Delaware Court of Chancery Holds Fully Executed Warrant Agreement is Invalid Contract Because There Was No Meeting of the Minds

Author(s): Frank R. Martin

In a post-trial memorandum opinion, the Court of Chancery held that a fully executed warrant agreement between an early employee and her employer did not reflect a meeting of the minds and therefore there was no valid contract. Significant to the Court’s decision was the limited contemporaneous evidence that existed related to the negotiations surrounding the contract. The Court held that the only contemporaneous evidence of any real value was the drafts of the warrant agreement. Those drafts, and the evidence presented at trial revealed that towards the end stage of negotiations the company sent a draft version of the warrant agreement to plaintiff, plaintiff made edits to the draft including removing or diluting certain restrictive covenants contained therein, plaintiff then signed the edited version and sent it to the company for execution without addressing the fact that she had made the edits, and the company believing the version of the warrant agreement that was returned was the same as the version it had sent to plaintiff, failed to notice plaintiff’s edits and signed the agreement. The Court held that, despite the agreement being fully executed, there was credible and convincing evidence that the parties were not operating on the same page and that the company’s representatives believed they were signing the version of the agreement that they had sent to plaintiff, not a version that was edited by plaintiff. As a result, the Court held that there was no meeting of the minds and that the proffered warrant agreement was invalid.

This case serves as a reminder of the importance of documenting negotiations and changes to key terms in draft documents. Failure to do so can lead to unintended consequences and potentially result in a fully executed contract being set aside for failure to satisfy all the elements for creating a valid contract.

Kotler v Shipman Assoc

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