A recent decision of the North Carolina Court of Appeals concluded that in the absence of any evidence of harm to a party to an asset purchase contract which contained a “no-shop clause,” the buyer claiming a breach of that agreement could not recover any damages. The parties agreed that the buyer had an exclusive right to purchase and that the seller would not talk with or negotiate with others about a sale or purchase, pending the closing of the asset purchase agreement.
The would-be buyer, the party suing for breach of contract, breach of the implied covenant of good faith and fair dealing, and for unfair and deceptive trade practices (UDTP), was not entitled to recover damages for the seller’s alleged breach of the “no-shop clause.” The facts were undisputed that the defendant seller carried on conversations with other possible buyers before the seller terminated the contract, pursuant to an undisputed termination provision that permitted either party to terminate after a date certain if the sale had not been completed by that date.
The contract also stated: “if such termination shall result from . . . a willful breach by any party to the Agreement, such party shall be fully liable for any and all losses, costs, claims or expenses, incurred or suffered by the other parties as a result of such failure or breach.”
The Court of Appeals determined that the disappointed buyer did not produce any evidence of aggravating circumstances attending the breach, in order to sustain the UDTP claim, and ”failed to produce evidence of anything more than a simple breach of contract” and no evidence that the defendant seller’s breach of the no-shop clause caused any harm to the plaintiff buyer. Buyer argued that it suffered damages in the form of business expenses incurred in pursuing the asset purchase agreement and lost profits. But the Court said: “Plaintiff fails to advance a persuasive argument to explain why its ordinary expenses or hypothetical lost profits were ‘damages’ resulting from a wrongful act of defendants, given that the jury found that defendant’s termination of the APA did not result from defendants’ breach of contract.”
The Court also found that the circumstances of this case do not support a claim for violation of the covenant of good faith and fair dealing. “Good faith,” under the North Carolina Uniform Commercial Code, means “honesty in fact and the observance of reasonable commercial standards of fair dealing.”
The lesson of this case is that not every breach of contract may be compensable in damages claimed by the non-breaching party. This is so even when the contract states that the breaching party may be “fully liable” for a termination of the agreement which results from a “willful breach” and the non-breaching party is entitled in those circumstances to recover “any and all losses, costs, claims or expenses resulting from such “failure or [willful] breach.” In this case, the Court was persuaded that the breach of contract had nothing to do with the proper termination of the agreement, pursuant to its terms, even though the seller had violated its “no-shop clause” covenant.
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