Delaware Law
Applied to Pre-Incorporation Agreement
Recently, the Business Law
Court of North Carolina addressed the question of choice-of-law as to an
agreement to issue shares in a Delaware corporation. Notwithstanding that the contract was entered
into in North Carolina, the corporation, incorporated in Delaware, having its
principal place of business North Carolina and the plaintiff’s residency in
North Carolina, it was held that Delaware law would apply. Mancinelli
v. Momentum Research, Inc., 2012 NCBC 28 (May 17, 2012).
Mancinelli was recruited from
her existing employment in North Carolina to join Momentum Research on terms
including the issuance to her of 15% of the company’s stock (or at least she so
alleged). She asserted as well that she
signed a shareholder agreement, but the company was unable to produce a copy of
that document and disputed its existence; she had no copy. There was, however, other evidence of an
agreement to issue the stock to Mancinelli.
The question arose as to whether Delaware law or that of North Carolina
should be applied in assessing the claims for breach of the agreement to issue
the stock.
The court relied primarily upon
principles set forth in the Restatement of Conflicts as to the internal affairs
doctrine (Restatement (2nd) of
Conflict of Laws, § 302 (1971)), it providing that the law of the state
of incorporation governs a number of matters particular to the relationship of
the shareholders and the corporation, including the issuance of shares. The fact of the defendant’s principal place
of business, the plaintiff’s residency and that the contract was entered into
in North Carolina were held not sufficient to override these principles on the
basis that “North Carolina has the most significant relationship to the
contracts and parties at issue.” Slip
op. ¶ 16.
Applying Delaware law, which
does not enforce an oral agreement to issue shares, the plaintiff’s complaint
was, to the extent of that count, dismissed.
However, to the extent her complaint was based upon the breach of the
alleged written shareholder agreement, it was allowed to proceed.
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