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Chancery Court Refuses to Alter Contractual Allocation of Risk Between Sophisticated Parties

Posted by on Wednesday, December 30, 2020 in Delaware Corporate Law Bulletins, En Banc, Volume 73.

Robert S. Reder & Marissa L. Barbalato | 73 Vand. L. Rev. En Banc 275 (2020) | 

In her opinion, Vice Chancellor Zurn instructed that Julius v. Accurus “teaches an important lesson about the benefits of allocating risk among contracting parties and detriments of imprecise drafting.” In essence, the Buyers were in search of a remedy not expressly provided by the APA when they discovered post-Closing, undoubtedly much to their chagrin, that future revenues had disappeared even before they signed the APA. Neither the contract language nor the equities favored the Buyers, however, as they were made aware during due diligence of the possibility that they might not be allowed to rebid on the Lost Parts. Having failed to price this risk into the purchase price or otherwise expressly account for it in the APA, the Buyers were left with makeweight arguments that ultimately were foreclosed by the APA’s integration clause—limiting the Buyers’ recourse to the actual representations and warranties set forth in the APA no matter what they may have been told of the Sellers’ expectations during due diligence—and the limited breadth of the Disputed Representations. Having failed to allocate this risk to the Sellers in the APA, the Buyers faced a high bar in asking the Chancery Court for relief. The Vice Chancellor’s response was quite simple and straightforward: “If preserving opportunities to bid on potentially lost parts was so valuable to Buyers, they could have bargained for explicit protections against lost opportunities. They failed to do so.”

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Robert S. Reder and Marissa L. Barbalato