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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Court of Chancery Finds Agreements Unenforceable for Lack of Assent, Dismisses Remaining Claims for Lack of Personal Jurisdiction
Parties to a contract must provide evidence of an overt manifestation of assent for a contract to be enforceable under Delaware law. Upon remand from the Delaware Supreme Court, the Court of Chancery found such assent to be lacking and dismissed the remaining claims for lack of personal jurisdiction.
In 2013, two individuals decided to form a business venture, with one contributing the underlying technology and one providing needed funding. Over ten months and multiple versions of agreements, the individuals sought to finalize the terms of their joint venture. They began business operations without formalizing the role of a Delaware entity. In August 2014, they signed an operating agreement and a contribution agreement. In 2015, plaintiffs filed suit to enforce the agreements. In 2017, the Court of Chancery found the parties had not intended to bind themselves to the contribution agreement and thus that both agreements were not enforceable because they had been structured to operate together. The Supreme Court reversed and remanded, instructing that intent as to each agreement must be considered separately, and that post-signing evidence cannot be considered.
On remand, the Court of Chancery noted that the Supreme Court had held the terms of the agreements were sufficiently definite, and that the parties did not dispute whether the agreements were supported by legal consideration. The key issue was the parties’ intent to be bound, and the key indicator of intent came down to the Court of Chancery’s credibility assessments of the two parties. The Court found defendant’s explanation credible; prior to signing the documents he had wanted confirmation from an attorney that the documents were final, and he had signed the documents (which seemed to be draft documents) to acknowledge his receipt of them, similar to having initialed past drafts. The Court compared this to the less credible testimony from plaintiff, including evidence that showed plaintiff had sought to distract from the “draft” markings of the contribution agreement. And, the Court weighed this against evidence of the broader context between the parties, including evidence that indicated ongoing and continuing tensions atypical for the day when signatures were placed on purportedly final agreements. For these reasons, the Court concluded that plaintiff had failed to show sufficient assent to render the agreements binding. There being no other source of personal jurisdiction, the Court dismissed the remaining claims.