The Fourth District Court of Appeal today confirmed that “the right to contract is one of the most sacrosanct rights guaranteed by our fundamental law.”
In Lugassy v Lugassy, the Court faced a deadlock between two equal shareholders as to the operation of a closely held corporation. One of the shareholders wanted to borrow money to operate, and the other did not. The Fourth District granted a petition for certiorari and quashed a circuit court order requiring one of the 50 percent owners of the corporation, over his objection, to execute loan documents for the corporation to seek financing, which included a personal guaranty. The Fourth District held that freedom to contract also includes the freedom not to contract. The Fourth District held that requiring the objecting shareholder to enter into a contract (including guaranty) violated the shareholder’s constitutional rights.
This case drives home an important and often forgotten concept in shareholder disputes and the authority of the trial court to order the parties to do things to resolve their differences. By this ruling, the limitation on the trial court’s powers is clearer. Parties are free to enter into contracts, or not, and the court may not impose upon them to enter into contractual obligations against their will.
The issues, in this case, could have been avoided with a properly prepared shareholders’ agreement that addressed the shareholder’s obligations.
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