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Court Of Chancery Explains Contract Reformation Law In Earn-Out Context

Glidepath Limited v. Beumer Corporation, C.A. No. 1220-VCL (Del. Ch. June 4, 2018)

This decision addresses two contracting parties’ divergent expectations relating to whether a delayed closing affected the agreement’s earn-out period.  The parties failed to alter the contract to adjust the earn-out period after a delayed closing had the effect of starting the period prior to closing.  The negatively-affected party argued in favor of reforming the earn-out period to take into account the delayed closing.  As the Court explains, however, reformation under Delaware law requires clear and convincing proof of a mutual mistake in drafting a document or unilateral mistake that is known to the other party who remains silent.  Both circumstances were absent here.

Tags: contract