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United Rentals, Inc. v. Ram Holdings, Inc. - 937 A.2d 810 (Del. Ch. 2007)

Rule:

When the issue before the court involves the interpretation of a contract, summary judgment is appropriate only if the contract in question is unambiguous. Therefore, the threshold inquiry when presented with a contract dispute on a motion for summary judgment is whether the contract is ambiguous. Ambiguity does not exist simply because the parties disagree about what the contract means. Moreover, extrinsic, parol evidence cannot be used to manufacture an ambiguity in a contract that facially has only one reasonable meaning. Rather, contracts are ambiguous when the provisions in controversy are reasonably or fairly susceptible of different interpretations or may have two or more different meanings.

Facts:

In a dispute involving a merger, plaintiff United Rentals, Inc. (URI) filed a complaint against defendants, RAM Holdings, Inc. and RAM Acquisition Corp. (RAM Entities). RAM Entities were shell entities formed solely to effectuate transactions contemplated under the merger agreement. Under the agreement, RAM Entities committed to purchase all of the common shares of URI. After RAM Entities repudiated the agreement, URI sought specific performance.

Issue:

Is summary judgment appropriate in this case?

Answer:

No

Conclusion:

The court found that the language of the merger agreement presented a direct conflict between two provisions on remedies, rendering it ambiguous and defeating URI’s previous motion for summary judgment, which had been denied. Second, extrinsic evidence of the negotiation process, though ultimately not conclusive, was too muddled to find that the corporation's interpretation of the agreement represented the parties' common understanding. Third, under the forthright negotiator principle, the subjective understanding of one party to a contract could bind the other party when the other party knew or had reason to know of that understanding. Because the evidence showed RAM Entities understood the agreement to preclude the remedy of specific performance and that URI knew or should have known of this understanding, URI failed to meet its burden. It had an affirmative duty to clarify its position in the face of an ambiguous contract with glaringly conflicting provisions. URI failed to meet its burden of demonstrating that the parties' common understanding permitted specific performance of the agreement.

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