The Huff Energy Fund, L.P. v. Gershen, C.A. No. 11116-VCS (Del. Ch. Sep. 29, 2016)

The Delaware Court of Chancery was asked to determine whether directors of a Delaware corporation (the “Corporation”) could be found to have individually breached a Shareholders Agreement (the “Agreement”) between the Corporation and its largest shareholder (the “Shareholder”) based on the directors’ signing the Agreement.  The Court ruled that it was “clear from the face of the [Agreement]” that the directors did not sign the Agreement in their individual capacity, but rather signed the Agreement on behalf of the Corporation.  As such, they were not party to the Agreement under Delaware law and could not be found to have breached its terms.  

The Court also addressed a claim that the Corporation breached the Agreement by adopting a Plan of Dissolution to dissolve the Corporation.  The plaintiffs argued that the Plan of Dissolution violated, among other provisions, a clause that stated that the Corporation “shall continue to exist and shall remain in good standing under the laws of its state of incorporation and under the laws of any state in which [it] conducts business.”  The Court disagreed, stating: the clause “appears to be nothing more than a recognition by [the Corporation] that it will remain in good standing as a Delaware corporation.  It speaks to a commitment to make necessary filings and pay required fees and expenses. It is a stretch to read more into the provision, particularly the commitment to exist ‘come what may’ that [the plaintiff] ascribes to it.”

BOTTOM LINE: If you wish a contract to be enforceable against a certain party, that party must sign the contract in its individual capacity.  The fact that the individual has signed as a representative of another is simply not sufficient.  Additionally, a standard representation that a corporation will remain in existence in good standing is not a prohibition of its dissolution or cancellation.  In order to ensure such a restriction, specific representations must be carefully drafted and included in the relevant document.