Contract Drafting 2010-02-17 University of Houston Law Center - - PowerPoint PPT Presentation

Contract Drafting 2010-02-17

University of Houston Law Center Spring 2010

• D. C. Toedt III

Game plan

 Recent developments  Ch. 7 – definitions & defined terms  Review Ex. 7-1, 7-2, 7-5  Five minutes: Start Ex. 7-7  Do Ex. 7-7 together, line by line  Homework for next time

Recent developments:

 DeFontes v. Dell, Inc. (R.I. Dec. 14, 2009),

http://bit.ly/bHsnbo

 T&C link on Web site: Too inconspic.  Arbitr. agrmt in order-confirmation & in box  “Layered contracting” can be OK  But: Insufficient notice of right to return  Held: Contract not enforceable

(so class action could proceed)

Chapter 7 – Definitions and defined terms

Why use a defined term?

 Shorthand

For a list For something specific – lake vs. Lake

 Resolve ambiguity

Holidays, dollars – U.S. or Canada?

 Tutorial – e.g., “capitalized lease”

Drafting concerns

 Strategic – which side are you on?

Force majeure example – pp. 74-75

 Practical

Keeping definitions consistent Reuse of language

Where to put the definitions

 Stand-alone definitions section

Good for long or multi-use definitions Beginning of doc (traditional), end of doc

(Ken Adams pref.), or appendix (reusable)

 In-context definitions

Easiest for quick-and-dirty drafting Best for strictly-local use: Not as easy to find Hard to read in context if long and complicated

Testing of definitions

 Cross-check every use – use the search

function

Guidelines for definitions

 1. Introduction to section – lead the reader

by the nose hand

 2. Create a defined term for a single use?  2. Use the defined term every time  3. Multiple defined terms for a definition?

Guidelines for definitions

 4. Alphabetical listing  5. Cross-refs to in-context definitions  6-7. Initial caps? (Either that or italics.)

Watch out for non-definitional use, e.g.,

Agreement versus agreement

 8-11 “Means” or “refers to” versus

“includes” or “excludes”

Guidelines for definitions

 12. Make defined terms intuitive, informative  13. Use adjectives if necessary – e.g.,

“Adjusted Balance”

 14. Short and simple definitions better –

use to build more-complex definitions if necessary

 15. Orthogonality – one definition per clause

Guidelines for definitions

 17, 19. Don’t simply restate the ordinary

meaning, or do a circular definition

 18. Careful about mixing and matching

definitions and substantive provisions

 20. Substantive provisions?  21. Careful about external definitions

In-context definitions (Stark §§ 7.4 and 7.5.3)

 Careful where to put the defined term

(Example: Stark pp. 76-77)

 Better: Separate subparagraph

(Example: Stark pp 87 version 2)

 Include a cross-ref in the Definitions &

Usages section

Usages (Stark § 7.6)

 Explain to reader (i.e., judge) what’s

meant

 Sections, exhibits, etc.  Including; examples  Person  Dollars

Exercise 7-4

. . . including, without limitation: … action of a court or public authority, or work-to-rule action, go-slow or similar labor difficulty, each on an industry-wide, region-wide or nation-wide basis

• r a strike on a region-wide or nation-wide basis.

Despite the provisions of the previous sentence, a Force Majeure Event excludes a strike on an industry-wide basis.

Exercise 7-5: What’s wrong?

From Stark App. A – definition of Excluded Assets: (iv) The Seller's books of account, but the Seller agrees that it shall permit the Buyer to inspect said books and make copies thereof.

Exercise 7-6

 Version 1

“Breach” means a misrepresentation, breach

• f warranty, and breach of covenant.

 Version 2

“Breach” includes any breach of warranty or

covenant.

Aircraft Purchase Agreement

AGREEMENT, dated as of September 18, 20XX by and among Supersonic Wings Corp., a Delaware corporation, (the "Seller") and Fly-by-Night Aviation, Inc., a New York corporation having its principal place of business at 987 East 48th Street, New York, New York 12345 ("Buyer").

Preamble

WHEREAS, the Seller desires to sell to Buyer, and Buyer desires to purchase from the Seller, the Aircraft; and WHEREAS, the Buyer hereby agrees to pay the Seller $23,000,000 in immediately available funds. NOW, THEREFORE, in consideration of the mutual promises herein set forth and subject to the terms and conditions hereof, the parties agree as follows:

1.1 Defined terms

 1.1. Defined Terms. As used in this

Agreement, terms defined in the preamble and recitals of this Agreement have the meanings set forth therein, and the following terms have the meanings set forth below:

 "Agreement" means this Agreement of Sale and

all Schedules and Exhibits hereto, as the same may be amended from time to time.

1.1 Defined terms

 1.1. Defined Terms. As used in this

Agreement, terms defined in the preamble and recitals of this Agreement have the meanings set forth therein, and the following terms have the meanings set forth below:

 "Agreement" means this Agreement of Sale and

all Schedules and Exhibits hereto, as the same may be amended from time to time.

"Aircraft" means the Airframe, equipped with two Rolls-Royce Tay engines model number MK611-8 bearing Serial Numbers 72725 and 72726, together with all appliances, avionics, furnishings, and

• ther components, equipment, and

property incorporated in or otherwise related to the Airframe or engines.

"Assigned Contracts" means the Maintenance Agreement (as hereafter defined) and the Pilot Agreement (as hereafter defined).

"Assumed Liabilities" means, collectively, all liabilities and obligations of the Seller that arise under either (i) the Maintenance Agreement on or after the date hereof or (ii) the Pilot Agreement on

• r after the date of the Closing.

"Aviation Fuel" means any gas or liquid that is used to create power to propel an

• aircraft. At the time of the Seller's delivery
• f the Aircraft to Buyer, the fuel gauge of

the Aircraft shall register as full.

"Closing" means the closing of the sale of the Aircraft contemplated by this Agreement in New York, New York on the Closing Date.

"Closing Date" has the meaning specified in Section 2.4(a).

"Consent" shall mean any consent, approval, authorization of, notice to, or designation, registration, declaration or filing with, any Person

"Contract" shall mean any contract, lease, agreement, license, arrangement, commitment or understanding to which the Buyer or any Seller is a party or by which it

• r any of its properties or assets may be

bound or affected.

"Maintenance Agreement" means that certain Maintenance Agreement, dated as

• f April 3, 20XX between Greasemonkeys,
• Inc. and Seller, as the same may be

amended from time to time.

"Order": any judgment, award, order, writ, injunction or decree issued by any Federal, state, local or foreign authority, court, tribunal, agency, or other governmental authority, or by any arbitrator, to which any Seller or its assets are subject, or to which the Buyer or its assets are subject, as the case may be.

"Person" shall mean any individual, partnership, joint venture, corporation, trust, unincorporated organization, government (and any department or agency thereof) or other entity.

"Pilot Agreement" means that certain Pilot Agreement between Seller and Ace Pilots, Inc. dated as of May 12, 20XX, as the same may be amended from time to time.

Review: 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

Review: British Sky Broadcasting v. EDS

 Case: http://bit.ly/9bPMbe (468-page PDF)  HTML: http://bit.ly/c3SUZh  Entire-agreement clause  £30MM damages cap

 N/A to fraud. misrep. or negl. misrep.

 UK judge found EDS exec lied  No contract liability finding

Review – No reliance clause

 Representations outside this Agreement:

None – the parties have specifically negotiated this section.

 Each party represents and warrants that,

in entering into this Agreement, it is not relying on any representation by the other party, other than those set forth herein or incorporated by reference.

Coming up March 3:

Drafting and negotiating real-estate transaction documents

Homework

 Read: Ch. 8 – Action Sections  Skim: Appendix B, Website Development

Agreement) - §§ 2-5, 7-11.

 Skim: Appendix C, Escrow Agreements  Do (graded): Ex. 8-3, versions 1 and 4

(do as Word markup / comments – a Word doc is posted online)