What are the obligations of a business partneras the signer on a contract?

If #1 and #2 sign a business contract and I bought the business from #2, does #1 still have to follow the terms of the original contract?

Asked on July 29, 2010 under Business Law, Alabama

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

It depends upon the terms of the contract and also what the contract was for; also, how the transaction was done. 

First of all, when you bought the business, did you buy the business structure (e.g. the shares of a corporation) or did you buy the assets? If you bought the structure and if the contract was not personally between #1 and #2, but rather between #1 and #2's business, which you bought, then #1 would still be obligated, since he is obligated to a still-existing entity, which you now happen to own.

However, if either you bought the assets of a business, but not an existing business structure; and/or the contract was not with a  business structure in the first place, but rather between two individuals, then #1 would not have to follow the terms of the contract with you unless the contract was validly assigned--transferred--to you.

As to assignment: many contracts are by their terms are readily assignable, and all that's required is execution of the correct paperwork. Others specifically state they can't be assigned; if that's the case, then #2 cannot transfer it to you and you'd need to negotiate a new contract with #1.

Also, certain obligations under law are not generally assignable. These are typically personal services obligations. For example, say that #1 had contracted with #2 that #1 would do his accounting, be his personal trainer, etc. I do not believe that you could step into #1's shoes and take over for those personal services. (If the contract had been with a business to provide, say, accounting or training services, that's different; we're talking here about a contract for personal services between two people, when #2 directly contracted with #1 to provide the services.)


IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although AttorneyPages.com has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.