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Probate Court Discusses the Legality of Asset Purchase Agreement


The Facts of the Case:

On 8 January 2006, the decedent died with a will dated 31 December 1993. On 26 April 2007, the decedent’s will was admitted for probate (will contest proceeding) by the court and a decree was thereafter issued, and letters testamentary also issued to the decedent’s wife as executor of the estate of her husband, the decedent (for estate administration as may be determined in estate litigation). At the time of the decedent’s death, he owns a surveying business.

On 12 December 2007, an Asset Purchase Agreement was entered into between the decedent’s wife and “A” where “A” agreed to purchase the decedent’s business and all of the assets used in connection with the business. The purchase price was $375,000.00. On 14 December 2007, “A” executed a promissory note in the sum of $200,000.00. The note was guaranteed by a Land Surveyor company, “X”. The terms of the promissory note provide that “A” will pay the sum of $200,000.00, together with interest thereon at the rate of 5% per annum, in sixty consecutive monthly payments of principal and interest, each of which, except the last, was required to be in the sum of $3,774.25, the first payment to be made before 14 January 2008.

Thereafter, a New York Probate Lawyer said on 14 December 2007, a bill of sale was executed by the decedent’s wife in favor of “A” where she was represented in the sale and in post-closing disputes concerning the sale by lawyer-two. However, no payment was ever made. Thus, on 25 January 2008, by written notice, the wife exercised her option to declare the unpaid principal balance of the promissory note to become immediately due, plus interest. The wife hired lawyer-one, and lawyer-two to act as co-counsel.

In opposition, respondent “A” alleges that the wife breached their agreement by failing to provide adequate documentation to allow him to collect on the accounts receivable; that the wife fraudulently misrepresented the value of the accounts receivable, either by intentionally keeping the necessary documentation from him or by misrepresenting that said documentation ever existed; that the wife fraudulently misrepresented that “A” would be receiving as part of the sale business assets such as cars, documents and files and other significant assets of the business; that, as a result, “A” has refused to make payment on the note. Moreover, “A” argues that lawyer-two should be disqualified from serving as the wife’s co-counsel on the grounds of the advocate-witness rule because he is a material and necessary witness; because he served as the wife’s attorney throughout the negotiation and sale of the business; that lawyer-two has intimate knowledge regarding the assets of the business and what was promised to “A” as part of the sale; that lawyer-two will be deposed and questioned as to the existence of the accounts receivable and his role in furnishing the necessary documents to allow “A” to collect on those accounts; that lawyer-two is a material and necessary witness because he was involved in negotiations, meetings and drafting of documents in connection with the sale.

Furthermore, a Manhattan Probate Lawyer said “A” also asks for leave of court to amend his answer to add two affirmative defenses, one alleging mutual mistake concerning the disputed invoices and the value of the accounts receivable and one alleging unilateral mistake by “A” caused by fraudulent conduct on the part of the wife, since the wife’s counsel has declined to stipulate to allow the amendment; that the amendment does not create any prejudice or cause any surprise to the wife; that these defenses arise out of the same set of facts previously set forth in the petition; and that the case is still in the early stages of discovery where no depositions have yet taken place, and the wife will still have the opportunity to seek discovery on these new defenses.

A Bronx Probate Lawyer said the wife opposes the motion for the disqualification and leave to amend the answer, and cross-moves for leave to amend her petition to include a demand for attorney’s fees and out-of-pocket expenses. The respondent opposes the cross motion in its reply papers.

The Ruling of the Court:

On the Disqualification:

The question of whether or not to disqualify an attorney is a matter which rests in the sound discretion of the court. AS a rule, a party seeking disqualification bears the burden of demonstrating that disqualification is warranted. Moreover disqualification of a law firm during litigation implicates not only the ethics of the profession but also the substantive rights of the litigants. Disqualification denies a party’s right to representation by the attorney of its choice. The right to counsel of choice is not absolute and may be overridden where necessary but it is a valued right and any restrictions must be carefully scrutinized. A determination of the issue requires a balancing of one party’s interest in retaining counsel of his or her own personal choice against the other party’s right to be free from the apprehension of prejudice. On the other hand, with regard to the advocate-witness rule, an attorney will be disqualified from representing a client when the attorney’s testimony is necessary and he or she ought to be called as a witness. Where a party’s attorney was an active participant in and has personal knowledge of the underlying circumstances, and ought to be called as a witness on behalf of his or her client, it is improper for such attorney to continue the representation, and any doubt concerning the necessity for the attorney’s testimony should be resolved in favor of disqualification. Generally, the roles of an advocate and of a witness are inconsistent making it unseemly for a lawyer in a trial to argue his own credibility as a witness. Moreover, the party seeking to disqualify an attorney bears the burden of establishing that the attorney will be called as a witness at trial and the attorney’s testimony is necessary. When determining if the attorney’s testimony is necessary, the Court must take into account such factors as the significance of the matters, the weight of the testimony, and the availability of other evidence.

Here, since lawyer-two has personal knowledge of the facts relating to the subject transaction and will almost certainly be called as a witness at trial, the court finds it appropriate that he must be disqualified; that his testimony is not only material, but necessary by virtue of his intimate involvement in the transaction and negotiations. Thus, the motion for disqualification is granted.

On the Amendment:

As a rule, the court has the discretion to allow a party to amend a pleading at any time, and that such discretion should be exercised freely. In exercising its discretion, the court will consider: how long the amending party was aware of the facts upon which the amendment is predicated and whether a reasonable excuse for the delay has been offered; whether the proposed amendment lacks; and whether the proposed amendment would cause prejudice to the other party. The type of prejudice required to defeat a proposed amendment is the loss of a special right in the interim, a change of position or significant trouble or expense which could have been avoided had the original pleading included what the party seeks to add by way of amendment. Moreover, the prejudice must directly arise from the omission in the original pleading. Prejudice does not arise simply because the proposed amendment sets forth an additional theory or because the amendment may defeat the other party’s claim.

Here, it must be noted that the request for leave to amend the petition is unopposed. Obviously, such request will not cause prejudice to the respondents. Thus, the motion for leave to amend the petition is granted; the respondents may amend their answer not only as matter of right, but also because there has been no significant delay nor will the necessary type of prejudice result to the petitioner.

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