In Vintage Rodeo Parent, LLC v. Rent-A-Center, Inc., C.A. No. 2018-0928-SG (Mar. 14, 2019), a buyer sued a target to enforce a merger agreement. The merger agreement provided that each party was entitled to terminate the agreement after the “End Date” unless either party gave notice to extend the “End Date” to the other party before the “End Date”. The buyer failed to give notice of extension to the target before the “End Date”. After the “End Date”, the target terminated the agreement. The buyer argued that the target violated the implied covenant of good faith and fair dealing by exercising the termination right.
The Court held that the target rightfully terminated the merger agreement. Commercially reasonable efforts did not require the target to give advance notice and the merger agreement did not provide so either. Given that the merger agreement’s provisions on the rights to extend the “End Date” and to terminate the agreement were unambiguous, there was no gap for the implied duty of good faith and fair dealing to fill. The implied covenant of good faith and fair dealing was not meant to address equitable fairness but rather to ensure the parties were faithful to and acted in a way that was consistent to the terms and purpose of the contract.
BOTTOM LINE: According to the court, the following language had no gap for the implied covenant to fill:
“This Agreement may be terminated prior to the Effective Time by action of [the target] or [the buyer], as the case may be: . . .
(b) by either [the target] or [the buyer]:
(i) upon written notice to the other party, whether before or after receipt of the Company Stockholder Approval, if the Merger shall not have been consummated by [the End Date] . . . .[the right to terminate this Agreement is not available] to “to any party whose breach of any provision of this Agreement causes the failure of the Closing to be consummated by the End Date.”