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Dave and Bob co-found a company together and both sign a shareholders agreement.They then work together on the company full-time for a year.

Dave is then accused by Bob of breaching the agreement by starting a side project. Dave disagrees that he breached the agreement, but still wants the dispute resolved as he believes in the company and wants to move on from the issue.

Bob proposes a resolution to the dispute: Dave meets certain deadlines to accelerate the progress of their company, in exchange for this Bob will drop the issue. It's all things Dave will need to do eventually anyway, so they verbally agree and Dave believes all is well again.

A week later Bob comes back to Dave and says that he has changed his mind. Bob now wants Dave to sign some ownership of his side project over to their company. Dave is initially hesitant, but Dave still believes in their company, so agrees to give their company 5% ownership of the side project. The paperwork is drafted up and emailed out, and again Dave believes all is sorted.

A few weeks go by and Bob still hasn't made an effort to confirm that he is happy with the drafted paperwork, and nothing has been signed. At this point Dave gets fed up with with Bob and decides he has had enough. Dave leaves the company, remaining only as a shareholder, and gets a full-time job elsewhere.

A couple of months go by and then Dave receives a message from Bob saying that because of the dispute, he wants to take Dave to court in an attempt to take Dave's shares back by force and take full ownership of the side project that caused it. Dave informs Bob that he is happy to sell his shares back, as he put in the work to build the company. Dave and Bob both put offers on the table, but cannot agree to an amount.

It reaches the point where Bob and Dave cannot agree and going to court is the next step.

At each stage, Dave has made full effort to resolve the dispute, however Bob has initially verbally agreed, but then changed his mind. How is this viewed in court?

Dave is concerned that going to court could be expensive, but doesn't want to settle for a share value that doesn't represent the work put in.

EDIT: To clarify, the proposed resolution for Dave to sign over 5% ownership of the side-project to their company was decided and agreed upon in a meeting between Bob, Dave and the company lawyer

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It sounds to me like the parties made proposals with an intent to draw them up and formalize them but didn't intend to form binding agreements.

The first agreement sounds vague. The second was committed to writing, suggesting that the written deal was to be the real agreement, and not executed. In the last case, it doesn't appear that there was an agreement because there was no meeting of the minds on the essential term, which was the price.

Going to court is expensive. It is expensive whether this is litigating underlying disputes or trying to enforce an alleged oral settlement that is disputed. Also, settlement discussions that don't result in a resolution are not admissible as evidence in court.

Making a deal would be nice, but Dave's concept of what constitutes a deal seems to be out of touch with reality.

  • Ah interesting. I have a few questions: As each of the initial 'resolutions' weren't signed and documented, they are not admissible as evidence of attempted resolutions in court? Also, could you expand on your final statement? Thanks! – Calco Mar 31 '18 at 13:22
  • Also, a point to note in case it adds some further legitimacy, the proposed handing over of 5% of the side-project was a deal that was agreed upon in meetings between Dave, Bob and the company lawyer. – Calco Mar 31 '18 at 13:28
  • Negotiations for the purpose of settlement are not admissible as evidence unless a settlement is actually agreed to. In these cases it appears that there were discussions of a potential agreement in principle but not an intent to enter into a binding agreement. – ohwilleke Mar 31 '18 at 13:30
  • Does the information in my second comment (and main question edit) change this? As it was agreed and witnessed by the company lawyer, who then drafted the agreement as a result of this. – Calco Mar 31 '18 at 13:32
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    @Calco No. The legal definition of "agreed" is that both parties understand and believe that they have entered into a final and binding agreement on the issue. If there is an intent that the agreement along the lines discussed be reduced to writing and signed, this suggests that the parties didn't understand that their oral agreement was intended to be final and binding. If they just shook hands on the deal with all of the details and terms but no intent that there be any follow up, it might very well be a binding agreement. Merely one party's belief that there is a final deal doesn't cut it. – ohwilleke Mar 31 '18 at 13:40

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