When is a deal a deal? | Ward and Smith, Pennsylvania

Often individuals attempt to negotiate agreements on their own without the benefit of legal advice and assistance.

At best, it can lead to some pitfalls. At worst, it can lead to the complete invalidity of the attempted transaction. Below are some examples of agreements that are particularly likely to encounter obstacles.

Oral transactions for the sale of property or real estate

Certain types of contracts must be in writing and signed by the parties to be considered legally binding. This requirement is known as fraud status. It applies to transactions involving the sale of goods of $500 or more and the sale of land. Remember that oral agreements for such things will not be valid if/when enforcement issues arise.

Unwritten long-term leases

In the same vein, leases and affermage contracts for a period of more than three years are deemed void if they are not recorded in writing, signed by the parties.

Agreements between competitors not to compete in certain geographical areas or on certain projects

Antitrust laws are designed to promote competition and prevent monopolies. When companies agree not to compete in certain areas or on certain projects, this directly affects competition and antitrust implications arise. North Carolina courts will enforce a non-competition clause entered into in connection with the sale of a business “(1) if reasonably necessary to protect the legitimate interest of the purchaser; (2) if it is reasonable in terms of time and territory; and (3) whether it does not interfere with the public interest. Reasonableness is the touchstone of the analysis. When delineating the geographic scope of a non-competition agreement, it must be narrow and limited to the direct area in which the protected company had a clientele. Similarly, for restrictions on engagement in certain projects or activities. Courts will not uphold prohibitions on engaging in lawful activities that do not significantly impinge on legitimate business interests.

Agreements for the sale of businesses or business assets

Running a business requires an influx of capital. Often, entrepreneurs turn to financial institutions or, especially in the wake of the global pandemic, government lenders for financing. The main transaction document for such financing is a loan agreement, which defines the terms of the loan, the borrowing and repayment procedures, including interest and fees, and the obligations and responsibilities of the lender and the borrower. Particularly where a loan will be outstanding for a number of years, a lender is likely to require some level of control over the borrower’s day-to-day business operations in the form of covenants. A typical negative covenant that might be included in a loan agreement is a limitation on the sale of the business or its assets. This makes sense, as it is usually the borrower’s assets that have been instrumental in the lender’s decision to lend funds in the first place. Before entering into an agreement to sell your business or its assets, check any outstanding loan agreements with banks or government lenders to see if their pre-approval is a requirement.

Agreements to distribute estate assets in a manner inconsistent with a will

Generally, a will has no legal effect until it is “verified” or deemed authentic. The validity of a will can be formally challenged through a legal process known as filing of warning notice. After caveat proceedings have been initiated but before judgment is entered, the parties may come to an agreement regarding the proper distribution of estate assets in a manner inconsistent with the will. If such an agreement is reached, it must be approved by the superior court. In the absence of a court-approved settlement agreement, the executor or administrator of an estate can only distribute estate assets in accordance with the will. The fact that some or all of the beneficiaries may wish for a different distribution scheme is not sufficient.

Agreements to end a business relationship

As with any agreement, there must be a genuine convergence of views between the parties on its essential terms and conditions. This can be difficult to achieve when tensions are high and time is running out as two or more people try to separate. Here is a checklist of things to keep in mind when crafting an agreement to end a business relationship:

  • Define all the key terms of the agreement precisely and put them in writing to ensure that you and the other party are agreeing to the same thing at the same time.
  • If the agreement provides for a buyout, include the total and specific amount of money and provide the breakdown of the amount, if applicable. Do not leave any parts of the redemption unspecified or “to be determined”.
  • Consider recording the agreement in a formal written contract to distinguish it from any communication between you and the other party while you were negotiating the terms of the agreement.
  • Consider whether a mutual general release is appropriate.
  • Consider setting a deadline by which the deal must be done. This is an important consideration so as not to disrupt ongoing business operations.

With the advent of the internet, smartphones, and smart virtual assistants like Alexa, we have an answer to any question at our fingertips, and it can be tempting to want to do it yourself. The examples above show why it can sometimes be essential to seek legal advice to ensure that your case is truly closed.

Bryce K. Locke