Selling a restaurant using separate asset purchase and management agreements

Anderson Adventures, LLC (“Anderson”) executed an Asset Purchase Agreement with Sam & Murphy, Inc. (“Sam”) by which Anderson was to purchase the assets of Sam’s restaurant known as Fins. As part of the transaction, a principal of Anderson also signed, in his personal capacity, a Restaurant Management Agreement with Sam. The two agreements had separate provisions concerning responsibility for the condition of certain Fins assets, and both were silent on the issue of responsibility for gift cards issued by Sam prior to transfer of Fins management. Anderson withheld a portion of the purchase price to cover costs associated with repairs to equipment and gift card liabilities incurred prior to transfer of management, and Sam sued arguing that Anderson’s withholding of funds was improper. The trial court found that when read together as part of the same transaction the two agreements were in conflict on the issue of responsibility for the condition of certain equipment, and that an express provision addressing accounts payable placed responsibility for the gift cards on Anderson, and therefore, Anderson wrongfully withheld funds. Anderson appealed.

The Court of Special Appeals determined that the trial court properly construed both agreements as part of the same transaction but found no ambiguity. The Asset Purchase Agreement controlled the asset purchase, and the Restaurant Management Agreement was directed at management issues only and did not override Sam’s express warranties in the Asset Purchase Agreement concerning Sam’s responsibilities to deliver certain equipment in good working order as of the closing, and to pay all outstanding liabilities as of the date of management transfer under the Restaurant Management Agreement. Thus, Anderson was entitled to offset the cost of repairs to equipment and to a credit against the purchase price for gift cards issued before but redeemed after the transfer of management.

Case Name: Anderson Adventures, LLC v. Sam & Murphy, Inc.

Jurisdiction: Maryland Court of Special Appeals

Case Type: Contract interpretation

Case Status: Decision issued after trial

Trial Court: Agreed with plaintiff’s contract interpretation

On Appeal: Reversed and remanded for further proceedings