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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 301 posts in Breach of Contract.
Court Of Chancery Interprets Preferred Stock Rights
How to interpret the provisions of preferred stock is often a difficult task. Any preference must be spelled out and any doubts resolved against preferring one class of stock over common stock. This decision holds that the preferred stock must show evidence it was intended to a preference at least when the authorization for that stock is ambiguous. The decision also affirms that stockholder rights to inspect records cannot be taken away by a certificate of incorporation.
ShareCourt of Chancery Enforces Redemption Rights and Addresses the Potential Effect of a Merger on Previously-Exercised Put Rights
QC Holdings Inc. v. Allconnect Inc., C.A. No. 2017-0715-JTL (Del. Ch. Aug. 28, 2018)
This decision is necessary reading for drafters of redemption rights. It involves the interpretation of a redemption rights agreement granting a stockholder the right to force the company to buy back its shares and some interplay between those put rights and the DGCL in the event of a merger. More ›
ShareCourt of Chancery Addresses Contract Formation
This drama arises from a dispute involving the Curran Theatre in San Francisco. The decision mostly deals with when alleged conversations are not enough to constitute an enforceable contract, exhaustively reviewing the applicable law. Basically, if you want to enforce a promise, reduce it to a writing including all essential terms. Contemporaneous evidence of a sufficiently detailed promise is a potential fallback, but conflicting testimony about vague terms is not. More ›
ShareCourt Of Chancery Upholds Contract Claim Based On The Standard Of Conduct In An Agreement
Wenske v. Blue Bell Creameries Inc., C.A. 2017-0699-JRS (July 6, 2018)
When the parties to a LLP agree on the standard of conduct the general partner should follow, its failure to live up to that standard is a breach of the parties’ agreement. Here the parties agreed the general partner would use industry practices in managing the business and when it failed to monitor the business to ensure those practices were followed, it was liable to the limited partners for the damages that resulted. The use of a somewhat vague standard of how the business should be conducted is therefore risky.
ShareCourt of Chancery Explains Contract, Fraud, and Fiduciary Duty Standards in Contingent Deal Price Dispute
Edinburgh Holdings Inc. v. Education Affiliates Inc., C.A. No. 2017-0500-JRS (Del. Ch. June 6, 2018)
It is common for parties to an acquisition to structure some portion of the purchase price as contingent on the acquired company’s post-close performance. With some frequency, a party dissatisfied with the resulting payment sues for breach of contract and may point the finger at those in charge during the relevant period for measurement. Out of this particular example comes reminders on well-settled standards for breach of the implied covenant of good faith and fair dealing, fraudulent inducement, and breach of fiduciary duty. For instance, the implied covenant may be deployed as a defense to a breach of contract claim based on one party preventing the other’s performance, but it may not be used as an affirmative claim to override a contract’s express terms. Further, Delaware law does not permit bootstrapping fraudulent inducement claims onto contract claims by alleging that a party never intended to perform its obligations. Additionally, predictions about future performance generally cannot be the basis for fraud. Finally, Delaware courts will dismiss a breach of fiduciary duty claim that is entirely duplicative of a breach of contract claim.
ShareCourt 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.
ShareSupreme Court Adopts Rules To Determine If Contract Was Formed
Eagle Force Holdings LLC v. Campbell, No. 399, 2017 (Del. May 24, 2018)
When have the parties actually formed a contract? In this decision the Supreme Court adopts the Osborn decision as the analytical framework to determine if they manifested agreement, if the essential terms were adopted and so on.
ShareCourt Of Chancery Explains Need To Prove Real Damages
Leaf Invenergy Company v. Invenergy Wind LLC, C.A. 11830-VCL (April 19, 2018)
This is an important decision because it points out that the breach of a contract does not always mean damages will be awarded. For example, an investor's right to consent to certain transactions or to receive a payment absent that consent does not mean that the failure to get his consent must entitle him to that payment. Rather if the contract does not provide for a measure of damages for its breach, the plaintiff must prove the breach harmed him. Here the transaction in question actually benefitted the plaintiff so that he would have consented to it had he been asked. While the no damages result may seem counterintuitive at first, the result makes sense.
ShareSuperior Court Provides Guidance On When A Tort Claim May Be Based On A Breach of Contract
Decisivedge LLC v. VNU Group LLC, C.A. N17C-05-584 WCC CCLD (March 19, 2018)
Too frequently a plaintiff seeks to buttress its case by adding a fraud or tort claim to what is really just a breach of contract. But as this decision points out, just alleging the defendant did not intend to pay what was due when the contract was signed is not enough to support a fraud count. The decision is also very helpful in repeating the Delaware law on when a claim for breach of the covenant of good faith and fair dealing may be filed.
ShareCourt Of Chancery Enforces Oral Agreement To Add Directors
Sarissa Capital Domestic Fund LP v. Innoviva Inc., C.A. 2017-0309-JRS (December 8, 2017)
This is a great explanation of when a director is authorized to enter into an oral agreement that is enforceable, here to add two directors to a corporate board. To make the agreement depend on entering into a written contract, there must be a “positive agreement” that the oral agreement is not otherwise enforceable.
ShareCourt Of Chancery Explains Limitations Period In Equity
Bioveris Corporation v. Meso Scale Diagnostics, C.A. No. 8692-VCMR (Nov. 2, 2017)
Some assume that a statute of limitations will not apply in the Court of Chancery. But as this decision illustrates, that is an oversimplification. The Court of Chancery may well use the same statute of limitations period applicable in an action at law, by analogy, under the equitable doctrine of laches. This is especially true when the claim is a legal one seeking legal relief. This decision also illustrates an important point regarding claim accrual. When a claim arises out of an obligation to make a series of payments over time, it is possible the Court will start to run the laches period from the first non-payment. In other words, subsequent non-payments might not constitute a new claim with a new limitations period or otherwise lengthen the time period to sue.
ShareCourt Of Chancery Interprets Credit Agreement And Declines To Consider Alleged Oral Modification
Pine River Master Fund Ltd. V. Amur Finance Co., Inc., C.A. No. 2017-0145-JRS (Oct. 12, 2017)
This decision interpreting a credit agreement’s terms is another reminder that an alleged oral modification to a written contract will not vary the contract’s terms when it has an integration clause and otherwise speaks to the subject of the modification.
ShareSuperior Court Explains Bootstrapping Doctrine
In Re Bracket Holding Corp. Litigation, C.A. N15C-02-233 WCC CCLD (July 31, 2017)
This decision is an excellent explanation of the “bootstrapping doctrine” that seems to often befuddle litigants. Briefly, a plaintiff cannot “bootstrap” a breach of contract claim into a fraud claim except in certain limited circumstances that this decision explains. For example, misrepresentations made to induce a contract may form the basis for a fraud calm.
ShareSuperior Court Explains The Personal Participation Doctrine
When is a corporate employee responsible for tortious conduct in that capacity? This decision answers that question in a very helpful way. For example, mere nonfeasance is not enough to impose liability on a corporate actor.
ShareCourt Of Chancery Declines To Enforce Agreement To Negotiate
Windsor I LLC v. CWCapital Asset Management LLC, C.A. No. 12977-CB (Del. Ch. July 31, 2017)
In this decision, the Court of Chancery declines to enforce an agreement to negotiate, applying Maryland law. The agreement set the rules of the road for any negotiations taking place between the parties, nothing more.
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