Fox v. Paine, (Del. Ch., Jan. 22, 2009), read opinion here.

This Chancery Court opinion involves the breakup of the wealth management partnerships between Saul Fox and Dexter Paine. On the even of trial, the parties entered into a settlement agreement in the form of a "memorandum of understanding" (MOU). Although everyone agreed that the MOU was binding, it  was supposed to be the basis for a more formal document that was never finalized. The MOU contemplated the sale of assets and the assumption of liabilities. A dispute arose as to the liabilities that had to be assumed  based on disputed terms of the MOU, and a Motion to Enforce Settlement was filed.

The court’s opinion provides a helpful summary of Delaware contract interpretation principles, especially regarding the use of extrinsic evidence.

 In describing the juxtaposition of the parties’ arguments (that, perhaps, only a lawyer would not be turned-off by) , the court summarized an aspect of the dispute as follows: "the parties agree that the provisions at issue are unambiguous, but disagree as to their meaning". Would anyone other than a lawyer be confronted with a situation where both sides take opposite positions on the meaning of particular words in a document, but both sides also argue that those same terms are unambiguous?

Importantly, the court noted the truism that: "Simply because the parties disagree, however, does not render the language in the provision ambiguous". (FN 34).

I am willing to wager that many lawyers, including experienced business litigators, would not think that courts would consider extrinsice evidence when a contract is UNambiguous. Well, the astute reader can learn from this court decision that in Delaware, courts may consider extrinsic evidence even when the contract is unambiguous,  in two situations:

(i) to review undisputed background facts to put the contract in context (FN 31); and

(ii) to confirm  the court’s conclusion that there is no ambiguity in the agreement (FN 32).