When Is a Deal a Deal?

Two hands holding jigsaw

Oftentimes, individuals attempt to negotiate deals on their own without the benefit of legal advice and assistance.

At best, this can lead to certain pitfalls. At worst, this can lead to the complete invalidity of the attempted transaction. Below are a few examples of deals that are particularly susceptible to stumbling blocks.

Oral deals for the sale of goods or real estate

Certain kinds of contracts must be memorialized in writing and signed by the parties to be considered legally binding. This requirement is known as the statute of frauds. It applies to deals for the sale of goods for $500 or more and for the sale of land. Be mindful that oral deals for such things will not be valid if/when enforcement issues arise.

Long-term unwritten leases

In the same vein, leases and contracts for leasing land in excess of three years are considered void unless evidenced by a writing, signed by the parties.

Agreements between competitors not to compete with each other in certain geographic areas or on certain projects

Antitrust laws are designed to promote competition and prevent monopolies. When businesses agree not to compete with each other in certain areas or on certain projects, this directly affects competition and antitrust implications arise. North Carolina courts will enforce a covenant not to compete made in connection with the sale of a business “(1) if it is reasonably necessary to protect the legitimate interest of the purchaser; (2) if it is reasonable with respect to both time and territory; and (3) if it does not interfere with the interest of the public.” Reasonableness is the touchstone of the analysis. When delineating the geographic scope of a non-compete agreement, it should be narrow and limited to the direct area the protected business had clientele in. Likewise, for restrictions on engaging in certain projects or activities. Courts will not uphold prohibitions on engaging in lawful activities which do not impinge upon legitimate business interests in any meaningful way.

Agreements to sell businesses or business assets

Running a business requires an influx of capital. Oftentimes, entrepreneurs look to financial institutions or, particularly in the wake of the global pandemic, government lenders to secure financing. The main transaction document for such financing is a loan agreement, which sets out the loan's terms, borrowing and repayment procedures, including interests and fees, as well as the obligations and liabilities of both the lender and the borrower. Particularly when a loan will be outstanding for a number of years, a lender is likely to require a certain level of control over the borrower's day-to-day business operations in the form of covenants. A typical, negative covenant that could be included in a loan agreement is a limitation on the sale of the business or its assets. This makes sense because it is generally the borrower's assets that were critical in the lender's decision to loan funds in the first instance. 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 prior approval is a requirement.

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

As a general rule, a will has no legal effect until it is "probated" or deemed to be genuine. The validity of a will can be formally challenged in a legal proceeding known as the filing of a caveat. Once a caveat proceeding has been initiated but before judgment is entered, the parties may come to an agreement regarding the appropriate distribution of estate assets in a manner that is 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 may only distribute assets from the estate as provided in the will. The fact that some or all of the beneficiaries may want a different distribution scheme is not sufficient.

Agreements to end a business relationship

As with any agreement, there must be a true meeting of the minds amongst the parties on its essential terms and conditions. This can be difficult to achieve when tensions are high and time is of the essence as two or more individuals attempt to go their separate ways. Here is a checklist of things to keep in mind when working out an agreement to end a business relationship:

  • Precisely define all key terms of the agreement and put them in writing to make sure you and the other party are agreeing to the same thing at the same time.
  • If the agreement contemplates a buyout, include the total, specific sum of money and provide the breakdown of the sum, if applicable. Do not leave portions of the buyout unspecified or "to be determined."
  • Consider memorializing the agreement in a formal written contract to distinguish it from any back and forth communication between you and the other party when you were in the process of negotiating the terms of the agreement.
  • Consider whether a mutual, general release is appropriate.
  • Consider setting a deadline by which the agreement must be entered into. This is an important consideration so as not to disrupt ongoing business operations. 

With the advent of the internet, smartphones, and intelligent 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 above examples highlight why sometimes it can be critical to seek legal advice to ensure your deal is really a done deal.

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© 2022 Ward and Smith, P.A. For further information regarding the issues described above, please contact Isabelle M. Chammas or E. Bradley Evans.

This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.

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