Monday, May 4, 2009

Is a advertising contract legally binding if a business changes hands before the contract begins?

A customer of mine contracted with Valley Yellow pages in May of 2005, for advertising services to begin in Nov., 2005. His business was put into escrow in June of 2005, and the daily operations and profits were transferred to the new buyer on Oct. 28, 2005. Is this contract still binding, or has it become null and void due to the ownership change?

Is a advertising contract legally binding if a business changes hands before the contract begins?
The enforceability of the contract would depend on the legal existence of the contracting parties. If your customer' business was run as a registered company at the time of entering into the contract, then its the company which was a party to the contract and the contract is still enforceable, unless of course the business has changed after the transfer of ownership.





On the other hand, if the business was a sole proprietorship or partnership, and if the transfer of this contractual obligation did not take place, the contract is not null and void but voidable at the discretion of the new owner.
Reply:I'm no lawyer, but it seems to me that the entity of the company signed the contract, not specific owners. The new owners should be under contract until the old one runs out. Think in sports terms: when new owners buy a sports team, they have to honor the player contracts.
Reply:Doc, I don't care if you're not a lawyer... you're right. The contract is still effective and enforceable against the company that signed it. The only question is, who owns the company. If the company was sold in stock sale, then the new owners own the company and have to cause it to pay Valley Yellow Pages out of their revenues. If the company's ASSETS were sold in an asset sale, then the company remains with the original owners who must cause the company to pay Valley Yellow Pages with the company's remaining assets.
Reply:Generally, any modifications to the contract made after both parties agree changes the contract. It would depend on what happened when your customer sold the business, what did the new owner take over? I'll see if I can find a more definite answer, I am taking a class on this sort of stuff right now.


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