The court concluded that seller’s owner’s discussion of recipe and menu items with the buyer’s chef did not fulfill the seller’s obligation to “transfer and deliver” all of its “recipes for meals and snacks” to the buyer.
M&A Stories
March 11, 2022
Introduction:
In a recent case, a court ruled that a seller of a food preparation business violated the purchase agreement by failing to provide written recipes to the buyer. The court determined that the seller’s discussion of recipes with the buyer’s chef did not fulfill its obligation to transfer and deliver all the recipes for meals and snacks to the buyer.
The Deal:
The seller sold ready-to-eat meals and, in 2017, transferred the business assets to the buyer under an asset purchase agreement. The agreement required the seller to sell, assign, transfer, and deliver all its rights and interests in the business, including the recipes for meals and snacks. In return, the buyer agreed to pay $136,000 in 12 monthly installments after the closing.
The Dispute:
After making the first payment, the buyer refused to continue payments until the seller provided the “recipes for all menu items” and stopped breaching non-competition and non-solicitation clauses. As the dispute remained unresolved, the matter was taken to a Tennessee intermediate appellate court.
The Seller’s Argument:
The seller claimed it did not breach the purchase agreement as it was not obligated to provide written recipes. According to their defense, discussing the recipes with the buyer’s chef fulfilled their obligation.
The Court’s Decision:
The court disagreed with the seller’s argument. It pointed out that although the agreement did not explicitly define “recipe,” its common meaning refers to “a list of ingredients and a set of instructions that tell you how to cook something,” and a “list” is typically a written or printed record. Hence, the court concluded that the seller was indeed required to provide written recipes.
This case is referred to as Fitness and Ready Meals LLC v. Eat Well Nashville LLC, No. M2021-00105-COA-R3-CV, Court of Appeals of Tennessee, at Nashville., (March 1, 2022)
Conclusion:
This case serves as a reminder for future purchase agreements to include clear provisions that necessitate the seller to furnish written recipes to the buyer at the closing, satisfying the buyer’s requirements in the transaction.
By John McCauley: I write about recent legal problems of buyers and sellers of small businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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