Contract Drafting 2010-01-27 University of Houston Law Center Spring 2010 D. C. Toedt III
In the news: Conan‟s lawyers might have chosen not to ask for a 11:35 pm start time guarantee …
Homework review (not graded) Stevens v. Publicis: Exchange of emails w/ typed names at bottom “[P] laintiff's name at the end of his e-mail signified his intent to authenticate the contents” – that‟s a „signature‟ Enough to modify employment agreement
Warranty Technical definition A promise that a statement is true Real world definition A promise that the maker of a statement will pay damages to the recipient of the statement if the statement isn‟t true and the recipient suffers damages There is no reliance component, nor intent.
Warranty The car is purple.
Remedies for breach of warranty Benefit of bargain Diminution in value Alt: Cost of paint job? Incidental damages? Rental cost, while car is in paint shop Consequentials? UCC: If not disclaimed Damages cap in contract? Attorneys‟ fees?
Homework (not graded) For discussion next time: Look up the “Texas rule” on attorneys‟ fees in Tex. Civ. Prac. & Rem. Code § 38.001
Remedies for Misrepresentations Honest or negligent, if material Avoidance Restitutionary Recovery Fraud Choice between Avoidance and Restitutionary Recovery and Damages Out-of-pocket Benefit of the bargain Punitive
Measures of Damages for Fraudulent Misrepresentations Purported Worth $2500 Paid $1000 Actual Worth $250 Out-of-Pocket $1000 minus $250 = $750 Benefit of the Bargain $2500 minus $250 = $2250
Homework (not graded): For discussion next time, skim Arete Partners LP v. Gunnerman, No. 06-51133 (5 th Cir. Jan. 19, 2010) (reversing Sparks, J.) (be sure to skim the dissent too) Google-search Judge Sam Sparks – what‟s his reputation?
Why Receive Both Representations and Warranties Representations Warranties Avoidance No reliance component --additional Punitive damages cause of action Benefit of the bargain damages No need to prove defendant‟s scienter
CBS v. Ziff-Davis – sale of magazine division Rep/warranty re financial statements Due diligence: Accounting problems Lawsuit: Misrep. + breach of warranty (really: litigating the price afterwards) Holding: No misrep.: Reliance not justified BUT: Warranty claim succeeded Parties settled after appellate holding
Discovery issues for either warranty or misrep. claim True value of asset sold Inspections Comparables Expert testimony Alt: Repair costs Estimates Expert testimony
Extra discovery issues for misrepresentations Standard of care (negligence claims): Past deals, practices, problems – interrog., document production, depositions Expert witnesses – fees, report review, depositions, trial props, trial prep Intent (fraud claims): Email trails, interrog., depositions Net worth – for punitive damages
Risk Allocation (pp. 17-19) Flat representation Unequivocal Without wiggle room Qualified representation Hedged
Recent developments Tiger lets AT&T out of contract – might have been smart move even if not legally required http://bit.ly/8QRsUt
Covenant A covenant is a promise to perform. It can be a promise to do something or a promise not to do something. It creates a duty/obligation to perform. .
Right A right is the flipside of a covenant. If Sam is obligated to perform in favor of Keesha, Keesha has a right to Sam‟s performance.
Covenants and Rights The Landlord shall heat the Tenant‟s premises. The Tenant has a right to have its premises heated.
Condition to an Obligation A condition to an obligation is a state of facts that must exist before a party has an obligation to perform.
Condition to an Obligation – Ongoing Conditions If the Retailer notifies the Manufacturer that it requires Additional Merchandise, then the Manufacturer shall ship the Additional Merchandise to the Retailer no later than three business days after it receives notice from the Retailer.
Condition to an Obligation - Walk-away Conditions The following are conditions to the Buyer’s obligation to perform: The Buyer must have received an opinion from 1. the Seller‟s counsel, substantially in the form of Exhibit A. 2. The Seller must have obtained all the consents listed in Schedule 3.14.
Condition to an Obligation Condition is satisfied. Condition is not Party performs its satisfied. obligation. Choice Party exercises its walk-away right. Party waives the failure to satisfy the The Obligation condition and performs its obligation, although not obligated to do so.
Interplay of Contract Concepts Rep and Warranty The car is red. Covenant Seller shall not paint the car. Condition Seller must have complied with all covenants.
Discretionary Authority Discretionary authority works in one of two ways: Discretionary authority gives its holder a choice. Discretionary authority gives its holder permission to act – often when it has been previously denied.
Discretionary Authority Either party may terminate this Agreement at any time by sending written notice to the other party. The Borrower shall not invest in any Person, except the Borrower may invest in any wholly- owned subsidiary of the Borrower.
Condition to Discretionary Authority A condition to discretionary authority is a state of facts that must exist before a party may exercise discretionary authority.
Condition to Discretionary Authority If the Author submits an unsolicited manuscript to the Publisher, the Publisher may accept or reject it, in its sole judgment.
Declaration A statement of fact as to which both parties agree, but with respect to which neither party has any right or remedy Definitions – need to be kicked into action to have substantive, legal effect Policy statements – have legal effect on their own
Declarations - Definitions Definition : “Purchase Price” means $200,000. Definition kicked into action : The Buyer shall pay the Seller the Purchase Price at the Closing.
Declarations – Policy Statements The laws of Ohio govern all matters relating to this Agreement, including torts. An assignee of a limited partnership interest cannot become a Limited Partner unless the General Partner gives its consent.
Condition to a Declaration A condition to a declaration is a state of facts that must exist before a policy has substantive consequences.
Condition to a Declaration If a purported assignment is made in violation of this Section 9.3, it is void.
Parts of an Agreement Preamble: title, parties, and date Recitals Statement of Consideration Definitions
Parts of an Agreement Action Sections: the key business provisions of a contract Buyer shall buy, and Seller shall sell Money Closing Date (if appropriate) Closing Deliveries (if appropriate) Term (if appropriate)
Action Sections and Contract Concepts Subject matter performance provisions Reciprocal covenants Self-executing provisions Money provisions Declaration stating the amount and covenant to pay Covenant to pay that includes amount
Action Sections Subject matter performance provision Money Closing date (if appropriate) Closing deliveries (if appropriate) Term (if appropriate)
Parts of an Agreement Other business provisions (representations and warranties, covenants, rights, conditions, discretionary authority, and declarations) Endgame provisions Boilerplate Signatures
Endgame Provisions Condition to an obligation and the obligation If X bad thing happens, A shall . . . Condition to discretionary authority and the discretionary authority If Y bad thing happens, A may . . .
Endgame Provisions “Event of Default” means…. If an Event of Default occurs and is continuing, then the Bank may accelerate the Loan, foreclose on security, etc.
Endgame question: Can Conan take his characters with him?
Boilerplate Provisions Provisions of general applicability that tell the parties how to manage the agreement Confidentiality Anti-assignment Waiver of jury trial Choice of law and forum Notices Severability
Contract Concepts Representation and warranty Covenant Right Discretionary Authority Conditions Condition to an obligation and the obligation Condition to discretionary authority and the discretionary authority Condition to a declaration and the declaration Declaration
For next time: Read Ch. 18 – Legalese (it‟s short). Do Ex. 18-4 – 18-5 to hand in (ungraded) Skim Ch. 19, § 19.4 – Numbering. Read Ch. 16 – General provisions Read handout at www.ontechcontracts.com/UHSpring2010 See also homework @ pp. 7, 10 (PDF of these slides @ above URL.)
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