Delaware Court Reminds Lawyers to Read the Contract
August 1, 2010 | Posted by Susan Wilson
| Topic(s): Contract Drafting
In a recent Delaware Chancery Court opinion, Cambridge North Point LLC v. Boston and Maine Corporation, Vice Chancellor Strine refused to find a contract unenforceable where B&M argued it had signed the agreement “without noticing” changes made by Cambridge.
The facts around this issue in the case were relatively straightforward. Lawyers for Cambridge and B&M negotiated terms of a settlement. Then on March 3, 2008, a lawyer for Cambridge sent B&M’s lawyer a six-page proposed settlement agreement, reflecting the negotiations. The parties communicated further, and on March 6, Cambridge sent B&M a revised draft. This second draft contained substantial changes, was now nine pages long, and included a new provision requiring that B&M make a $3.5 million payment to Cambridge on a date certain. The March 6 draft that Cambridge sent to B&M apparently was not redlined against the March 3 draft. The next day, March 7, B&M sent Cambridge some suggested revisions to the March 6 draft, indicating that B&M had read the second draft and was responding to it. On March 10, after the parties resolved any remaining differences, Cambridge sent B&M a final version of the agreement, which the parties executed.
At trial, B&M argued that the agreement was unenforceable because (1) Cambridge misled B&M into signing the agreement since the offending payment term had not been in the original March 3 draft, and (2) B&M’s failure to focus on the additional payment term was a unilateral mistake by B&M that Cambridge had reason to know about. Vice Chancellor Strine rejected these arguments, writing:
[T]his court’s job is not to refashion contracts into the form that parties with the benefit of hindsignt wished they had scrivened, or to reward counsel for their own lack of diligence . . . . B&M is a sophisticated commercial party that was represented by lawyers. Those lawyers read the various iterations of the draft settlement agreement, noticed that extensive revisions were made, and proposed revisions of their own. They should have noticed the new $3.5 million provision . . . . Indeed, use of comparison software, which is common within the legal industry, would have immediately revealed the changes Cambridge North Point made to the drafts. Or, B&M and its lawyers could have simply lined up successive drafts and performed a manual review of the drafts’ half-dozen pages. But the B&M witnesses testified they did none of those things. Nor did they do the most obvious thing: read the entire agreement and outline what B&M’s obligations were under it.
If it is in fact true that B&M did not realize that the language in the successive drafts of the settlement agreement changed its payment obligations, that is unfortunate. But it is not Cambridge North Point’s fault, and it is not grounds for reforming the second settlement agreement or finding it unenforceable.