ABSTRACT
Delaware courts take pride in their ‘contractarianism’. Words matter, and Delaware courts enforce both good and bad contracts. However, in a recent decision, the Delaware Supreme Court ruled that an express condition precedent for triggering a seller’s indemnity obligation-that the buyer provide a compliant notice of claims before a specific date-could potentially be excused through the application of an equitable doctrine, ‘the law abhors a forfeiture’.
The idea that a conditional right to indemnification could be considered as being ‘forfeited’ was surprising. Even more surprising was the court’s ruling that, to prevent the forfeiture of that right to indemnification from being excused, there would need to be an evidentiary hearing to determine whether the timing and required content of the notice were a material part of the bargain made by the buyer and seller. Is there a drafting fix to avoid the need for such an evidentiary hearing?
The ‘time is of the essence’ clause has been utilized to emphasize that the timing of a party’s performance was a material part of the bargain in real estate transactions. Could it be adapted to M&A deals? And could it work to make clear that, to the extent a party’s contractual right was dependent upon fulfilling an express condition requiring timely performance, the loss of a party’s rights as a result of the failure to timely fulfill such a condition is a ‘material preclusive condition precedent that demand[s] a forfeiture[?]’ This article seeks to answer those questions.
West, Glenn D and Gulati, Mitu, The Time-Is-Of-The-Essence Clause In M&A Agreements (July 6, 2025), Virginia Public Law and Legal Theory Research Paper No 2025-54; Virginia Law and Economics Research Paper No 2025-14.
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