the buyers' promissory note, in the eyes of some buyers, you are receiving a promise to pay in the event the coin laundry is successful and the buyer believes he should pay you. On the other hand, if you hold a security interest in assets that the buyer wants to retain, the buyer will be encouraged to make the payments to avoid loss of these assets.

A security interest limited to equipment may not be sufficient to induce the buyer to remember you on payment days. If the equipment is outdated and needs replacement, there may be little incentive for the buyer to be concerned with your security interest, particularly if the buyer maintains a bank balance in the low two figures. If you foreclose on your security interest and remove your collateral from the coin laundry, you will likely recover very little at public sale and can look forward to being enmeshed in litigation to recover the balance due.

On the other hand, if you hold a security interest in the lease of the dry cleaner location as well as the equipment, in the event of non-payment, you will have a right to foreclose upon the entire operation and be in a position to resell the business as a turn-key operation.

Consider the opinion of the 9th Circuit Court of Appeals in the matter of In re Kim, 130 F.3d 863 (9th Cir. 1997), a matter involving Ardmor Vending Co., a distributor of coin laundry equipment in California. The Court stated:

"Holding both the lease and equipment gave [Ardmor Co.] a package that was worth more than if the two . . . . were valued separately . . . . This is why [Dave] Weiner, Chief Executive Officer of [Ardmor Co.], stated that in his many years of building, equipping and selling laundromats and dry cleaners, his company routinely took security interests in both the equipment it sold and the lease where the equipment was installed -- so that in the event of default, his company can sell them as a package."

Distributors of dry cleaning equipment routinely obtain an assignment of the lease as collateral security in addition to a security interest in the equipment sold, if financing the purchase of a substantial quantity of equipment. As the seller of a dry cleaners financing the purchase of the entire business should you do less in securing the buyer's debt?

There are many issues to be considered in crafting an appropriate assignment of lease as collateral security but with the right document, a seller will be well protected and a buyer will not likely object, particularly at the outset when he wants to assure you that he will make the payments as required.

[This column is intended to provide general information only and is not intended to provide specific legal advice; if you have a specific question regarding the law, you should contact an attorney of your choice. Suggestions for topics to be discussed in this column are welcome.] Reprinted from Fabricare
Myles M. Mattenson © 2009

	Myles M. Mattenson ATTORNEY AT LAW 5550 Topanga Canyon Blvd. Suite 200 Woodland Hills, California 91367 Telephone (818) 313-9060 Facsimile (818) 313-9260 *Email:* MMM@MattensonLaw.com *Web:* http://www.MattensonLaw.com	I'M Selling My Dry Cleaners. How Should The Buyer's Debt Be Secured?
Myles M. Mattenson engages in a general civil and trial practice including litigation and transactional services relating to the coin laundry and dry cleaning industries, franchising, business, purchase and sale of real estate, easements, landlord-tenant, partnership, corporate, insurance bad faith, personal injury, and probate legal matters. In providing services to the coin laundry and dry cleaning industries, Mr. Mattenson has represented equipment distributors, coin laundry and dry cleaning business owners confronted with landlord-tenant issues, lease negotiations, sale documentation including agreements, escrow instructions, and security instruments, as well as fraud or misrepresentation controversies between buyers and sellers of such businesses. Mr. Mattenson serves as an Arbitrator for the Los Angeles County Superior Court. He is also past chair of the Law Office Management Section of the Los Angeles County Bar Association. Mr. Mattenson received his Bachelor of Science degree (Accounting) in 1964 and his Juris Doctorate degree from Loyola University School of Law in 1967. Bi-monthly articles by Mr. Mattenson on legal matters of interest to the business community appear in alternate months in The Journal, a leading coin laundry industry publication of the Coin Laundry Association, and Fabricare, a leading dry cleaning industry publication of the International Fabricare Institute. During the period of May 1995 through September 2002, Mr. Mattenson contributed similar articles to New Era Magazine, a coin laundry and dry cleaning industry publication which ceased publication with the September 2002 issue. This website contains copies of Mr. Mattenson's New Era Magazine articles which can be retrieved through a subject or chronological index. The website also contains copies of Mr. Mattenson's Journal and Fabricare articles, which can be retrieved through a chronological index. In addition to Mr. Mattenson's trial practice, he has successfully prosecuted and defended appeals on behalf of his clients in various areas of the law. Some of these appellate decisions are contained within his website.