So you want to buy a bar…
…or for that matter a brewery or winery. Chances are if you’ve ever worked in the hospitality industry you’ve at least thought about it.
Bars and breweries change hands frequently. Some transactions attract international attention (and often skepticism), like when Anheuser-Busch or Diageo increase their respective stable of breweries and distilleries. At a local level the purchase and sale of a brewery or restaurant typically attracts much less fanfare, and may involve parties who are intimately familiar with each other, such as when senior staff buy-out existing owners as part of a succession strategy.
Though the scale of the transaction will dictate the complexity and number of professionals involved (e.g. investment bankers and business valuators), the same basic contractual principles apply: offer, acceptance and consideration. The golden thread that runs through each of these vital elements of a contract is certainty. Each party to the contract must know with a reasonable degree of certainty what they are bargaining for, and how the bargain will operate. Lawyers sometimes refer to this requirement of a “meeting of the minds” by the Latin expression ad idem.
When a vital element of a contract is missing, or as is more often the case the terms of a contract are vague or poorly worded, the court (often months or years after the contract was made) will not be able to assist a party who seeks to enforce it. For this, and countless other reasons, properly drafted and executed agreements are the cornerstones of successful business transactions.
Unfortunately some business owners rely on their own judgement, or documents found online, to record their transactions. For them the cost of retaining counsel to draft an agreement doesn’t feel like it is “worth it”, for others they have always done business on a “handshake” and documentation is not necessary, still others believe that when doing business with friends and family it may be offensive to request anything “in writing”. Whatever the reason, businesses who neglect to protect their interests with binding contracts have been keeping litigation lawyers busy for hundreds of years.
The hospitality business is no exception. A recent case from the Alberta Court of Appeal, Vandal v Cousineau, considered the sale of a bar by its owner to a staff member, the terms of which were recorded on a single piece of paper. The court of appeal agreed with the trial judge that the contract was too uncertain to be enforced, and the lawsuit was dismissed.
The facts were these. The plaintiff, Mr. Vandal, was an experienced businessman in his 50s who owned Smokin’ Joe’s Roadhouse in west Edmonton. The defendant and purchaser, Melissa Cousineau, was an employee of the Roadhouse. Mr. Vandal personally drafted a one page “purchase agreement” for them to sign. Mr. Vandal lacked legal training.
It was not disputed that Ms. Counsineau started running the bar as contemplated by the purchase agreement, but confusion between Ms. Counsineau and Mr. Vandal meant that the deal never “closed” properly, meaning that payroll, bank accounts, and the transfer and renewal of the establishment’s liquor licence and VLT terminals was never conclusively dealt with. Ultimately the VLT’s were disabled, the liquor licence expired, and Mr. Vandal wasn’t paid. What a mess.
When Mr. Vandal attempted to bring a lawsuit to enforce the purchase agreement, and compel payment from Ms. Counsineau, the court found the agreement “void” for uncertainty. The court could not decipher whether the agreement was for the sale of the of assets of the bar, or for the sale of shares of Mr. Vandal’s holding company that owned the bar. Ms. Cousineau preferred the former interpretation of the agreement, and Mr. Vandal the latter.
There was other confusion as well, including whether an “operating partnership” would exist with Mr. Vandal until Ms. Counsineau was able to run the establishment on her own, and how payment for the bar was supposed to be made. The court was left wondering what bargain it was supposed to enforce, Mr. Vandal’s version or Ms. Cousineau’s?
The trial judge concluded that there existed a “fundamental uncertainty” about the nature and terms of the agreement to the extent that an objective observer would not be able to discern what the parties’ intentions were at the time they made the agreement. In these situations it is not the role of the court to guess, or make a contract between the parties on terms that they did not agree. The trial judge dismissed the claim, and the court of appeal upheld the decision.
The lesson for bar owners and operators is clear: Mr. Vandal’s decision to take the drafting of a purchase agreement into his own hands cost him dearly. By not seeking legal advice at the outset of the transaction he lost his liquor licence, his business, and was forced to incur significant legal fees.
If your business requires the drafting of leases, employment contracts, agreements with suppliers, or the purchase and sale of assets, Alcohol & Advocacy recommends you seek the assistance of counsel at the outset of the transaction. The lawyers at Owen Bird have significant experience in drafting commercial and financial agreements, including the documents necessary for liquor and hospitality industry specific transactions, and they would be pleased to assist you.
*Alcohol & Advocacy publishes articles for information purposes only. They are not a substitute for legal advice, and persons requiring such advice should consult legal counsel.