According to the court record Sandro misrepresented to Cathart the financial status of Targa at the time of the SPA:
"As found above, Genesis stands in the shoes of Nascent [ as its legal "assignee" - jocust ] , and is subject to the defenses Nery’s has against Nascent. The court concludes Nascent materially breached the SPA it entered into with Nery’s and, furthermore, the breaches were immediate upon execution of the SPA. The breach was multifaceted, consisting of several failures by Nascent, many of which would serve as an independent basis for breach.
Nascent represented that the accounts payable (interchangeable with
“liabilities”) did not exceed $150,000. In truth, total liabilities claims exceeded over $800,000, over $550,000 of which were paid or negotiated by Nery’s.
Within two months of executing the SPA, Nery’s first learned of pre-existing liabilities exceeding $300,000 over and above the $149,000 disclosed bank liabilities earlier incurred by Targa to purchase product. The misrepresentations regarding accounts payable/liabilities by Nascent were grossly negligent,2 if not reckless, and consisted of a material breach of the contract excusing further
performance by Nery’s, and independently constituting a basis for rescission.
Nascent further represented in the SPA that all of Targa’s accounts
receivable were collectible. In truth and in fact, they were not and, under the circumstances of Nery’s acquiring Targa on such a precarious basis with only $300,000 cash to resurrect the moribund Targa, this misrepresentation constituted a material breach and was sufficient to justify rescission.
Nascent further represented in the SPA that all labor costs and liabilities were paid and/or fully funded. In truth and in fact, they were not and, given that almost $50,000 was due under the circumstances discussed above, this misrepresentation constituted a material breach and was sufficient to justify rescission.
In addition, Nascent represented that no tax liabilities or liens existed. In truth and in fact, at the time the parties entered into the SPA, approximately $285,000 of such obligations of Targa existed, constituting another grossly negligent or reckless misrepresentation by Nascent which was material at the time of contract formation and sufficient for rescission by Nery’s.
Nascent also represented in the SPA that it would defend, indemnify, and hold harmless Nery’s for any loss or liability resulting from a breach of any representation or warranty of the SPA. It is fair to say that this promise, so important to Nery’s as it provided for Nery’s’ sole recourse, was itself breached when Nascent was unable to reimburse Nery’s for the most minimal undisclosed pre-existing liabilities such as product arrearages to vendors and “front door demands” for past taxes due to be paid in cash. As Cathcart attempted to pass those bills, statements, and demands for payment directly to Nascent through Piancone and Alvarez, Nascent declared its inability to indemnify in even the smallest amounts. The misrepresentations related to indemnification were, under the circumstances, unconscionable on the party Nascent, and the indemnification remedy itself totally illusory and fictional. All of those representations were material and of themselves sufficient to justify rescission. Further material breaches were committed by Nascent regarding the transfer of taxes due by Targa.
The parties have acknowledged that Nascent’s breaches were immediate and material."
