to closing, James continued to orally represent to Nacey and Nelson that first quarter 1997 would be strong and that both receivables and payables were in good shape. Although the buyers and their attorney, Saunders, continued to request updated financial information for 1997, it was never provided. Accordingly, Saunders drafted the asset purchase agreement to include stringent representations and warranties by the sellers regarding the accuracy, completeness, and nonmisleading quality of the information that had been supplied to the buyers. The following provisions appeared in the asset purchase agreement:
Seller represents and warrants, and acknowledges that, (i) notwithstanding any investigation Buyer may undertake, Buyer is relying on the following representations and (ii) except as otherwise specifically provided herein, the same shall be true on the date hereof and as75 days old, and the company's main vendor threatened cancellation unless Nacey and Nelson made an immediate $90,000 payment. In addition, a large portion of receivables were so aged as to be largely uncollectible. The December 31, 1996 financial statement showed accounts receivable amounting to $316,658, and James had represented before closing that the business had $335,000 in receivables. However, despite significant effort, Nacey and Nelson were only able to collect approximately $244,000. Finally, the business simply did not perform well. Contrary to James' representations regarding the company's continued good performance, the company had in fact entered a dramatic tailspin in the second quarter of 1996 from which it would ultimately never recover.
After taking over the business, the buyers discovered that the sellers had removed from the business