Is a contract that was signed with a previous company still valid and bindingif that company was bought out by another company?

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Is a contract that was signed with a previous company still valid and bindingif that company was bought out by another company?

The contract says that it auto renews each year. Now they want me to pay a contract buy-out of $2300. We never actually signed any contract with this new company.

Asked on October 5, 2011 under Business Law, Iowa

Answers:

S.L,. Member, California Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

If the original company assigned the contract to the second company and assignment which is a complete transfer of interest is not prohibited in the contract, the contract is still valid. If an assignment of the contract is prohibited, it can be narrowly construed to only prohibit a delegation of duties instead of an assignment.  However, if the buy-out was not part of the original contract, then the buy-out is merely an offer which you can reject.

In order to have a valid contract, there has to be an offer and an acceptance. 

If the second company wants to amend the contract to include the buy-out provision, your consent as a signatory to the original contract is required.  The second company cannot unilaterally change the terms of the contract and enforce the contract against you.


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