I have an interesting contract problem.

I have been in negotiations with another business for an asset sale.
During that negotiation, I worked with a representative of the
business to create a contract that has been written, then reviewed and
restructured by an attorney.  This contract was signed by the
principal of that business as a titled officer of that company.
Basically, the contract was a asset purchase agreement for a
substantial amount of money in preparation for a closing transaction.

Unfortunately, the contracted transaction date has come and gone
without the other party performing in any manner to complete the
transaction.  I have permitted them some time to get their act
together, and their response has been a demand to change the terms of
the contract in a substantial way.

It appears my options are as follows:

Accept the changes, now knowing that they may break that contract as well.

Offer revisions that include their desire, modifying other terms to
my benefit.

Ignore the request, and drop the whole thing.

Sue them for breach of contract, assuming my contract as drawn by a 
(competent?) attorney is solid.  This involves waiting for the courts
to become available, time for discovery, and praying that the judge or
jury see fit to award damages.

Basically, this other business appears willing to ignore contractual
obligations, thus forcing me to alter terms of the contract to remove
my vulnerability past closing if we are to succeed in this venture.
Assuming I sue for the default already past, I do NOT want to have
this contract stand, as they are likely to hurt us later by the
obvious fact that they are ignoring our current contract.  They can
choose to arbitrarily ignore it at any time, thus forcing us to again
enforce by law for each point of non-compliance.

The final fact is that while the contract is substantial in value, it
may not be large enough to sue over if the award is small, or if we
are forced to follow through with the current contract as written (if
that is in fact a possibility we can't control).

Any reasonable thoughts or options?

16 responses total.

If you don't trust them, your best option is not to do business with
them.  If you want to do business (and they do) and it's worth your
respective whiles, you can demand they put up some sort of deposit with
a 3rd party which becomes forfeit to you if they fail to perform their
half of the contract.  The contract should be worded specifically enough
that it's easy for the 3rd party to determine when to pay the deposit to
you.

It's fairly cheap to talk to a lawyer to see what your options are.
Usually the first consultation is free (find another lawyer if this is
not so).  Oftentimes the "nasty letter" approach works, and this is
fairly inexpensive.  The nasty letter approach may not be worth it if
they're terminally stupid (for instance, they can't read), or the
principals concerned are particularly shady lawyer slime (who may enjoy
playing chicken with your lawyer.)

So far as the courts & all go, definitely talk to a lawyer before
proceeding further.  My *belief* is that if neither you nor they have
suffered material harm or advantage, the courts are very likely to leave
the situation exactly as it is.  Courts can sometimes be quite
conservative about things, and this is one of those places where it
really does matter who is left holding which possession.  If there's
been an unequal exchange of properties, say, they took your car and
failed to mow your lawn for an entire year as promised in the contract,
the courts may force them to either return the car, mow your lawn, or
pay you the value of the car.  If the exchange is hard to value, for
instance, if they mowed your lawn twice last summer, and you failed to
complain at the time, the courts may decide that was sufficient
compensation (met the letter of the contract) even though you may feel
cheated.  If you (or they) can show material harm due to non-performance
of the contract (the car didn't run, the police fined you for your
lawn's appearance) you may be able to collect damages.  As a matter of
practice, most civil court procedures are settled out of court.  One of
the reasons why civil procedures are so drawn out is, in fact, to
maximize the chances of this happening.  So, you shouldn't be scared by
this prospect - it's just part of the game.

As a general rule, there are two reasons to sue in court, for money, and
as a matter of honor.  Generally speaking, you want to give them every
reason and appearance of being (a) in the right, and (b) being willing
to defend your right to the death as a matter of honor.  A nastygram
from your lawyer is one of the moves in this game - you personally may
have no idea of the law, but your lawyer does, and his claims and
threats may carry more weight not just with your opponent (who indeed
may know even less of the law than you) but with your opponent's lawyer
(who may end up telling your client much more scary stuff than either
you or your lawyer can.) It's generally not worth threatening them with
the law before the nastygram.  People in this society are so used to
saying "I'll sue you if you don't pay" that this threat doesn't carry
much weight with most people today.  Even though you want your opponent
to think "honor at any price", unless you have bottomless pockets, you
should decide just how much your honor is worth, and be willing to stop
there when that amount of money is expended.  Be up front and honest
with your lawyer, and tell him that amount (if you're getting close to
it), or at *least* make sure you understand each charge you get from the
lawer, what it's purchasing, and what your options are from there.  As a
general rule, you can either pursue "the money", or "your honor" but
rarely both.

Oh yes, there are a number of things you can do to minimize your legal
expenses.  The first thing you can do is even *before* you visit the
lawyer, collect every last scrap of paper you can on your case, organize
it neatly, write down every question you can think to ask the lawyer,
and come into that initial consultation as if *that* were the court
case, everything hinged on what happens there, and no way to say later
"oh, wait, I forgot X which the whole case which will turn the whole
decision around in my favour!"  The less work your lawyer has to do
extracting information on your case from you, the cheaper he will be,
and the better a job he can do for you.  Be *honest* with your lawyer.
If you aren't sure if you paid something, what shape something was in,
or if somebody got hurt, say so - don't let this be an expensive
surprise for the lawyer (and you) later.  The other thing is, as the
case advances, there may be things you can do for the lawyer, legal
legwork, that will save you & him time.  For instance, if a call has to
be made to the secretary of state to see who has your vehicle registered
today, and who is driving it, you can do this just as easily as the
lawyer can, and your time is very probably cheaper than the lawyer's
time.

I basically agree with what Marcus said.  My recommendation:  talk to a good
attorney, and get him/her to explain how good each of your options is.  You
would have a suit for breach of contract, but whether it's worth it or not
will depend on a variety of factors an attorney could help you evaluate.

If you decide to find a lawyer, I can email you recommendations if you'd like.

I would stay as far as possible from the party in question even if you lost
a bit of money now, rather than having to deal with them any more, or spend
large amounts of money on a lawyer which you won't get back.   Better to end
the contract now rather than having more problems later.  

Now linked from Agora to Small Business (join smallb).
Items 8, 13, 14 there also discuss some of these issues.

The latest news is that the other party has relented on their
revisions and appear to have a more forthright attitude.  As of now,
their primary breach of contract was failure to close on the appointed
day.  They have withdrawn their ludicrous demands which means we are
no longer moving backwards.

All of this after I sent them two separate letters.  One about honor
and following through on agreements and committments, which didn't get
the response I wanted, and the second in response to their "you got
everything and we got nothing" letter.  In this letter I clearly
outlined my shock.  (I had the opportunity to use the word
"flabbergasted", that doesn't come often.)  I also detailed our
complete openness in our dealings with them, our accessibility, our
capability to comply with all terms as contracted, and then I hit them
with our full revision terms, which were severe.

I got their attention.  

While I'm happy they seem to be more compliant, I still view it all
with conservative optimism.  I'm not quite ready to let down my guard.

Frankly, had they responded any other way, we were done with them.
They may be savvy, or they may be genuine.  Only time will tell.

it's always been my understanding that if you change the terms of a contract
you no longer have a contract unless the other party agrees to the new terms.
putting forth new terms is prima facia evidence that the first contract has
been rejected, no?

Pretty much, but Steve may not want that outcome.

Spoke too soon.  The letter was a ruse.  His apology was only for
the characterizations of his previous accusatory comments, but was
not intended to repair the damage of his demand.

Thus my Attorney has sent the breach of contract letter, at my request.
It seems they have sent us a new letter before receiving my legal
statement.  They say that they are pursuing preparations for (I assume)
a closing according to their terms.

I guess my next concern is that their preparation is costing them
money now.  I don't want to be liable for those expenses, or
victimized by a lawsuit by him over those preparations.  Thursday's
letter was their first actual statement that they are actually on a
schedule of preparation.  I ordered the default declaration Wednesday
after a phone conversation Tuesday night which was totally fruitless,
and we hung up with each other in total disagreement.  Yet, they seem
intent on pretending that their change of terms are our current
operating agreement.

My impression is that this is either a power play or a preparation for
lawsuit or both.

They can pretend whatever they want, as long as you have made it absolutely
clear to them that you are rejecting their new terms, and haven't done
anything that could be interpreted as an acceptance.  You have to be kind of
careful here, but if you've been as blunt and straightforward with them as
you normally are, you should be safe.  Make sure your attorney knows the
content of every communication you have had with them, and try to avoid having
communications with them that are not in writing.

I do have one concern.  When first presented with this "demand" we talked
on the phone and under serious concern for the closing began negotiating
warrantee terms.  We discussed specific options and I voiced preferences.

The very next day, I wrote a clear letter stating that I would NOT accept
any warrantee terms (the "honor" letter noted above).  My attorney,
being advised of this scenario does not consider it to be important
to worry about.

Every letter sent to them since that time (June 17th), have all stated 
our resistance and refusal to accept these modification of terms, as
I did when we had a lengthy phone conversation on June 20th.

My guess is that their current tactic is to put the issue on the back
burner and making it an issue as a closing document.  Thus my most
recent letter demands documented withdrawal of the terms throughout
the rest of the transaction, and a larger deposit.

I'm pretty sure it's all over.  I would have expected the attorney's
termination notice to have caused a response of some kind, but then
they've been pretty aloof through the process.  This last letter of
mine is sure to get a response if they haven't already considered the
transation dead.

They had no respect for the original agreement, because they were
prepared to hijack the process before closing and bend it to their
preferences.

I can walk away too.  I've always gone by the theory that you don't
say or do something you are not willing to back up with action.  
Especially in negotiations.

Generally true, but there are times when you have to.

Doesn't sound like he has to.  
This company sounds like a real disaster (actually, the owners/management
sound like people you don't want to have anything to do with).

I can't tell from the entries here whether you are buying or selling, but I'd
say you are safer in the long run if you walk away now; far, far away and at
race-walk speed.

Oh, I agree with that part.  I just meant that you sometimes have to make
threats you can't back up, even though you usually shouldn't.

Well, as it turns out they were all fluff and bluster.  They were willing
to jeoparize the whole process because they thought I'd cave first.

What really resolve the issue was when my Mother as my business partner
confirmed that we would only do the transaction as the agreement stipulated
verbatim with no modifications.  I guess that convinced them that we
were not going to be pushed over.

Thus, we closed the sale of Kurtis Exterminating Co to them today at
10:00 am today.  We got all the terms and arrangements we contracted
for, and did not have to deal with all the spurious demands the principal
was spewing.

I am officially retired from my career as Pest Control Technician.  My
next career will likely be in the information technology field.  I specialize
in adaptability, ability to learn quickly, and FWIW I really do work
well with others.

However, I'm going to take a few months of real sabatical.  My first since
I was nineteen.

Congratulations, Steve.

I hope they paid in full at the time of signing.  Enjoy your new life.

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