December 9, 2016 | Supreme Court Reviews

Vermont Supreme Court Finds No Contract, Despite Exchange of Emails between Purported Buyer and Seller of Small Business

In Miller v. Flegenheimer, 2016 VT 125 (Dec. 9, 2016), the Supreme Court reversed the superior court, finding no enforceable contract, in a case where the buyer and seller of a small business had exchanged emails about a possible sale, but had not resolved a “claw-back” provision.

Issue: Quarrelling co-owners of a business decided one of them should sell their half.  Co-owner (seller) emailed the other (buyer) offering to sell the company for a compromise price if the sale would include a “claw-back” provision—a provision that would give seller a portion of the profits if buyer resold the company for a higher price within two years.  Buyer responded that he would accept seller’s offer and send along more formal paperwork within ten days.  Nine days later, he sent along paperwork that included a $50,000 lower price, a non-compete agreement (and other documents), but no description of a “claw-back” provision.  Seller withdrew his offer.  Buyer sued for specific performance.  The superior court found an enforceable contract that obligated the parties to negotiate the remaining terms in good faith.  The parties cross-appealed.

Holding: The Supreme Court held that there was no enforceable contract.  The Court used a four-factor test from Catamount, a Second Circuit case, in order to determine if the parties intended to be bound.  The Court found reference to a future writing (which spoke to an intent to not yet be bound), no partial performance, incomplete terms, and a lack of the formality expected in an enforceable contract of this type—which all weighed against finding an enforceable agreement.  Buyer’s sending of paperwork was a counter-offer, ending his power to accept the original offer. 

Concurrence: Robinson, J. wrote separately to clarify that a lack of a non-compete agreement is not grounds for rendering an otherwise complete agreement fatally incomplete.  She emphasized the importance of the unresolved (complex) “claw-back” provision as the missing term that prevented the finding of an enforceable contract here.