Chesapeake Bay Enterprise, Inc. v. Chesapeake Trust (In Re Potomac Supply Corp.)
561 B.R. 224
| 4th Cir. | 2016Background
- PSC, a Chapter 11 debtor, and CBE executed an Asset Purchase Agreement (APA) for PSC’s assets; APA required two $500,000 security deposits.
- CBE posted the first $500,000 deposit but failed to deliver the second by the deadline, then informed PSC on October 2 that its financing fell through.
- PSC agreed to two short extensions (to Oct. 10 and Oct. 12) but refused a third; CBE still did not post the second deposit and the sale never closed.
- PSC never delivered written notice of termination under the APA’s Section 4.3.2 asserting CBE’s breach.
- PSC later sold assets to a third party; bankruptcy court awarded the initial $500,000 deposit to PSC (Trust). The district court reversed, holding the APA required written termination notice for PSC to keep the deposit. The circuit court affirmed the district court.
Issues
| Issue | Plaintiff's Argument (Trust/PSC) | Defendant's Argument (CBE) | Held |
|---|---|---|---|
| Whether PSC/Trust was entitled to the initial $500,000 deposit after CBE failed to post the second deposit | Failure to post second deposit was CBE’s material breach, so PSC could treat it as a Buyer Default Termination and keep the deposit | The APA required PSC to deliver written notice of termination under Section 4.3.2 to effect a Buyer Default Termination; PSC did not do so, so deposit must be returned | Held for CBE: absent written termination notice, no Buyer Default Termination occurred and CBE is entitled to return of the deposit |
| Whether other communications (extensions, hearing notice, information requests) satisfied written-notice requirement | Those communications manifested termination or default sufficiently to satisfy the written-notice clause | PSC stipulated it never served notice; district court found such communications did not substitute for the required written termination notice | Held against Trust: PSC waived/failed to prove that other communications satisfied the written-notice requirement |
| Whether failure to give written notice was excused because notice would have been futile due to CBE’s repudiation | Notice would have been futile because CBE had essentially repudiated performance | Parties had mutually agreed extensions and continued negotiations, so notice was not futile or pointless | Held for CBE: futility doctrine did not excuse written-notice requirement |
| Standard for entitlement to deposit under APA (interpretation of contract) | Contract should be construed to award deposit to non-breaching party | Plain language controls: Section 2.1.2 ties deposit disposition to whether PSC effectuated a Buyer Default Termination under Section 4.3.2 | Held: plain, unambiguous contract language requires written termination; district court’s interpretation affirmed |
Key Cases Cited
- None (opinion affirmed on the district court’s contract interpretation; no published-reporter cases cited in the excerpt provided.)