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Business Buy-Sell Contract Breach Lawsuit

A buy-sell contract breach can be quite a good tool. It may lock-in financial terms and ease separation. Business partners can move forward certain that they’ve taken the essential steps to defend their investment whether or not the situation changes. But how are you affected in the event the business buy-sell agreement gets triggered and things get ugly? One partner refuses to quit the goods - or worse - claims that the buy-sell agreement doesn’t exist or possibly is unenforceable…

That has been the problem when two partners, running a business and in bed, got to the end of your road. For a minimum of thirteen years, Jill and Jack (not their real names) co-owned a limited liability company (LLC). Jill owned two-thirds from the LLC and Jack owned the other one-third. The LLC owned a 500 acre farm that produced organic goat cheese, straw and hay. In addition to operating the farm LLC, Jill and Jack also cohabited occasionally along with two children together. Jill lived in the Farm.

Things came crashing down after Jill traveled to family court. Alleging that throughout their relationship Jack had, “subjected her to some continuing campaign of physical, sexual, verbal and mental abuse,” Jill asked for: (i) sole legal and physical custody of these two children; and (ii) a temporary order of protection requiring, among other things, that Jack steer clear of her and also the Farm. That took proper care of the personal end of things.

For getting control of the business, Jill wanted to buy-out Jack’s one-third of your LLC. As a result of temporary order of protection, Jack was cannot look at the Farm, and struggling to handle his business duties. Valuing the LLC property, assets and equipment at $806,000, Jill sent Jack a Letter offering for making “a lump sum payment of $268,666” for Jack’s one-third. Jack would must also say yes to other conditions and terms, including “a requirement that [he] not enter into any farming operation or reside within twenty miles of your [Farm].”

Buy-Sell Agreement or Offer to Negotiate?

Apparently agreeing to Jill’s offer Letter, Jack responded having a Buy-Sell Agreement. The Buy-Sell Agreement contained a great deal of what Jill had proposed in her own offer Letter. Jack included as well some additional terms and conditions, including “reduc[ing] the acquisition price by $1,100 to mirror cash that he or she pulled from the LLC's safe.” The Buy-Sell Agreement ended with all the following language, “[Jack] believes this agreement is usually a faithful representation among all matters formerly addressed, and affixes his signature below to affirm his acceptance of the agreement.” Before sending Jill the agreement, Jack signed the agreement “in the actual existence of a notary.”

At some point Jack got cold feet. After Jill had her attorney translate the Buy-Sell Agreement right into a “Membership Interest Purchase Agreement,” Jack hired an attorney to examine the acquisition agreement. Jack’s attorney came back with items that he thought were not in Jack’s favor. Jack’s feeling that Jill’s “claims of abuse were fabricated as part of an effort to force him out from the LLC,” probably didn’t help. After waiting a couple of months, Jill brought a lawsuit to force Jack to respect the company Buy-Sell Agreement then sell his share of the LLC.

Forcing Compliance with Buy-Sell Agreement

To achieve her goal, Jill asked the legal court to grant “specific performance.” New York courts may grant specific performance when: (i) one party substantially performed its contractual obligations; (ii) was willing capable to perform its remaining obligations; (iii) plus the other party surely could convey property, but didn’t; and (iv) there is not any other adequate remedy at law. Specific performance may be awarded if you find a sound existing contract. Montgomery Troy LLC v Vassell, 52 Misc.3d 1219(A) (Sup. Ct. Kings Cnty. 2016). Jack argued how the business Buy-Sell Agreement symbolized his need to continue negotiations. Not “a final and finish contract.”

Before advancing, let’s recap. Jill sent a Letter to Jack, offering to obtain Jack out. Jack responds by turning the offer Letter to a Buy-Sell Agreement. Jack signs the Agreement, has it notarized, and next sends the Buy-Sell Agreement to Jill. Jill then formalizes the Buy-Sell Agreement by creating and sending an investment agreement. Jack refuses to sign the acquisition agreement. Jill sues.

Court orders Specific Performance with Buy-Sell

The legal court ended up being agreeing with Jill. Finding that the Buy-Sell Agreement was the “acceptance of your offer,” a legal court granted Jill’s request and awarded specific performance. A minimum of three things sunk Jack’s argument. First, Jack in the Buy-Sell Agreement, “the essential regards to the transaction, including the add up to be paid...along with the timing of...payment.” Second, the Buy-Sell Agreement included the language that “[Jack] believes this agreement is usually a faithful representation of most matters formerly addressed...” Third, Jack signed the Buy-Sell Agreement, “in the existence of a notary.” Based partly on those facts, a legal court discovered that Jill “established that the binding contract was formed via the exchange of written communication between [Jill’s] counsel and [Jack].” Berle v Buckley, 18 Misc.3d 1124(A) (Sup. Ct. Rensselaer Cnty. 2008).

Successful Conclusion to get-Sell Ugliness

So there you will have it. When you applied for a company buy-sell agreement and the situation is getting ugly, specific performance may give you a solution. Your partner can refuse to sell, or perhaps pretend which the buy-sell agreement doesn’t exist or isn’t enforceable. When you can persuade the court, the court are able to use specific performance to make the deal through.

To actually request specific performance, you’ll have to show: (i) a legitimate, existing contract; (ii) under for which you substantially performed your contractual obligations; (ii) you are willing and able to perform any remaining obligations; (iii) the other party is able to convey property, but won’t; and (iv) which you have not one other adequate remedy at law. One more thing, borrow a page from Jill’s play-book and hire legal counsel sooner as opposed to later. Jill was proactive while Jack took his time.

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