Givaudan, a Swiss manufacturer of flavors and fragrances, and Conagen, a synthetic biology company, had an existing business relationship prior to 2014. In September 2016, the parties executed a Term Sheet outlining a second equity investment of $10 million for an additional 5% stake in Conagen, alongside contemplated agreements for intellectual property exclusivity and licensing. Givaudan wired the $10 million and received the stock certificates, but negotiations regarding the exclusivity arrangement subsequently broke down. Givaudan sued for breach of contract, promissory estoppel, and unjust enrichment, seeking the return of its $10 million investment. The district court held that Conagen was not liable for any of these claims, finding that the parties had performed the stock purchase and that Givaudan failed to prove damages or that the exclusivity terms were binding.
The court applied Delaware law, which classifies preliminary agreements into Type I (fully binding) and Type II (binding only to negotiate in good faith). The court determined the Term Sheet was a Type II agreement. While it established a duty to negotiate in good faith, it did not bind the parties to the specific exclusivity terms because those terms were left open for future negotiation. The court affirmed the judgment on three grounds. First, Givaudan failed to prove damages, an essential element of a breach of contract claim. Givaudan disclaimed expectation damages and failed to show reliance damages, as it received $10 million in stock for $10 million in cash, suffering no monetary detriment. Second, the parties consummated the agreement contemplated by Key Term 1 through their conduct. The exchange of cash for stock constituted an implied-in-fact contract that was fully performed, regardless of whether a formal written stock purchase agreement was ever signed. Third, Key Term 1 was severable from the other terms. The plain language of the Term Sheet, the drafting history, and the parties' course of dealing indicated that the stock purchase was intended to be independent of the exclusivity negotiations. The court noted that the Term Sheet contemplated 'one or more' future agreements, and the stock purchase was the only one that was finalized.
The decision reinforces that a Term Sheet can create a binding duty to negotiate in good faith without binding parties to the ultimate deal terms. It clarifies that in Delaware, a party seeking damages for a breach of such a duty must prove actual damages, such as out-of-pocket costs, and cannot simply claim the value of an investment made in reliance on the negotiations if that investment was fully exchanged for equivalent value. The ruling also confirms that equity transactions can be severed from failed exclusivity negotiations if the language and conduct of the parties support that independence.