Explore a case where verbal promises to key employees in business sales led to legal complications. Learn how unwritten agreements can affect M&A deals and the importance of documenting such agreements.
February 19, 2020
Introduction:
It’s common for business sellers to promise key employees a portion of the sale proceeds. However, these promises are often verbal and not documented, which can lead to complications. This article discusses a case where an unwritten promise to a manager caused legal issues due to the lack of written agreement.
The Scenario:
In this case, an international freight forwarder (a company that handles shipping logistics) was sold for $7.5 million. The manager in charge of profits and growth was promised a share of this amount.
The Lawsuit:
After the sale, the manager sued the seller, claiming an oral agreement. The manager believed the seller was obligated to pay them $3 million from the sale. The seller denied the existence of such an agreement, and even if there was one, they argued it couldn’t be enforced under the Missouri statute of frauds. The seller sought to dismiss the lawsuit through a summary judgment motion.
Understanding the Statute of Frauds:
The Missouri statute of frauds requires certain agreements to be in writing and signed if they extend beyond a year or can’t be completed within a year. In this case, the agreement could and was fulfilled within a year. Thus, the agreement did not fall under the statute’s requirements. The legal battle is ongoing.
Comment:
This situation emphasizes the importance of putting agreements in writing, even if oral contracts might hold up in court. Written contracts serve as solid evidence, preventing the need for contentious and time-consuming legal battles based on conflicting recollections.
Case Reference:
This case is referred to as Niday v. Bulloch, Case No. 19-00195-CV-W-ODS, United States District Court, W.D. Missouri, Western Division (Filed January 30, 2020).
By John McCauley: I help companies and their lawyers minimize legal risk associated with small U.S. business mergers and acquisitions (transaction value less than $50 million).
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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