On December 9, 2016, the Vermont Supreme Court issued a decision in an important business law case involving the question of when negotiations on the sale of a business (or other contract) reach the point where a binding contract is reached.

Andre Bouffard of DRM was brought in to handle the appeal after a trial court ruled that a binding contract was reached, obligating the co-owner of a successful Vermont business to sell his half of the business to the other owner. The parties had exchanged e-mails and draft contracts relating to the sale, but never signed definitive documentation encompassing all issues the seller wanted the agreement to cover. 

DRM appealed the trial court ruling that a binding contract was reached, arguing that the courts in Vermont should not adopt the law developed by New York courts under which a preliminary, oral agreement that does not cover all material terms can still be enforceable, if the parties have agreed to negotiate remaining terms in good faith. The Vermont Supreme Court accepted DRM’s arguments in their entirety, rejecting New York’s legal standard because it tends to promote more litigation. The Court ruled that agreements not memorialized in a definitive signed writing are enforceable only if there is clear evidence that both parties intend to be bound to perform the contract, and that all terms required to make the agreement sufficiently definite are settled.  Because neither of these requirements was met, and to avoid a precedent enforcing what the Court called a surprise “gotcha contract,” the Supreme Court reversed the trial court decision and ordered dismissal of the case.

This important decision clarifies the requirements for a binding contract in the absence of a definitive signed contract, and creates greater certainty for business owners and their professional advisors involved in negotiating and documenting business sales and other contracts.