Contract Drafting 2010-01-27 University of Houston Law Center - - PowerPoint PPT Presentation

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 (5th 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  Avoidance  Punitive damages  Warranties  No reliance

component --additional 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

• f 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

• f 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

• bligation to perform:

1.

The Buyer must have received an opinion from 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. Party performs its

• bligation.

Condition is not satisfied. Party waives the failure to satisfy the condition and performs its obligation, although not obligated to do so. Party exercises its walk-away right. The Obligation Choice

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-

• wned 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

• bligation

 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.)