Background
In 2015, Romeo Systems founder and CEO Michael Patterson signed a warrant granting consultant Lady Benjamin Cannon the right to purchase one percent of Romeo Systems’s common stock on a fully diluted basis, measured at the time of exercise. Cannon’s attorney had revised Patterson’s draft—which called for a fixed number of shares at issuance—to a fixed-percentage structure measured at exercise, but sent the final version to Patterson without flagging the changes. Patterson countersigned without reading it carefully. When Romeo Systems recorded the warrant on its capitalization table, it treated it as a fixed-share warrant for 100,000 shares (later updated to 1,000,000 shares after a stock split), a discrepancy that an auditor flagged in 2018 but that the company never resolved.
In February 2017, Patterson agreed to loan Cannon $20,000 for her criminal defense legal fees, on the condition that she pledge her Romeo Systems equity as collateral. The resulting Securities Pledge Agreement, drafted by Romeo Systems’s outside counsel at Orrick, described the pledged collateral as “a warrant to purchase Common Stock in the Issuer for one million shares”—tracking the company’s fixed-share capitalization table treatment rather than the warrant’s actual fixed-percentage terms. Cannon defaulted on the loan in 2018. Patterson then caused Romeo Systems to transfer the warrant into his own name without notice to Cannon, and in October 2020—just before a de-SPAC merger that would convert Romeo Systems into the publicly traded Romeo Power—he partially exercised the warrant for only 1,000,000 shares, far less than the full one-percent entitlement. The unexercised remainder was extinguished at merger closing.
Cannon filed suit in the Delaware Court of Chancery in 2021. After a bench trial, the court held in October 2025 that the warrant was valid and enforceable according to its fixed-percentage terms, that no security interest had ever attached because the Pledge Agreement’s description did not reasonably identify the warrant, and that Patterson’s transfer and exercise of the warrant therefore constituted conversion. The court entered final judgment of approximately $40.7 million, inclusive of pre-judgment interest. Patterson appealed.
The Court’s Holding
The Delaware Supreme Court, sitting en banc, affirmed in part and reversed in part. The court unanimously affirmed the Court of Chancery’s conclusion that the warrant was a valid and enforceable contract for one percent of Romeo Systems’s common stock at the time of exercise. Applying the objective theory of contract formation, the court held that Patterson’s signature on the warrant—whose face plainly disclosed the fixed-percentage, at-exercise structure—constituted Romeo Systems’s binding assent, and that Patterson’s failure to read the document before signing provided no defense. The court also rejected Patterson’s reliance on Kotler v. Shipman Associates, distinguishing that case because there the company had no opportunity to read the altered agreement, whereas Patterson simply chose not to read the warrant despite having ample time and access to counsel.
The court reversed the Court of Chancery’s holding on collateral description. Under 6 Del. C. § 9-108, a description of collateral is sufficient if it “reasonably identifies” what is described, and the UCC expressly rejects any requirement that a description be “exact and detailed.” The Supreme Court held that the Pledge Agreement’s description—identifying the collateral by type (a warrant), quantity (a single warrant), underlying equity (Romeo Systems common stock), issuer, and holder—was sufficient to enable a third party to objectively identify Cannon’s one and only Romeo Systems warrant. Because Cannon held no other warrant to which the description could have referred, the inaccuracy as to the number of shares (one million fixed shares versus a one-percent floating entitlement) did not defeat the description’s ability to reasonably identify the pledged collateral. A security interest therefore attached under § 9-203(b), and the conversion judgment could not stand on the ground that Patterson lacked a valid security interest.
The court reversed the $40.7 million judgment and remanded for further proceedings, including consideration of Cannon’s alternative argument that Patterson’s 2018 transfer of the warrant into his own name—accomplished without notice or her consent—constituted an ineffective strict foreclosure under UCC § 9-620, which itself may have constituted conversion independent of the threshold collateral-description question.
Key Takeaways
- Under Delaware UCC § 9-108, a pledge agreement description is sufficient if it reasonably identifies the collateral; the UCC does not require exactness, and a single inaccurate detail (here, “one million shares” versus a one-percent floating entitlement) will not defeat a security interest when every other descriptive attribute matches and the collateral is objectively determinable.
- A sophisticated party who signs a contract without reading it cannot escape its terms based on unilateral failure to read, even when the counterparty revised the document without flagging the changes—provided the signatory had a meaningful opportunity to read or seek counsel.
- The reversal of the conversion judgment does not end the litigation: on remand the Court of Chancery must address whether Patterson’s self-help transfer of the warrant in 2018—without notice to Cannon and without her consent—independently violated UCC Article 9’s strict foreclosure requirements and constituted conversion on that separate ground.
- When a company and its capitalization table treat a warrant differently from its actual written terms, and that discrepancy carries over into a security agreement, courts applying the UCC will look at whether the description as a whole enables objective identification of the collateral—not whether every detail is accurate.
Why It Matters
This decision provides important clarity on what level of description is required in a securities pledge agreement under Delaware’s UCC Article 9. Lenders and borrowers frequently describe collateral based on how it appears in capitalization tables or company records rather than undertaking a granular review of underlying instrument terms. The Delaware Supreme Court’s ruling confirms that such descriptions will be upheld so long as they enable objective identification of the collateral—even if they contain inaccuracies in specific terms like share counts—as long as the overall description points to one identifiable instrument. For practitioners drafting pledge agreements, the case underscores that redundancy in descriptive attributes (type, issuer, holder, quantity) can cure an imprecise detail, but it is still best practice to match the description to the instrument’s actual terms.
The case also reaffirms Delaware’s strict application of the objective theory of contract formation to sophisticated commercial actors. A CEO who signs a warrant on behalf of his own company without reading it—even when the counterparty has silently revised a key economic term—will be bound by the written terms. The court’s distinction of Kotler makes clear that the doctrine protecting parties from surreptitiously altered agreements is narrow: it applies where a signatory had no realistic opportunity to review the document, not where a party simply chose not to read it.