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 or 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 of 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 other 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 or 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 of 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 or any of its properties or assets may be bound or affected.
" Maintenance Agreement " means that certain Maintenance Agreement, dated as of 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)
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