Delaware Business Litigation Report

Superior Court Rejects Counterclaim of Exclusive Distributorship Contract, Awards Contract Damages to Plaintiff

Tulstar Prods., Inc. v. Ionsep Corp., 2006 WL 3604782 (Del. Super. Ct. Dec. 7, 2006)

In this breach of contract case, the Superior Court evaluated Defendant’s counterclaim that it had an exclusive distributorship contract with Plaintiff that was breached, thus entitling it to offset the amount of that contract from any amount owed to Plaintiff. Plaintiff, a chemical distributor, sued Defendant, a chemical process developer, alleging that Defendant owed almost $175,000 in past due invoices for orders of Plaintiff’s product. Defendant counterclaimed that Plaintiff owed Defendant $250,000 under the alleged exclusive distributorship contract. After reviewing the testimony and evidence produced at trial, the Superior Court found that there was inadequate support for a finding that the parties had agreed to an exclusive distributorship contract, and therefore awarded Plaintiff its claimed damages for the past due invoices, and dismissed Defendant’s counterclaim with prejudice.

In its analysis as to whether an exclusive distributorship existed, at the outset the Court noted that while it was clear that the parties had agreed that Plaintiff would distribute Defendant’s product, there was no written agreement. After noting that Delaware’s Statute of Fraud did not preclude the enforcement of an oral contract that could not be performed in one year’s time given sufficient part performance, the Superior Court reviewed the evidence adduced at trial to determine if part performance existed. The Court pointed to the fact that Plaintiff did not actually sell any of Defendant’s product, and that the parties did not establish any minimum performance standards that would bind Plaintiff. Additionally, there was no clear and convincing evidence as to the consideration Defendant was to receive in exchange for granting Plaintiff an exclusive distribution right. Rather, the Court found that Plaintiff’s actions were consistent with a non-exclusive distribution agreement, and that Defendant’s construction of a manufacturing facility to handle Plaintiff’s chemical product and provision of technical advice to Plaintiff were not sufficient evidence of an exclusive arrangement. The Superior Court concluded that the evidence did not support a meeting of the minds as to an exclusive distribution contract, and that there did not exist sufficient part performance to permit an exception to the Statute of Frauds. The court therefore found that no exclusive distribution contract existed, and Defendant’s counterclaim was dismissed. Share