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Business Buy-Sell Contract Breach Lawsuit
  • A contract breach lawsuit could be a good tool. It may lock-in financial terms and ease separation. Partners can move forward certain that they’ve taken the essential steps to safeguard their investment whether or not the situation changes. But how are you affected when the business buy-sell agreement gets triggered and things get ugly? One partner refuses to stop the goods - or worse - claims the buy-sell agreement doesn’t exist or possibly is unenforceable…


    Which had been the situation when two partners, in business and then in bed, got to the final in the road. For at least thirteen years, Jill and Jack (not their real names) co-owned a restricted 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 occasionally along with two children together. Jill lived on the Farm.

    Things came crashing down after Jill traveled to family court. Alleging that in their relationship Jack had, “subjected her to the continuing campaign of physical, sexual, verbal and mental abuse,” Jill asked for: (i) sole legal and physical custody of the two children; and (ii) a temporary order of protection requiring, among other things, that Jack keep away from her plus the Farm. That took good care of the individual end of things.

    To get control over this business, Jill decided to buy-out Jack’s one-third from the LLC. As a result of temporary order of protection, Jack was struggling to visit 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 one time payment payment of $268,666” for Jack’s one-third. Jack would also need to accept to other stipulations, including “a requirement that [he] not get 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 which has a Buy-Sell Agreement. The Buy-Sell Agreement contained much of what Jill had proposed in the offer Letter. Jack also included some additional conditions and terms, including “reduc[ing] the acquisition price by $1,100 to mirror cash he pulled from the LLC's safe.” The Buy-Sell Agreement ended with all the following language, “[Jack] believes this agreement can be a faithful representation of most matters formerly addressed, and affixes his signature below to affirm his acceptance on 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 to a “Membership Interest Purchase Agreement,” Jack hired legal counsel to check the buying agreement. Jack’s attorney came back with stuff that he thought were not in Jack’s favor. Jack’s feeling that Jill’s “claims of abuse were fabricated as part of an endeavor to make him out from the LLC,” probably didn’t help. After waiting a couple of months, Jill brought a lawsuit to make Jack to respect the business Buy-Sell Agreement and then sell on his share in the LLC.

    Forcing Compliance with Buy-Sell Agreement

    To complete her goal, Jill asked the legal court to grant “specific performance.” New York City courts may grant specific performance when: (i) one party substantially performed its contractual obligations; (ii) was willing and able to perform its remaining obligations; (iii) and the other party managed to 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 legitimate existing contract. Montgomery Troy LLC v Vassell, 52 Misc.3d 1219(A) (Sup. Ct. Kings Cnty. 2016). Jack argued that this business Buy-Sell Agreement symbolized his need to continue negotiations. Not “a final and finish contract.”

    Before moving forward, let’s recap. Jill sent a Letter to Jack, offering to acquire Jack out. Jack responds by turning the offer Letter right into a Buy-Se