In a decision that presents a pretty good “wake-up call,” the Texas Court of Appeals ruled that, when investment advisers are being sold, it should be done with a definitive contract laying out clear terms.

The Texas Court of Appeals in, Fiduciary Financial Services of South West Inc. v. Corilant Financial LP, TX. Ct. App. No. 05-10-00471-CV (July 30, 2012), reversed the lower court order awarding a purchaser over nearly $2 million in damages and attorney’s fees.  The Texas Court of Appeals indicated that the initial letter of intent for the acquisition of the stock of the registered investment adviser being purchased was too vague.  The Court stated that there was no evidence of a mutual understanding as to the terms whereby the buyer would pay the seller.  Essentially, the court found that there were missing terms, and, ultimately determined that it would not allow the supplying of an essential term since the parties did not or could not come to some agreement on that term.  Accordingly, the Court said that the letter of intent, since it was missing this essential term, would be unenforceable as a matter of law.

The court also determined that there were certain other provisions of a material nature that were left open for future negotiation.  As such, the agreement was indefinite, resulting in it being unenforceable as well. 

In short, although there is a very active market in the sale of broker-dealers and investment advisers, this case highlights the importance courts place on definitive terms in the parties’ sale agreements.  Parties must avoid this problem by ensuring that all the prerequisites are contained in their agreements.