Purchase & Sale Non Compete - Sale of Business

[thebizman]

Hello

I sold a business 4 years ago. No money down ( i had health issues ), and so far they are paying me. They have 5 more years left on the note. However based on the pattern and my 30 year experience they are headed for disaster...without getting into details of course... (please just trust me on this ).

And since my family and I rely on the payments, we can not sit and wait until it happens. We would like to begin a competing business ( much smaller than the company we sold) , as an insurance policy. Just enough income to keep us alive when they do shut down

Problem is I am under a NON compete for the term of the note.

My question:
If he finds out about the small company I formed ( as he will since its web based and all), I know he will stop paying, but can he ALSO sue us?

Thanks

p.s. please don't judge and remember the persons were given this business with ZERO down and their existing business had already failed. They have been able to pay their personal bills, survive and still own their own business etc because of what I gave them. The fact that they are running it in a manner not consistent with the successful history of the business, the industry standards and general business rules and ethics etc i snot my fault and should not have to suffer for it.

 

[army judge]

Hello

I sold a business 4 years ago. No money down ( i had health issues ), and so far they are paying me. They have 5 more years left on the note. However based on the pattern and my 30 year experience they are headed for disaster...without getting into details of course... (please just trust me on this ).

And since my family and I rely on the payments, we can not sit and wait until it happens. We would like to begin a competing business ( much smaller than the company we sold) , as an insurance policy. Just enough income to keep us alive when they do shut down

Problem is I am under a NON compete for the term of the note.

My question:
If he finds out about the small company I formed ( as he will since its web based and all), I know he will stop paying, but can he ALSO sue us?

Thanks

p.s. please don't judge and remember the persons were given this business with ZERO down and their existing business had already failed. They have been able to pay their personal bills, survive and still own their own business etc because of what I gave them. The fact that they are running it in a manner not consistent with the successful history of the business, the industry standards and general business rules and ethics etc i snot my fault and should not have to suffer for it.

Of course you can be sued for violating the "non-compete" agreement you SIGNED!

Will the plaintiff prevail?

I don't know the nature and details of the agreement that you signed.

Generally, persons situated as the plaintiff you describe, sometimes prevail!

However, in California, "non-competes" are OFTEN illegal!

That said, there is a way out for you and your family.

Unless EVERYONE in your family is subject to the "non-compete" agreement you signed, perhaps your wife, son, daughter, someone could create the business in their name?

That way, YOU wouldn't be violating the "non-compete" agreement.

If that isn't an option you seek, speak to a local lawyer.

Let that lawyer review the agreement you signed.

You never know, the agreement may not be airtight.

Until you do that, however, do nothing in the furtherance of founding your new business. :no:

Spending the money to get a legal opinion could be very uiseful in helping you to decide your next steps!!! :yes:


One last thought, you can't legally shield yourself by acting under the belief that the other party will breach your contract.

Anticipatory repudiation, often referred to as anticipatory breach, doesn't permit one party to a contract (YOU) to repudiate (renege on) your obligations under that contract before fully performing those obligations.

This can be by word ("I won't perform, unless keep making payments" or "I'm starting my business in anticipation that your business will fail and you'll be unable to pay me") or by any other action (not honoring your non-compete thinking payments to you will cease).

The result is that the other party does not have to perform his/her obligations and cannot be liable for not doing so.

This is often a defense to a lawsuit for payment or performance on a contract.

One cannot repudiate their obligations and demand that the other person perform their obligations under a contract.

Bottom line, your anticipatory breach could allow the other party to breach in retaliation and get away with it!!!!

Non-compete agreements are illegal in California. Many companies are unaware of this fact, especially since non-compete agreements are legal in virtually all other states. However, there are two exceptions in California. Non-compete agreements are enforceable for partnerships and when someone is selling their ownership interest in a company. A related topic is the protection of trade secrets. A company can prevent the use of its trade secrets, but it cannot prevent fair competition.

Business & Professions Code § 16601 creates an exception permitting lawful non-compete agreements for company owners. A new section 16602.5 also applies to members of limited liability companies. It applies when a shareholder "sells" their stock to another for valuable consideration. (Hilb, Royal & Hamilton Ins. Services v. Robb (1995) 33 Cal.App.4th 1812, 1824-1825.) The typical scenario is when a shareholder sells or disposes of their stock. Assume the owner of ABC company is bought-out by DEF company. DEF can validly protect its investment by requiring the former owner of ABC to sign a reasonable non-compete agreement. A merger is also considered to be a transaction within the exception of section 16601. (Id.) In Hilb, the valid contract provision prohibited competition in several countries for a 3-year period of time.

In Vacco Industries, Inc. v. Van Den Berg (1992) 5 Cal.App.4th 34,the court upheld the enforceability of a non-compete agreement that lasted as long as the employer conducted business in the area. There, an officer held three percent of his employer's stock. When the employer was being acquired by another company, he agreed to sell the stock to the acquirer and as part of the agreement there was the non-compete provision. Because the non-compete provision was part of the stock sale, it was held enforceable




http://lawzilla.com/content/noncompete.shtml

 

[Michael Wechsler]

Army Judge said everything I could possible have thought - it's a great answer and an interesting suggestion. You will absolutely need an attorney to review the agreement to see exactly what "loopholes" or shall we say "alternatives" exist to protect yourselves.

Unfortunately Army Judge is correct -- unless there is "anticipatory repudiation" or another exception, you are stuck with the deal you made. It is very important to review with a lawyer what you've done because if they discover it then yes, they can sue you for competing with them even though you are quite sure that you would ultimately have been able to sue them for non-payment. Timing is everything!

And what makes me nervous is that all your information is visible, e.g. who formed the company, etc. If your name is on any of the documents, you may wish to sanitize everything and do this properly from the beginning to mitigate any potential damages or appearances. Best of luck.

 

[maltease]

In Cal. non-compete agreements are legal when a business is sold, which applies to you. But non-compete agreements need to specify and length of time and an an area, or the the agreement can be pierced in court. However, court battles are expensive. If all you really want to do is maintain your residual income from the business, have you thought of helping the new business owners to succeed. But, if your full intent is to start a competing business, you have good advice in the posts above.

 

[lwfinleg]

Hello What all are guiding is absolutely right but the question is how come bizman you can do such a discrepancy which can lead you to severe legal action. We should be cautious and visionary while do business agreements, sale deeds or any financial commitments.