West Willow: Delaware Court Of Chancery Declines To Reform Purchase Agreement, Underscores Importance Of Third-Party Consents In Acquisitions

Author:Mr Jonathan Moyer
Profession:Reed Smith

"the [purchase agreement] imposed...an unambiguous and unconditional obligation to obtain all necessary third-party consents"1 On Oct. 6, 2009, the Delaware Court of Chancery issued a new opinion in the case of West Willow-Bay Court, LLC v. Robino-Bay Court Plaza, LLC (West Willow II), in which the court declined to reform an amended asset purchase agreement on grounds of mistake.2 In so doing, the Court of Chancery added color to its previous decision in the West Willow case (West Willow I), that when parties unambiguously agree to an unqualified duty to obtain third-party consents, a party who fails to meet this obligation will be held in breach of the agreement, even if such an unqualified obligation is difficult or burdensome.3

West Willow is a breach of contract case involving an asset purchase agreement pursuant to which Robino-Bay agreed to sell a shopping center pad site to West Willow-Bay, which was to be subsequently improved as a convenience store and gas station by West Willow-Bay.4 The claim arose after a tenant in the shopping center, whose lease gave the tenant the right to consent to certain improvements in the shopping center, refused to consent to the sale.5 At issue in the case was whether, under the amended purchase agreement, Robino-Bay had an unconditional obligation to obtain third-party consents, or whether it was only required to use its best efforts.6

The question as to the applicable standard for third-party consents was the result of an amendment to the purchase agreement.7 The parties entered a memorandum of understanding ("MOU") to amend the agreement after the local municipality conditioned its approval of the sale on a grant of certain easements and access rights.8 This condition prompted a meeting between the parties, at which the purchase price was renegotiated upward.9 Although the main point of the amendment was to change the price, the question as to the standard for obtaining third-party consents arose because the MOU, which was non-binding, stated that Robino-Bay was to use its best efforts to obtain third-party consents.10 Despite this language in the MOU, the subsequent amendment signed by the parties contained an unconditioned and unqualified obligation on Robino-Bay to obtain third-party consents.11 When Robino-Bay failed to obtain the consent of the tenant, West Willow-Bay sued for breach of the amended purchase agreement.12

The Delaware Court of Chancery held in West Willow I that because the...

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