SIGA Technologies, Inc. v. Pharmathene, Inc.: Delaware Supreme Court Reaffirms that Express Obligation to Negotiate Agreement in Good Faith Is Enforceable and Holds Expectation Damages Are Available as Remedy

Sullivan & Cromwell LLP - June 12, 2013

In an opinion issued on May 24, 2013, the Delaware Supreme Court reaffirmed that an express contractual obligation to negotiate an agreement in good faith is enforceable and held that expectation damages are available for breach of that obligation if the court is reasonably certain that the contracting parties would have reached an agreement but for the defendant’s bad faith, assuming the damages can be ascertained with reasonable certainty. The case serves as a useful reminder that care should be taken in drafting term sheets or other preliminary documents and that obligations to negotiate in good faith should be taken seriously. In particular, if parties to a preliminary agreement agree to negotiate the final agreement in good faith but intend the material terms agreed to be merely preliminary in nature, to avoid potential damages awards appropriate disclaimer language to that effect should be included.