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TL;DR: Suppose a company has made a specific ethical commitment to its customers. When selling that company, is it possible for the seller to prevent the buyer from reneging on or dropping that commitment?

Details:

I got to thinking about this the other day in relation to ethical promises from companies. Suppose Company A sells a service customers pay for monthly/annually/whatever. As part of its business model, Company A promises not to do X, and writes that promise into its customer contract. It doesn't matter what X is, but let's assume

  • it's legal
  • it's something other companies do
  • it's something some consider to be unethical
  • it's something that can be clearly defined

...like selling the customers' email addresses, or sending them advertisements in the post; something like that.

Megacorp B comes along and wants to buy Company A (in its entirety, not allowing the current owners to retain a controlling interest). Is it possible to sell it in such a way, or structure the customer contracts in such a way, that Megacorp B can't change the customer contract to drop the guarantee about X once the sale is complete? (Obviously they may lose customers doing that, ones who reject the new contract, but assume Megacorp B is okay with losing those customers.)

I tend to think it's not possible, that there would be some way for Megacorp B to get around it (perhaps by setting up a new company doing an identical service, telling the customers they're winding up Company A, and offering to migrate customers to the new service), but IANAL.

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B has the same right to change the contracts that A had

In general, altering a contract requires the agreement of all parties to the contract. So A/B and the customer have to agree to the change.

However, most contracts for ongoing services (rent, telephone, internet etc.) have that agreement written into the terms. That is, the customer agrees that the contract can be changed by A/B when they enter it. Alternatively, there are usually terms allowing A/B to terminate the existing contract and then only provide services if the customer agrees to a new contract.

A can impose conditions on the sale

A can write into the terms of the sale agreement that B will never do the thing that they are concerned about.

However, this does not guarantee that B in 1 or 5 or 10 years will choose to break their contract with A. If A still exists, then they can sue B for the damage that they have suffered. However, it's unlikely that A will have suffered anything other than nominal damages since they presumably no longer have any relationship with their former customers. A cannot hang a penalty off this condition because penalties are illegal under common law. They could if they are sufficiently clever trigger, say, an option to buy the business back or do something else but we're really starting to get esoteric.

If you sell it, you don't own it anymore

The common law is allergic to people trying to control other people's rights to use their property as they see fit. It's not impossible but imposing ongoing obligations on something that could be done and dusted all in one go is unlikely to stand up to a court challenge. They are more likely to survive if they have a sunset clause - for example, they won't do the unethical thing for 5 years.

This 'allergy' goes back a long time and stems from ancestors trying to control their decedent's behavior through wills and bequests. The law says you can't do it unless the restriction is reasonable.

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  • So, basically, in order to prevent B from changing a part of their contract with their customers, A needs to render themselves incapable of changing that part of that contract? Would simply adding an exception to the “we can change the terms of this contract” clause suffice? – nick012000 Nov 18 '19 at 21:55
  • @nick012000 not really. Basically, if you want to control something, don't sell it. If you sell it it isn't yours anymore. – Dale M Nov 18 '19 at 22:06
  • Thanks. As I said, I suspected this was the case. I'm guessing that if B handles the contract change correctly, even the customers wouldn't be able to take action (other than leaving), not even as a class, unless they could show meaningful damages as a result of having to stop using the service. Does that sound about right? So A could have their lawyers do their best to make it difficult for B, but in the end, B is likely to prevail because it is, after all, their property. – Barney Nov 19 '19 at 13:05
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The seller can make a contract with the buyer saying that that must be followed. You do not have to sell your company, at least in the U.S., so you are free to enter into a contract requiring the buyer to do anything legal.

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