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  • Wheeler Riley posted an update 2 years, 5 months ago

    A contract breach lawsuit can be quite a good tool. It could lock-in financial terms and ease separation. Business partners can progress positive that they’ve taken the desired steps to defend their investment even if your situation changes. But what goes on as soon as the business buy-sell agreement gets triggered and things get ugly? One partner refuses to give up the goods – or worse – claims that the buy-sell agreement doesn’t exist or is unenforceable…That has been the issue when two partners, in business as well as in bed, got to the conclusion of the road. For at least thirteen years, Jill and Jack (not their real names) co-owned a small liability company (LLC). Jill owned two-thirds from the LLC and Jack owned another one-third. The LLC owned a 500 acre farm that produced organic goat cheese, straw and hay. Along with operating the farm LLC, Jill and Jack also cohabited on occasion along with two children together. Jill lived on the Farm.Things came crashing down after Jill went to family court. Alleging that throughout their relationship Jack had, “subjected her to a 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, among other things, that Jack keep away from her along with the Farm. That took good care of the personal end of things.To get power over the organization, Jill chosen to buy-out Jack’s one-third in the LLC. Due to the temporary order of protection, Jack was cannot browse the Farm, and not able to handle his business duties. Valuing the LLC property, assets and equipment at $806,000, Jill sent Jack a Letter offering for making “a one time payment payment of $268,666” for Jack’s one-third. Jack would also have to agree to other stipulations, including “a requirement that [he] not enter into any farming operation or reside within twenty miles in the [Farm].”Buy-Sell Agreement or Offer to barter?Apparently agreeing to Jill’s offer Letter, Jack responded with a Buy-Sell Agreement. The Buy-Sell Agreement contained a lot of what Jill had proposed in their offer Letter. Jack also included some additional conditions and terms, including “reduc[ing] the purchase price by $1,100 to mirror cash that they taken off the LLC’s safe.” The Buy-Sell Agreement ended along with the following language, “[Jack] believes this agreement is 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 inclusion of a notary.”At some time Jack got cold feet. After Jill had her attorney translate the Buy-Sell Agreement into a “Membership Interest Purchase Agreement,” Jack hired a lawyer to examine the acquisition agreement. Jack’s attorney came back with things which he thought were not in Jack’s favor. Jack’s feeling that Jill’s “claims of abuse were fabricated together with an effort to force him from the LLC,” probably didn’t help. After waiting a couple of months, Jill brought a lawsuit to force Jack to respect this company Buy-Sell Agreement and then sell his share in the LLC.Forcing Compliance with Buy-Sell AgreementTo accomplish her goal, Jill asked the court to grant “specific performance.” The Big Apple courts may grant specific performance when: (i) one party substantially performed its contractual obligations; (ii) was willing capable to perform its remaining obligations; (iii) and also the other party was able to convey property, but didn’t; and (iv) there is no other adequate remedy at law. Specific performance may only be awarded when there is a valid existing contract. Montgomery Troy LLC v Vassell, 52 Misc.3d 1219(A) (Sup. Ct. Kings Cnty. 2016). Jack argued which the business Buy-Sell Agreement symbolized his desire to continue negotiations. Not “a final and complete 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 after that sends the Buy-Sell Agreement to Jill. Jill then formalizes the Buy-Sell Agreement by creating and sending a purchase agreement. Jack refuses to sign the purchase agreement. Jill sues.Court orders Specific Performance with Buy-SellA legal court ended up being agreeing with Jill. Finding that the Buy-Sell Agreement was the “acceptance of your offer,” the legal court granted Jill’s request and awarded specific performance. A minimum of three things sunk Jack’s argument. First, Jack as part of the Buy-Sell Agreement, “the essential relation to the transaction, such as the amount to be paid…as well as the timing of…payment.” Second, the Buy-Sell Agreement included the language that “[Jack] believes this agreement is actually a faithful representation of all matters formerly addressed…” Third, Jack signed the Buy-Sell Agreement, “in the presence of a notary.” Based partly on those facts, a legal court found out that Jill “established which a binding contract was formed with 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 obtain-Sell UglinessSo there you might have it. When you put into a small business buy-sell agreement and things are getting ugly, specific performance may offer a way out. Your partner can refuse to sell, as well as pretend the buy-sell agreement doesn’t exist or isn’t enforceable. Whenever you can persuade the legal court, the legal court can make use of specific performance to make the sale through.To successfully request specific performance, you’ll have to show: (i) a sound, existing contract; (ii) under you substantially performed your contractual obligations; (ii) you are willing and able to perform any remaining obligations; (iii) which the other party will be able to convey property, but won’t; and (iv) that you may have not one other adequate remedy at law. One more thing, borrow a page from Jill’s play-book and hire legal counsel sooner rather then later. Jill was proactive while Jack took his time.For help or if you have questions, click on your free lawyer consultation.