A Standard Clause Analysis of the Frustration Doctrine and the Material Adverse Change Clause

Total Page:16

File Type:pdf, Size:1020Kb

A Standard Clause Analysis of the Frustration Doctrine and the Material Adverse Change Clause University of Colorado Law School Colorado Law Scholarly Commons Articles Colorado Law Faculty Scholarship 2010 A Standard Clause Analysis of the Frustration Doctrine and the Material Adverse Change Clause Andrew A. Schwartz University of Colorado Law School Follow this and additional works at: https://scholar.law.colorado.edu/articles Part of the Business Organizations Law Commons, Contracts Commons, and the Law and Economics Commons Citation Information Andrew A. Schwartz, A Standard Clause Analysis of the Frustration Doctrine and the Material Adverse Change Clause, 57 UCLA L. REV. 789 (2010), available at https://scholar.law.colorado.edu/articles/451. Copyright Statement Copyright protected. Use of materials from this collection beyond the exceptions provided for in the Fair Use and Educational Use clauses of the U.S. Copyright Law may violate federal law. Permission to publish or reproduce is required. This Article is brought to you for free and open access by the Colorado Law Faculty Scholarship at Colorado Law Scholarly Commons. It has been accepted for inclusion in Articles by an authorized administrator of Colorado Law Scholarly Commons. For more information, please contact [email protected]. +(,121/,1( Citation: 57 UCLA L. Rev. 789 2009-2010 Provided by: William A. Wise Law Library Content downloaded/printed from HeinOnline Thu May 4 13:54:12 2017 -- Your use of this HeinOnline PDF indicates your acceptance of HeinOnline's Terms and Conditions of the license agreement available at http://heinonline.org/HOL/License -- The search text of this PDF is generated from uncorrected OCR text. -- To obtain permission to use this article beyond the scope of your HeinOnline license, please use: Copyright Information A "STANDARD CLAUSE ANALYSIS" OF THE FRUSTRATION DOCTRINE AND THE MATERIAL ADVERSE CHANGE CLAUSE Andrew A. Schwartz In the darkest depths of a corporate merger agreement lies the MAC clause, a term that permits the acquirer to walk away from a transaction if, between signing and closing, the target company experiences a "Material Adverse Change." Multibillion- dollar deals rise or fall based on the anticipated interpretation of a MAC clause, and invocation of the clause in a sensitive transaction could trigger the collapse of the global financial system. In short, the MAC clause is the most important contract term of our time. And yet-due to an almost total lack of case lau-no one knows what it means. In this Article I explain the MAC clause using a new conceptual tool for drafting and interpreting contracts, the "standardclause analysis." For any default rule of contract law, practitioners can be expected to develop a "standard clause analog" in order to easily contract around the default. Given this relationshipbetween default rules and their standard clause analogs, if one isgiven, the other can be deduced. This is the "standard clause analysis," and it can be used in two ways, which I call "forward" and "reverse." In a forward standard clause analysis, one begins with a default rule and advances to its standard clause analog. The forward standard clause analysis can be used to predict the existence of standardclause analogs that have yet to be observed. And in a reverse standard clause analysis, one begins with a standard clause and advances to the default rule with which it is associated. The reverse analysis isa powerful method for interpreting contract terms. After introducing and describing the standard clause analysis, I put it to practicaluse. I begin by applying the forward analysis to the common law doctrine of frustration, and predict that a "frustration clause" exists, or will soon come into being, and that it would resemble a reverse Force Majeure clause and be found in relatively high-value contracts. These predictions are then confirmed with several examples of frustration clauses observed in the real world: the Morals clause, the Walkaway clause, and, most notably, the MAC clause. Then I apply the reverse analysis to the MAC clause and show it to be a standardclause analog of the frustration doctrine that alters the default rule by (a) permitting excuse on the basis of a significant (but less than total) loss in contractual * Associate Professor of Law, University of Colorado Law School. For their thoughtful comments on earlier drafts, I thank Victor Fleischer, Mark Loewenstein, Scott Moss, Amy Schmitz, and Allison Callan Schwartz, as well as workshop participants at the University of Colorado Law School. And for her excellent work, I thank my research assistant Kathrine Gerth (Colorado Law class of 2011). This Article is dedicated to my Contracts professor, the late F. Allan Farnsworth. 790 57 UCLA LAW REVIEW 789 (2010) value, (b) excusing the acquirer based on frustration of a "secondary" (as opposed to its "primary") purpose, and (c) shifting major exogenous risks (such as an economic recession or a naturaldisaster) from the target to the acquirer. I conclude with a case study to demonstrate the difference between the MAC clause and the default frustration doctrine: Bank of America's recent $50 billion acquisition of Merrill Lynch in late 2008. During the brief three-month period between signing and closing, Merrill lost an astounding $15 billion, but the conventional wisdom-shared by Federal Reserve Chairman Ben Bernanke, among others-is that Merrill's loss clearly failed to trigger the MAC clause. I disagree. While the default frustration doctrine would not have offered any relief, Bank of America may well have had viable grounds to invoke the MAC clause, properly understood, and walk away from the Merrill deal. IN TRO DUCTIO N .............................................................................................................. 79 1 1. STANDARD CLAUSE ANALYSIS ............................................................................... 794 A. Default Rules and Freedom of Contract .......................................................... 794 B. Standard Clause Analogs ................................................................................ 796 C. The Standard Clause Analysis ........................................................................ 798 II. A FORWARD STANDARD CLAUSE ANALYSIS OF THE FRUSTRATION DOCTRINE ............................................................................ 800 A. The Frustration Doctrine ................................................................................ 802 B. A Standard Clause Analysis of the Frustration Doctrine ................................. 805 1. Principal Purpose Frustrated .................................................................... 805 2. Total or Near-Total Frustration ............................................................... 806 3. Extraordinary Event ................................................................................ 808 4. Exogenous Event ..................................................................................... 811 C. Observed Frustration Clauses .......................................................................... 812 1. The M orals Clause .................................................................................. 813 2. The Walkaway Clause ............................................................................. 816 3. The M A C C lause .................................................................................... 817 III. A REVERSE STANDARD CLAUSE ANALYSIS OF THE MAC CLAUSE .......................... 824 A. Magnitude of a "Material" Adverse Change .................................................... 826 B. Frustrated Purpose ........................................................................................... 830 C . R isk Allocation ............................................................................................... 832 IV. CASE STUDY: BANK OF AMERICA-MERRILL LYNCH ................................................ 835 C O N CLUSIO N ................................................................................................................. 838 Standard Clause Analysis 791 INTRODUCTION In the darkest depths of a corporate merger agreement lies the "MAC" clause, a term that permits the acquirer to walk away from the deal if the target suffers a "material adverse change" between signing and closing. Multibillion- dollar deals rise or fall based on the anticipated interpretation of a MAC clause,' and invocation of the clause could, in a time of turmoil, push the United States economy into a systemic crisis.2 VVhen Bank of America threatened to invoke the MAC clause in its $50 billion acquisition of Merrill Lynch, the federal government-fearing "financial chaos" 3-provided $20 billion in taxpayer financing to ensure that it would not invoke the clause. The propriety of that taxpayer financing, which is now the subject of congressional hearings,4 turns in significant measure on the proper construction of the parties' MAC clause. In short, the MAC clause is the most important term in the most important contracts of our time. And yet no one seems to know what it means. There is not a single appellate decision interpreting the MAC clause, and the few trial court opinions that exist have failed to establish a consistent interpretation. The Delaware Chancery Court-the leading forum for corporate merger litigation-views MAC clauses as "strange animals, sui generis among their contract clause brethren," and has never found a MAC to have occurred.' Scholars and practitioners, for their part, have largely offered theoretical
Recommended publications
  • DDS WIRELESS INTERNATIONAL, INC. V. NUTMEG LEASING, INC. (AC 34278) Robinson, Bear and Peters, Js
    ****************************************************** The ``officially released'' date that appears near the beginning of each opinion is the date the opinion will be published in the Connecticut Law Journal or the date it was released as a slip opinion. The operative date for the beginning of all time periods for filing postopinion motions and petitions for certification is the ``officially released'' date appearing in the opinion. In no event will any such motions be accepted before the ``officially released'' date. All opinions are subject to modification and technical correction prior to official publication in the Connecti- cut Reports and Connecticut Appellate Reports. In the event of discrepancies between the electronic version of an opinion and the print version appearing in the Connecticut Law Journal and subsequently in the Con- necticut Reports or Connecticut Appellate Reports, the latest print version is to be considered authoritative. The syllabus and procedural history accompanying the opinion as it appears on the Commission on Official Legal Publications Electronic Bulletin Board Service and in the Connecticut Law Journal and bound volumes of official reports are copyrighted by the Secretary of the State, State of Connecticut, and may not be repro- duced and distributed without the express written per- mission of the Commission on Official Legal Publications, Judicial Branch, State of Connecticut. ****************************************************** DDS WIRELESS INTERNATIONAL, INC. v. NUTMEG LEASING, INC. (AC 34278) Robinson, Bear and Peters, Js. Argued March 21Ðofficially released September 10, 2013 (Appeal from Superior Court, judicial district of Ansonia-Milford, Hon. John W. Moran, judge trial referee.) Linda L. Morkan, with whom, on the brief, was Christopher J.
    [Show full text]
  • Who Needs That Recital of Consideration?
    DraftingDrafting aa newnew dayday Who needs that ‘recital of consideration’? By Kenneth A. Adams t’s hardly a shocking notion that are hereby acknowledged, the parties Farnsworth, Farnsworth on Contracts any given contract could contain hereto covenant and agree as follows. 150 (2d. ed. 1998).) It follows that Ione or more provisions that reflect Recitals of consideration raise a using instead the vague language of a an inaccurate or outdated view of con- number of issues of legal usage. For traditional recital of consideration tract law. What’s more noteworthy is example, NOW, THEREFORE is archa- would be equally ineffective. the fact one such provision — the tra- ic, while in consideration of the premises Similarly, a false recital of consider- ditional recital of consideration — is simply an obscure way of saying ation cannot create consideration appears in most corporate agreements. “therefore” and is superfluous given where there was none. If, in the con- In this article, I explain why that the preceding “therefore.” And refer- tract between Acme and Roe, Acme traditional recital of consideration ences to the value or sufficiency of recites falsely that the payment to Roe fails to serve its intended purpose and consideration are outdated: With the was in consideration of future services why omitting it could only improve a rise of the “bargain test of considera- and Acme subsequently refuses to pay contract. tion” reflected in the Restatement (Sec- the bonus, Acme should prevail in any The ostensible function of a recital ond) of Contracts, the focus of judges action brought by Roe if it succeeds in of consideration is to render enforce- has shifted from the substance of the proving that the recital was false.
    [Show full text]
  • Force Majeure and Common Law Defenses | a National Survey | Shook, Hardy & Bacon
    2020 — Force Majeure SHOOK SHB.COM and Common Law Defenses A National Survey APRIL 2020 — Force Majeure and Common Law Defenses A National Survey Contractual force majeure provisions allocate risk of nonperformance due to events beyond the parties’ control. The occurrence of a force majeure event is akin to an affirmative defense to one’s obligations. This survey identifies issues to consider in light of controlling state law. Then we summarize the relevant law of the 50 states and the District of Columbia. 2020 — Shook Force Majeure Amy Cho Thomas J. Partner Dammrich, II 312.704.7744 Partner Task Force [email protected] 312.704.7721 [email protected] Bill Martucci Lynn Murray Dave Schoenfeld Tom Sullivan Norma Bennett Partner Partner Partner Partner Of Counsel 202.639.5640 312.704.7766 312.704.7723 215.575.3130 713.546.5649 [email protected] [email protected] [email protected] [email protected] [email protected] SHOOK SHB.COM Melissa Sonali Jeanne Janchar Kali Backer Erin Bolden Nott Davis Gunawardhana Of Counsel Associate Associate Of Counsel Of Counsel 816.559.2170 303.285.5303 312.704.7716 617.531.1673 202.639.5643 [email protected] [email protected] [email protected] [email protected] [email protected] John Constance Bria Davis Erika Dirk Emily Pedersen Lischen Reeves Associate Associate Associate Associate Associate 816.559.2017 816.559.0397 312.704.7768 816.559.2662 816.559.2056 [email protected] [email protected] [email protected] [email protected] [email protected] Katelyn Romeo Jon Studer Ever Tápia Matt Williams Associate Associate Vergara Associate 215.575.3114 312.704.7736 Associate 415.544.1932 [email protected] [email protected] 816.559.2946 [email protected] [email protected] ATLANTA | BOSTON | CHICAGO | DENVER | HOUSTON | KANSAS CITY | LONDON | LOS ANGELES MIAMI | ORANGE COUNTY | PHILADELPHIA | SAN FRANCISCO | SEATTLE | TAMPA | WASHINGTON, D.C.
    [Show full text]
  • Force Majeure Tracker
    Force majeure tracker April 2020 EXECUTIVE SUMMARY This guide has been prepared to address the substantial business and operational disruptions caused by the COVID-19 pandemic. Given the unexpected nature of the outbreak, parties to commercial contracts may seek to invoke force majeure or similar legal concepts to excuse delay or non-performance. This guide gives a high-level comparative analysis of force majeure in 28 jurisdictions, together with alternative remedies that may apply depending on the governing law of the relevant contracts. If you have any additional questions, please do not hesitate to contact our practitioners listed throughout the document. Asia Pacific EMEA The Americas 2 ASIA PACIFIC Jo Delaney Zhou Xi Roberta Chan Cynthia Tang Angela Ang Australia China Hong Kong Hong Kong Hong Kong +61 2 8922 5467 +86 10 5949 6019 +852 2846 2492 +852 2846 1708 +852 2846 1795 jo.delaney zhouxi roberta.chan cynthia.tang angela.ang @bakermckenzie.com @fenxunlaw.com @bakermckenzie.com @bakermckenzie.com @bakermckenzie.com Andi Kadir Timur Sukirno Yoshiaki Muto Kherk Ying Chew Donemark Calimon Indonesia Indonesia Japan Malaysia Philippines +62 21 2960 8511 +62 21 2960 8500 +81 3 6271 9451 +603 2298 7933 +63 2 8819 4920 andi.kadir timur.sukirno yoshiaki.muto kherkying.chew donemark.calimon @bakermckenzie.com @bakermckenzie.com @bakermckenzie.com @wongpartners.com @quisumbingtorres.com Daljit Kaur Nandakumar Ponniya Henry Chang Pisut Attakamol Singapore Singapore Taiwan Thailand +65 6434 2255 +65 6434 2663 +886 2 2715 7259 + 66 2636 2000 x 3131 daljit.kaur nandakumar.ponniya henry.chang pisut.attakamol @bakermckenzie.com @bakermckenzie.com @bakermckenzie.com @bakermckenzie.com Minh Tri Quach Fred Burke Vietnam Vietnam +84 24 3936 9605 +84 28 3520 2628 minhtri.quach frederick.burke @bmvn.com.vn @bakermckenzie.com 1 2 3 4 5 6 3 1 Is FM recognized in statute? If yes, what is impact of statutory rules on FM clauses in contracts? AUSTRALIA No statutory recognition.
    [Show full text]
  • Fcm Regulations of the Clearing House Lch Limited
    FCM REGULATIONS OF THE CLEARING HOUSE LCH LIMITED FCM Regulations Contents CONTENTS Regulation Page Regulation 1 Definitions ..................................................................................................... 2 (a) which the Clearing House and the Rates Exchange have agreed will be cleared in accordance with, and subject to, the Rates Exchange Rules and the FCM Rulebook via the FCM Listed Interest Rates Open Offer clearing mechanism (and not via novation under FCM Regulation 54); and ............ 27 (b) regardless of whether such match is described or characterised as a trade, transaction or agreement in the relevant Rates Exchange Rules. ................ 27 Chapter I - SCOPE ................................................................................................................... 33 Regulation 2 Obligations of the Clearing House to each FCM Clearing Member ........... 33 Regulation 3 Performance by the Clearing House of its Obligations under the Terms of an Open Contract; Novation ........................................................................ 34 Chapter II - STATUS ............................................................................................................... 35 Regulation 4 FCM Clearing Member Status and Application of LCH Regulations ......... 35 Regulation 5 Resigning and Retiring Members ................................................................ 38 Regulation 6 Service Withdrawal ...................................................................................... 40 Chapter
    [Show full text]
  • 1 UNITED STATES BANKRUPTCY COURT DISTRICT of MASSACHUSETTS CENTRAL DIVISION in Re: CYPHERMINT, INC. Debtor ) ) ) ) ) ) ) Chapt
    Case 10-04054 Doc 69 Filed 07/25/13 Entered 07/25/13 15:27:53 Desc Main Document Page 1 of 13 UNITED STATES BANKRUPTCY COURT DISTRICT OF MASSACHUSETTS CENTRAL DIVISION ) In re: ) Chapter 7 ) Case No. 08-42682-MSH CYPHERMINT, INC. ) ) Debtor ) ) ) JOSEPH H. BALDIGA, TRUSTEE ) ) Plaintiff ) Adversary Proceeding ) No. 10-04054 v. ) ) C.A. ACQUISITION CORP., C.A. ) ACQUISITION NEWCO, LLC, and ) PAYCASH MOBILE, LLC ) ) Defendants MEMORANDUM OF DECISION ON TRUSTEE’S MOTION FOR SUMMARY JUDGMENT The plaintiff in this adversary proceeding and the chapter 7 trustee in the main case, Joseph H. Baldiga, has moved for summary judgment on a complaint against defendants C.A. Acquisition Corp. (“C.A. Acquisition”), C.A. Acquisition Newco, LLC (“Newco”), and Paycash Mobile, LLC (“Paycash). The trustee’s claims against the defendants arise primarily from their alleged failure to comply with the terms of an agreement to purchase the assets of Cyphermint, Inc. (“Cyphermint”), the debtor in the main case. The defendants oppose the summary judgment motion. 1 Case 10-04054 Doc 69 Filed 07/25/13 Entered 07/25/13 15:27:53 Desc Main Document Page 2 of 13 Facts The relevant facts have been established by those allegations in the complaint admitted to by the defendants, the two affidavits and accompanying exhibits submitted by the trustee in support of his motion for summary judgment,1 and the facts in the trustee’s Concise Statement of Material Facts which have not been disputed by the defendants. On August 28, 2008, C.A. Acquisition offered to purchase the assets of the debtor.
    [Show full text]
  • Contract Basics for Litigators: Illinois by Diane Cafferata and Allison Huebert, Quinn Emanuel Urquhart & Sullivan, LLP, with Practical Law Commercial Litigation
    STATE Q&A Contract Basics for Litigators: Illinois by Diane Cafferata and Allison Huebert, Quinn Emanuel Urquhart & Sullivan, LLP, with Practical Law Commercial Litigation Status: Law stated as of 01 Jun 2020 | Jurisdiction: Illinois, United States This document is published by Practical Law and can be found at: us.practicallaw.tr.com/w-022-7463 Request a free trial and demonstration at: us.practicallaw.tr.com/about/freetrial A Q&A guide to state law on contract principles and breach of contract issues under Illinois common law. This guide addresses contract formation, types of contracts, general contract construction rules, how to alter and terminate contracts, and how courts interpret and enforce dispute resolution clauses. This guide also addresses the basics of a breach of contract action, including the elements of the claim, the statute of limitations, common defenses, and the types of remedies available to the non-breaching party. Contract Formation to enter into a bargain, made in a manner that justifies another party’s understanding that its assent to that 1. What are the elements of a valid contract bargain is invited and will conclude it” (First 38, LLC v. NM Project Co., 2015 IL App (1st) 142680-U, ¶ 51 (unpublished in your jurisdiction? order under Ill. S. Ct. R. 23) (citing Black’s Law Dictionary 1113 (8th ed.2004) and Restatement (Second) of In Illinois, the elements necessary for a valid contract are: Contracts § 24 (1981))). • An offer. • An acceptance. Acceptance • Consideration. Under Illinois law, an acceptance occurs if the party assented to the essential terms contained in the • Ascertainable Material terms.
    [Show full text]
  • Why Use Requirement Contracts? the Tradeoff Between Hold-Up And
    Why Use Requirement Contracts? The Tradeoff between Hold-Up and Breach June 14, 2015 Eric Rasmusen Abstract A requirements contract is a form of exclusive dealing in which the buyer promises to buy only from one seller if he buys at all. This paper models a most common-sense motivation for such contracts: that the buyer wants to ensure a reliable supply at a pre- arranged price without any need for renegotiation or efficient breach. This requires that the buyer be unsure of his future demand, that a seller invest in capacity specific to the buyer, and that the transaction costs of revising or enforcing contracts be high. Transaction costs are key, because without them a better outcome can be obtained with a fixed- quantity contract. The fixed-quantity contract, however, requires breach and damages. If transaction costs make this too costly, an option contract does better. A requirements contract has the further advantage that it evens out the profits of the seller across states of the world and thus allows for an average price closer to marginal cost. Eric Rasmusen: John M. Olin Faculty Fellow, Olin Center, Harvard Law School; Visiting Professor, Economics Dept., Harvard University, Cambridge, Massachusetts (till July 1, 2015). Dan R. and Catherine M. Dalton Professor, Department of Business Economics and Public Policy, Kelley School of Business, Indiana University, Bloomington Indiana. Eras- [email protected] or [email protected]. Phone: (812) 345-8573. Messaging: [email protected]. This paper: http://www.rasmusen.org/papers/holdup-rasmusen. pdf. Keywords: Hold-up problem, requirements contracts, relational contracting, exclusive dealing, expectation damages, option contracts, procurement, Uniform Commercial Code.
    [Show full text]
  • Contracts 8 24
    QUESTION 3 On Mayl, Buyer received the following letter: Dear Buyer: I have decided to give up my ranch and move to town. I thought that you might consider buying it from me. I will sell it to you for its current market value, $80,000. Call me by May 10. I will keep this proposal open, and will not withdraw it, until after that date. IS/ Seller The next day, Buyer mentioned to a friend, Mary, that he was considering buying the ranch. Mary responded that an acquaintance of hers, Jody, also had received an offer from Seller to purchase the ranch. Buyer immehately went home and prepared a letter of acceptance, addressed to Seller, and deposited it in the mail at 9:30 A.M. At 10:OO A.M. on May 2, Seller entered into a written agreement with Jody for the purchase of the ranch. At 2:00 P.M. on May 2, Buyer called Seller to arrange for a survey of the ranch. Seller informed Buyer that he had already sold the ranch. Upon hearing this, Buyer exclaimed, "We have a deal. I sent you an acceptance this morning by mail." QUESTION: Discuss whether there is a contract between Buyer and Seller and the basis for your conclusion. DISCUSSION FOR QUESTION 3 An offer is a manifestation of willingness to enter into a bargain so made as to justify another person in understandmg that his assent to that bargain is invited and will conclude it. Res.2d Contracts 8 24. In this case Seller's letter is an offer, since under the objective test of intent, a reasonable person in Buyer's position would understand that Seller was in fact seeking Buyer's assent to his invitation.
    [Show full text]
  • COVID-19 Legal Issues: Frequently Asked Questions
    Litigation & Arbitration Group Client Alert COVID-19 Legal Issues: Frequently Asked Questions April 2, 2020 In managing the volatility and uncertainty caused by the global COVID-19 pandemic, many industries are grappling with complex legal and commercial challenges, from manufacturing shutdowns, interrupted supply chains and quarantines, to dislocated labor markets and restrictions on trade and movement, including the practical shutdown, or near shutdown, of substantial portions of the world economy. Moreover, governments have intervened to provide liquidity and emergency relief to credit markets and vulnerable industries and to preserve payrolls. Nonetheless, economic uncertainty has forced many companies, lenders and investors to seek guidance on their rights with respect to contractual obligations, especially in these key areas: • force majeure provisions • the doctrines of impossibility • material adverse effects and impracticability provisions • the frustration of purpose • ordinary course of business doctrine covenants • EBITDA maintenance covenants The analysis of any particular contract, transaction or dispute is always fact-specific and depends on, among other things, the specific contract language and conduct of the parties in each instance, as well as the relevant law applicable to that contract, transaction or dispute. Additionally, current market norms continue to evolve and legal rules cannot be interpreted in a vacuum. Regulatory and judicial interpretations of particular contract provisions, duties and applicable law may
    [Show full text]
  • In Re First Phoenix
    United States Bankruptcy Court Western District of Wisconsin Cite as: 575 B.R. 828 In re: First Phoenix-Weston, LLC, and FPG & LCD, L.L.C., Debtors Bankruptcy Case Nos. 16-12820-11 and 16-12821-11 (Jointly Administered) August 14, 2017 Justin M. Mertz, Esq., Michael Best & Friedrich LLP, Milwaukee, WI, for Debtors Frank W. DiCastri, Esq., Husch Blackwell LLP, Milwaukee, WI, for Creditor Catherine J. Furay, United States Bankruptcy Judge MEMORANDUM DECISION This is a tale of two views of the same transaction. Debtor First Phoenix-Weston, LLC (“Weston”) borrowed $14,694,599.73 from Sabra Phoenix TRS Venture, LLC (“Sabra Phoenix”) in November of 2013. The transaction was documented by a Loan Agreement, Note, and Mortgage. In addition, an Option Agreement was executed the same day between Weston and Sabra Phoenix. The Loan Agreement and related documents—including the Option Agreement—were assigned to Sabra Phoenix Wisconsin, LLC (“Sabra”) by Sabra Phoenix. On August 15, 2016, Weston and Co-Debtor FPG & LCD, L.L.C. (“FPG”) (collectively the “Debtors”), filed voluntary Chapter 11 petitions. On December 21, 2016, the Debtors’ largest pre-petition lender, Sabra, filed Proof of Claim No. 16 in the Weston case. The claim was in an amount “not less than” $17,773,438.77.1 The Proof of Claim contains an addendum detailing the calculation of the stated amount and, further, asserts “an unliquidated, unsecured amount as damages for Debtors’ pre-petition breach of the Option Agreement.” The Debtors objected to Sabra’s Proof of Claim No. 16 (“Claim Objection”). The objection focuses on the claim for additional sums related to the Option.2 Sabra moved “for Entry of Orders: (I) Estimating Claim for Breach of Option Agreement; and (II), to the Extent Necessary, Temporarily Allowing Sabra’s Claims for Voting Purposes” (the “Option Motion”).
    [Show full text]
  • Application of the Uniform Commercial Code to Option Contracts for The
    Campbell Law Review Volume 23 Article 4 Issue 1 Fall 2000 October 2000 Application of the Uniform Commercial Code to Option Contracts for the Sale of Goods, and Implying Promises to Find Sufficient Consideration: Why and How the North Carolina Supreme Court Got It Wrong in Fordham v. Eason James T. Newman Jr. Follow this and additional works at: http://scholarship.law.campbell.edu/clr Part of the Commercial Law Commons Recommended Citation James T. Newman Jr., Application of the Uniform Commercial Code to Option Contracts for the Sale of Goods, and Implying Promises to Find Sufficient Consideration: Why and How the North Carolina Supreme Court Got It Wrong in Fordham v. Eason, 23 Campbell L. Rev. 49 (2000). This Note is brought to you for free and open access by Scholarly Repository @ Campbell University School of Law. It has been accepted for inclusion in Campbell Law Review by an authorized administrator of Scholarly Repository @ Campbell University School of Law. Newman: Application of the Uniform Commercial Code to Option Contracts fo Application of the Uniform Commercial Code to Option Con- tracts for the Sale of Goods, and Implying Promises to Find Suffi- cient Consideration: Why and How the North Carolina Supreme Court Got it Wrong in Fordham v. Eason* "Oft times members of both the bench and bar are criticized for failing to distinguish the forest from the trees. In this case, however, the con- troversy arises from an attempt to separate the trees from the forest."1 I. INTRODUCTION The North Carolina Supreme Court rarely ventures into cases involving contract disputes.
    [Show full text]