Right to a Settlement Check After Selling a Business

Attorney Answer

Who is entitled to that check depends on what the sale agreements actually transferred — not on whose name the original lawsuit against the beer company was filed under.

Civ. Code § 954 provides that "a thing in action, arising out of the violation of a right of property, or out of an obligation, may be transferred by the owner." A legal claim is property, and like any other business asset it can be sold, assigned, or expressly held back by the seller.

Code Civ. Proc. § 367 requires that "every action must be prosecuted in the name of the real party in interest." Entitlement follows whoever legally holds the claim now, not whoever filed the original complaint. So the fact that the case was filed by the prior owner does not by itself mean the recovery is his today — what matters is whether, when he sold the business, the claim went with it or was carved out and retained.

The check being issued in your business's name is meaningful evidence about how the paying party understood ownership of the claim, but it is not conclusive if the sale documents say otherwise. Because the business changed hands twice, the answer runs through both transactions: the claim can only have reached you if it passed through each one.

For an illustration of how a claim can travel with a broader transfer, cf. White Mountains Reinsurance Co. of America v. Borton Petrini, LLP (2013) 221 Cal.App.4th 890, 164 Cal.Rptr.3d 912, where the Court of Appeal recognized a narrow exception to California's general rule barring assignment of a legal malpractice cause of action and held that such a claim did pass to a successor insurer — because the transfer was only a small, incidental part of a larger commercial cession of assets, rights, obligations and liabilities, was not made to a former adversary, and never treated the claim as a separate commodity. That decision is published and binding on California trial courts, but its holding is confined to malpractice assignability; it is not authority for a general rule that unlisted claims automatically pass with a business sale, and it is no substitute for reading what your two sale agreements actually say.

What you can do

1. Get copies of both sale agreements — the original owner's sale, and your own purchase — and check whether either addresses pending claims, lawsuits, or receivables.

2. Look specifically for "excluded assets" or "retained claims" language, since sellers sometimes carve pending litigation out of a sale.

3. Do not deposit or negotiate the check, and do not agree to anything with the prior owner, until an attorney has reviewed the chain of sale documents.

4. If he claims he personally retained the claim, ask him in writing for the document that says so, since the check was issued in the business's name.

5. Consult a California business attorney to review both transactions and advise on how to respond to his demand.