Business Buy-Sell Contract Breach Lawsuit

A business buy-sell agreement can be quite a good tool. It can lock-in financial terms and ease separation. Business partners can move ahead certain that they’ve taken the desired steps to shield their investment whether or not the situation changes. But what happens once the business buy-sell agreement gets triggered and things get ugly? One partner refuses to give up the goods - or worse - claims which the buy-sell agreement doesn’t exist or possibly is unenforceable…

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Which had been the situation when two partners, operating a business and in bed, arrived at the final in the road. For around thirteen years, Jill and Jack (not their real names) co-owned a small liability company (LLC). Jill owned two-thirds of 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 on occasion along with two children together. Jill lived around the Farm.

Things came crashing down after Jill went along to family court. Alleging that in their relationship Jack had, “subjected her to your continuing campaign of physical, sexual, verbal and mental abuse,” Jill requested: (i) sole legal and physical custody of these two children; and (ii) a short-term order of protection requiring, amongst other things, that Jack avoid her along with the Farm. That took care of the personal end of things.

For getting control over the organization, Jill wanted to buy-out Jack’s one-third from the LLC. Because the temporary order of protection, Jack was unable to 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 to make “a lump sum payment of $268,666” for Jack’s one-third. Jack would must also agree to other terms and conditions, including “a requirement that [he] not get into any farming operation or reside within twenty miles of the [Farm].”

Buy-Sell Agreement or Offer to barter?

Apparently agreeing to Jill’s offer Letter, Jack responded which has a Buy-Sell Agreement. The Buy-Sell Agreement contained the majority of what Jill had proposed in their own offer Letter. Jack also included some additional conditions and terms, including “reduc[ing] the investment price by $1,100 to mirror cash he taken 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 this agreement.” Before sending Jill the agreement, Jack signed the agreement “in the inclusion of a notary.”

Sooner or later Jack got cold feet. After Jill had her attorney translate the Buy-Sell Agreement in a “Membership Interest Purchase Agreement,” Jack hired a lawyer to review the buying agreement. Jack’s attorney came back with issues that he thought were not in Jack’s favor. Jack’s feeling that Jill’s “claims of abuse were fabricated as an element of an endeavor to make him out of the LLC,” probably didn’t help. After waiting a few months, Jill brought a lawsuit to make Jack to respect the business Buy-Sell Agreement then sell his share in the LLC.

Forcing Compliance with Buy-Sell Agreement

To accomplish her goal, Jill asked the court to grant “specific performance.” Ny courts may grant specific performance when: (i) one party substantially performed its contractual obligations; (ii) was willing capable to perform its remaining obligations; (iii) as well as the other party surely could convey property, but didn’t; and (iv) there is absolutely no other adequate remedy at law. Specific performance may be awarded should there be a real existing contract. Montgomery Troy LLC v Vassell, 52 Misc.3d 1219(A) (Sup. Ct. Kings Cnty. 2016). Jack argued that the business Buy-Sell Agreement symbolized his preference to continue negotiations. Not “a final and complete contract.”

Before continuing to move forward, let’s recap. Jill sent a Letter to Jack, offering to purchase Jack out. Jack responds by turning the offer Letter i
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