The Delaware Chancery Court recently reiterated a fundamental rule of contract interpretation: where contract language is clear and unambiguous, the ordinary and usual meaning of the chosen words will generally establish the parties' intent. The Court analyzed whether or not a limited liability company agreement required a unanimous vote or a majority vote of the company's managers to approve the company's dissolution and winding-up. The Court analyzed the agreement pursuant to the so-called "objective theory," under which a contract is construed as it would be understood by an objective, reasonable third party. The Court concluded that the Agreement, however unusually drafted, required the unanimous vote of its managers to wind-up the company, but the affirmative vote of only a majority of its managers to dissolve the company.
Of particular note in the Court's analysis, was its review of those circumstances where a material breach by one party may relieve the other party of performance under a contract. According to the Court, only substantial nonperformance or breach by the other party to a contract may give rise to a party abandoning or refusing to perform. However, in the absence of substantial nonperformance or breach by the other party, a party to a contract is obligated to perform thereunder, and "a non-material - or de minimis - breach will not allow the non-breaching party to avoid its obligations under the contract."
Seinfeld v. Slager, et al., C.A. No. 6462-VCG (Del. Ch. June 29, 2012)