Did I stumble into an illegal business deal?

A business owner who unknowingly signed contracts with a rival's partner checks with Ask FSB's legal experts about the consequences.

Dr. Lal
A rival company of ours had a partner and we unknowingly did business with that partner. Now that partner is in Canada. Did we partake in an illegal business transaction? We did sign contracts with that partner.

By Lenora Chu, Fortune Small Business contributor
Dear Dr. Lal: To fully answer your inquiry, the experts need more information about the specifics of your situation.

However, as a general matter, there are few limitations on contracting, says Washington, D.C.-based attorney Bob Reif of the national law firm Epstein, Becker & Green.

On the surface, it’s not “illegal” to contract with the “partner” of a rival company.

Grounds for a claim may arise, however, if the partner’s agreement with the rival company prohibits it from entering into an agreement with a competitor.

That’s referred to as the tort of "intentional interference with a contract," and requires both knowledge of the underlying contract (between the partner and rival company) and an intent to cause that contract to be breached, says Reif.

Similarly, a claim may arise if you intended to interfere with the business of the rival company by doing business with its partner. That’s called "intentional interference with prospective advantage."

Other possible claims might arise if the parties to the contract (you and the partner) are using the rival’s trade secrets.

Further, should you enter a contract under a mistake that is “material,” such a mistake may be grounds for setting the contract aside, depending upon the facts and the laws of the applicable jurisdiction, says attorney Steve Merlin of the Atlanta law firm Cohen Pollock Merlin and Small.

Finally, you indicate that the partner has relocated to Canada. Doing business with someone outside the country is not illegal and would not void an otherwise valid contract, says Merlin.

However, if the contract was for the delivery of a product which, while lawful in the United States, requires any kind of export permit which hasn’t been obtained, then the activity might become illegal, Reif says.

This column provides general information only and is not intended to replace the services or legal advice of an attorney. Always consult a lawyer regarding any specific legal concerns, as laws vary from state to state.