We had a client contact us recently who was reasonably upset after discovering a party they'd been working with “breached” their Non-Disclosure Agreement (NDA). The said party was a prospective buyer who told one of our client’s customers they were buying our client’s business (I think you can see the problem here). Unfortunately, our team at Gutwein Law wasn't given a chance to review the document prior to our client signing the NDA, and that "breach" of contract wasn't really a breach after all.
The problem was that what our client viewed as a simple, routine NDA was a little too simple. The NDA protected any confidential information they provided to the prospective buyer, such as financial information, customer information, etc.; however, it did not obligate anyone to keep the negotiations private. So, there wasn't much our team could do to enforce the agreement.
While the buyer of our client's business didn't technically cause any issues from a legal standpoint, their actions did present other repercussions. By informing our client’s customer that our client was planning to sell their business, it:
- was a poor exercise of discretion by the potential buyer,
- caused a “breach” of our client’s confidence in this potential buyer, and
- caused our client to cut off any further negotiations with this potential buyer; but,
- was NOT a legal “breach” of the NDA.
How can you avoid a situation like this in the future? Keep your attorney in the loop on your business dealings and have them review your NDA prior to taking any actions. Keep in mind: from a potential seller’s point of view, confidentiality of negotiations is often a big deal; but from a potential buyer’s point of view, it's usually not.
If our team had a chance to review the NDA and had a conversation with the client about the potential transaction, the scope of the NDA, and their overall concerns before the client entered into the NDA, we could have addressed this issue in advance.
We understand a typical business will see a lot of different documents on any given day and may not want to incur the time and expense of legal review for each document. We also recognize you don’t want to disrupt the cadence of a deal, which is why we'll work hard to make sure we give you timely input and practical advice on the matters you bring to us. We suggest you take a moment to consider the potential implications and the magnitude of an agreement before you decide to skip legal review.
Have something sitting on your desk that could use another set of eyes? Give us a call at 765.423.7900 to ensure you and your assets are properly protected.