The seller sold his practice to a buyer brought to the seller by the broker within the three year “tail period” after broker terminated the engagement with the seller.
March 17, 2023
A seller of a business often hires a business broker or investment banker to help sell the business. The engagement agreement usually requires payment of the broker or banker fee for a buyer brought to the seller which results in a sale within a “tail period” after termination of the engagement.
The seller owned an accounting practice. He hired a business broker to help him sell the practice. The broker brought several prospective buyers to the table. The seller instructed the broker to have the prospects submit new offers to create a bidding war. The broker said he did not work that way and terminated the broker engagement.
The seller sold his practice to one of the prospects brought in by the broker within 3 years of the termination of the broker agreement. The broker requested payment of the ten percent fee and the seller refused.
The broker sued the seller in an Illinois trial court, pointing to the broker agreement which said a fee was earned if the seller sold the practice to a buyer identified by the broker, within three years of termination of the broker agreement. The seller disagreed saying that the broker was not entitled to the fee because he materially breached the agreement by terminating the engagement.
The trial court ruled for the broker and the seller appealed. The appellate court also said that the broker had not materially breached the broker agreement because the broker had a right to terminate the agreement,
See APS Holmes Group, LLC v. Sorkin, No. 1-21-1668, Appellate Court of Illinois, First District, First Division, (February 27, 2023).
The broker agreement did not have a provision that expressly gave the broker the right to terminate the agreement. However the appellate court said that contracts in Illinois are terminable at will unless otherwise stated.
The court also ordered the seller, as the losing party, to pay the broker’s legal fees and costs.
By John McCauley: I write about recent legal problems of buyer and sellers of small businesses.
Telephone: 714 273-6291
Check out my books: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles and Selling Assets of a Small Business: Problems Taken From Recent Legal Battles
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