Delaware Courts May Award Expectation Damages for a Breach of an Obligation to Negotiate in Good Faith
October 2013
Publication| Corporate Transactions
Under the laws of many jurisdictions, expectation damages for breach of an agreement to negotiate in good faith are viewed as inherently speculative and thus generally not an appropriate measure of damages. In Delaware, the question of whether expectation damages, which attempt to estimate the profits the promisee expected to generate under the to-be-negotiated contract, were an appropriate remedy for a breach of an obligation to negotiate in good faith had not been definitely resolved by the Delaware Supreme Court until recently. Nevertheless, the Delaware courts appeared to follow the law in other jurisdictions that such damages were not an appropriate remedy for a breach of an agreement to negotiate in good faith due to their speculative nature.
In SIGA Technologies, Inc. v. Pharmathene, Inc., 67 A.3d 330 (Del. 2013), however, the Delaware Supreme Court reversed the Court of Chancery’s holding that expectation damages could not be awarded for breach of an agreement to negotiate in good faith because they were inherently speculative and held that, under Delaware law, an express contractual obligation to negotiate a definitive agreement in good faith is enforceable, and that expectation damages are an appropriate remedy for a breach of that obligation if they can be proven with reasonable certainty and the court determines that the parties would have reached an agreement but for the bad faith conduct of the defendants.