Corp. v. Innovative Brands Holdings, LLC, C.A. No. 3663-VCN (Del. Ch.
Jan. 31, 2013).
The only issue addressed in this decision on
cross-motions for summary judgment was the amount of damages based on a
stipulation as to liability for breach. In the course of its analysis, however,
the court examines the options available to a non-breaching party in the face
of repudiation or material breach, as well as the duty to mitigate damages.
Henkel sued Innovative Brands Holdings ("IBH") for
failure to consummate an agreement for the purchase price of $127.5
million. After IBH waived its rights to purchase the assets, Henkel sold
the business to an alternative buyer for $112 million. Henkel commenced
this action for breach of contract, and IBH filed counterclaims. IBH
later advised that it no longer intended to defend the action.
Henkel sought damages for the difference between the
lower sales price, as well as the transactional expenses for the second sales
transaction, as well as related legal fees.
Review of Contract Damage Analysis
This opinion is useful for its discussion of the damages
available for breach of contract. The Court explained that when a
contract is breached, the Court determines damages "as if the parties had fully
performed the contract" and historically, "damages for breach of contract have
been limited to the non-breaching party's expectation interests." See
footnotes 51 and 52. Expectation damages are calculated as the amount of
money that would put the non-breaching party in the same position that the
party would have been in had the breach never occurred. See
The Court also recognized the general duty to mitigate
damages "if it is feasible to do so, [but] a plaintiff need not take
unreasonably speculative steps to meet that duty." See footnote
The Court recognized that damages for breach of contract
"should not act as a windfall" for the non-breaching party. See
footnote 60. Actual damages encompasses both direct and consequential
damages. See footnote 63. However, the contract in this case
limited any damages to exclude lost profits and lost opportunity, as well as
consequential, special, punitive or exemplary damages.
The Court explained that expectation damages in Delaware
are to be measured as of the date of the breach. See footnote 77.
The Court instructed that there is a difference between
the terms "breach" and "repudiation." They mean different things and have
different consequences. Under Delaware law, a party to a contract is
excused from performance if the other party is in material breach of its
obligations. The non-breaching party has the choice to continue to
perform or to cease to perform, and conduct indicating an intention to continue
the contract will constitute a conclusive election. See footnotes
82 and 83.
However, the non-breaching party may not, both preserve or
accept the benefits of the contract - - while on the other hand asserting that
the contract is void and unenforceable. See footnote 84.
Repudiation by contrast presents different options.
The party confronted with repudiation may respond by either electing to treat
the contract as terminated by breach or by lobbying the repudiating party to
perform, or by ignoring the repudiation. Once the promissee relies on the
repudiation by filing suit or by engaging in a substitute transaction or by
notifying that it regards the repudiation as final, effective retraction is no
In this case, although IBH committed a material breach of
the agreement, it did not repudiate the agreement.
This opinion is a useful and practical explanation of
what options a party has if another party to the agreement is not complying
with the terms and a decision has to be made about whether to perceive that
non-compliance as either a material breach or a repudiation.
The Court also discussed the doctrine of quasi-estoppel,
which: "precludes a party from asserting, to another's disadvantage, a
right inconsistent with a position it has previously taken." See
footnote 99. The doctrine may "apply when it would be unconscionable to
allow a person to maintain the position inconsistent with one to which he
acquiesced, or from one which he accepted a benefit."
Read more Delaware business
litigation case summaries and commentary on Delaware
Corporate and Commercial Litigation Blog, a blog hosted by Francis G.X.
Pileggi, of Eckert Seamans.
For more information about LexisNexis
products and solutions connect with us through our corporate site.