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Superior Court: No Ambiguity, No Extrinsic Evidence, No Dice

By Morris James LLP

Dubuque v. Taylor, 2007 WL 3106451 (Del. Super. Oct. 1, 2007)

This case demonstrates that a Delaware court will not consider extrinsic evidence of the parties’ intent at the time of entering an agreement if the terms of the document are unambiguous.

The buyer/plaintiff purchased a transmission business called Goodeal Discount Transmissions of Dover, Inc., thinking it was a sole proprietorship. But after the closing, the franchisor—not the seller—came knocking on the buyer’s door seeking unpaid franchise fees and stating the amount to be paid going forward. Soon thereafter, the buyer sued the seller/former owner for breach of contract for failing to disclose that the business was a franchise, for breach of the contractual warranties, and for fraudulent misrepresentation.

It was undisputed that none of the operative documents relating to the sale made any mention of a franchise. So, the seller tried to introduce extrinsic evidence that he had discussed the franchise with the buyer before the closing. The court, however, applied the parol evidence rule and excluded any such extrinsic evidence for the purpose of interpreting the agreement because the court found that its terms were unambiguous. There was no mention of the franchise in the agreement—period.

Further, the court held that the seller breached its warranty that it was transferring good and marketable title, since the seller could not actually sell the business name, which he purported to convey, without a franchise agreement. As a remedy, the court awarded damages to the plaintiff/buyer for loss of the use of the name, and thus loss of the goodwill he purchased. The measure of damages was roughly one half of the stated value of the intangibles in the sale, which included goodwill and a noncompete.

Full post as published by Delaware Business Litigation Report on November 09, 2007 (boomark / email).