Family members often transfer family-business ownership interests or other assets between each other. Their discussions sometimes progress from informal negotiations to a written term sheet to a final written agreement.  However, a term sheet itself can be found to be a binding agreement if the terms are sufficiently definite for a court to determine each party’s obligations and if the parties’ conduct evidences their agreement to perform according to those terms.

In Kunz v. Kunz, a Court of Appeals in Iowa recently ruled upon a claim by one family member against another to enforce a “Settlement Memorandum” which provided for the purchase and sale of stock in the family business, even though the Memorandum contemplated the drafting of later documents to finalize the transaction.  In 1973, brothers Richard and Robert Kunz formed Happy Homes, Inc., a company that sold factory-built homes.  Richard died in 2007 and his 50% interest in the company was transferred to his wife, Connie.  Connie and Robert then began discussing the sale of Richard’s interests and later participated in mediation to aid in these discussions.

Continue Reading Do You Have an Enforceable Contract for the Sale of Family-Owned Business Interests or Just an Agreement to Agree?

In business purchase agreements, including agreements between family members, the seller often retains pre-sale liabilities, such as tax liabilities, while the buyer assumes post-closing liabilities related to the business’ ongoing operations. But what happens when the buyer induces the seller to retain such liabilities through fraud? In Bailey v. Bailey, a U.S. District Court in Texas recently gave its answer when faced with a claim that a son defrauded his parents in connection with his purchase of the assets of their family-owned business.

According to the Court’s post-trial decision, Roger and Shirley Bailey owned an electrical services company. Their son, Jeffrey, had worked in the company for many years. In 2007, Roger and Shirley decided they no longer wanted to manage the company and put Jeffrey in charge. Shirley’s sole remaining responsibility was to control the cash disbursements from a bank account that she controlled as the company’s treasurer. In doing so, Shirley relied solely on requests for funding by the company’s bookkeeper. Continue Reading Watch out for Fraud in Family-Business Purchase Agreements