In Zayo Group, L.L.C. v. Latisys Holdings, L.L.C., C.A. No. 12874-VCS (Oct. 26, 2018), a buyer sued a target for breaches of representations and warranties contained in a stock purchase agreement. During the drafting of the terms of the stock purchase agreement, the buyer added a representation and warranty clause to the effect that no customers submitted written notices to manifest their intent “to cancel, terminate, materially modify, refuse to perform” the contracts with the target. Prior to closing, some customers delivered written notice of their intent not to renew their contracts with the target.
The buyer argued that non-renewal was “tantamount to termination and cancellation” and, as a result, the target was in breach of the representations and warranties. The Court found that the meaning of “terminate” was ambiguous and looked to extrinsic evidence. Given the drafting history showed that the buyer accepted target’s deletion of the phrase “or refuse to renew” from the form of representation and warranty proposed by the buyer. In addition, other sections of the stock purchase agreement indicated that “terminate” referred to the cancelation of a contract or agreement before the obligations were performed. Since renewal is distinct from termination, there was no breach of the representation and warranty.
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