I am being threatened with lawsuit after backing out of a signed small business purchase contract. Do they have a case?

To be clear, ‘will they win’ is different than ‘do they have a case.’  I don’t know whether they will win or not, but it sounds like there’s enough there for a lawsuit against you for a breach of contract.  For that, I’m seeing that there was a contract, deposit, performance initiated and then a breakdown of the contract.  They are going to allege they were doing everything the contract called for and you breached the contract by deciding not to tender the $27k and go through with the sale.  Now, that said, sounds like you’ve got a defense.  However, without seeing the contract it is hard to say the strengths or weaknesses of either party’s stance.  Also, I’m not sure what assets and liabilities were involved with the sale.  For future reference, in my experience, having an attorney involved in a buy/sale of a business for a couple grand will save you these headaches and help get you set up on the right path.  In any case, this is a serious issue because depending upon the contract provisions, they could have an attorney seek specific performance against you (that is, make you go through with the sale) or, perhaps more likely, they sue you for damages resulting from your backing out of the sale.  I would highly suggest consulting a business litigation attorney as soon as possible with the contract in hand.  Unfortunately, this venue does not lend itself to a discussion of all possible contingencies, and it also doesn’t provide the confidentiality of a lawyer’s office.  Act sooner rather than later.