In re Carter's Claim

Kardon (buyer/plaintiff) agreed to purchase Edwin J. Schoettle Co. and its subsidiaries (sellers/defendants) for $2.1 million, with part of the price escrowed to indemnify the buyer against seller liabilities. Their carefully lawyer-drafted agreement placed a warranty against adverse financial changes in a section titled "Representations and Warranties," while a separate section titled "Conditions Precedent" stated that the sellers' financial condition at closing had to be no less favorable than shown in earlier financial statements. When the buyer discovered the sellers' financial condition had worsened by closing, he sought reimbursement from escrow under the closing-condition provision, treating it as a warranty; the sellers argued it was only a condition precedent, waived once the buyer proceeded with the sale anyway. An arbitrator awarded the buyer a reduced amount, and the buyer appealed.