Avoid Unforced Errors When Executing Contracts

This firm works with a number of business brokers and investment bankers who are very good at their professions.  They should be commended for their hard work and creativity to help buyers and sellers reach agreements.

But they are not attorneys in the same way attorneys are not business brokers or investment bankers.  Therefore, your attorney should review their actions to ensure avoidable mistakes do not occur.

Experienced business attorneys know that as a general rule, the board of directors authorizes officers to execute contracts.  Officers with signature authority may include the CEO, CFO, President, and/or a Vice President.  Experienced business attorneys also know board members do not execute contracts on behalf of a company.

One company took advantage of this distinction that is a huge difference.  A seller’s intermediary obtained a board member’s signature incorrectly thinking the buyer would be bound by the NDA.  Relying on the signed but unenforceable NDA, the seller shared confidential information with the prospective buyer during due diligence and negotiations.  After the prospective buyer ended negotiations, it then used the disclosed information to compete with the seller.

The seller filed a lawsuit to stop the buyer from competing.  It lost. The Court ruled the seller’s disclosure of its confidential information was “voluntary” because the parties never executed an enforceable NDA.  No authorized person signed the NDA for the prospective buyer.  Thus, there was no “privity of contract.”

Three years of law school plus experience teaches attorneys all contract reviews must start at the very top—who is contracting with who?  And all contract reviews must end at the very bottom—did the correct people execute the agreement?  Both attorneys and their clients must insist all contracts including NDAs are subject to a comprehensive review.  Anything less can be fatal under the worst circumstances.

David Seidman is the principal and founder of Seidman Law Group, LLC.  He serves as outside general counsel for companies, which requires him to consider a diverse range of corporate, dispute resolution and avoidance, contract drafting and negotiation, real estate, and other issues.  He can be reached at david@seidmanlawgroup.com or 312-399-7390.This blog post is not legal advice.  Please consult an experienced attorney to assist with your legal issues.


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