Contract Drafting Class Notes – D. C. Toedt III

Please see the table of contents at left.

1 Preface

Updated Wed. Aug. 24, 2016   1920 CST

Welcome. This Web page contains important information about my Contract Drafting course. See the table of contents at left and the key links just below.

QUICK LINKS:     Today's class         Course information     Worksheets (not in order)

2 August

2.1 Mon. Aug. 22, 2016

2.1.1 Before class

Reading assignment: None.

Homework: None.

2.1.2 Housekeeping

  1. Check Web site for reading & homework assignments. (Being reorganized – only a couple of weeks worth are up now. See the current list of worksheets.)
  2. Hand out paper name tents
  3. Circulate sheet to collect email addresses for a Google Group mailing list, which I use to send out all-hands emails.
  4. Introduce selves
  5. Break into three groups of four (these groups will be reshuffled twice during the semester on the same day as the in-class quizzes)
  6. Go over course information:
    • Each class session will last 85 minutes, ending at 5:25 p.m. / 8:55 p.m., to get seven extra class minutes and thus try to avoid having to make up canceled classes (if any). Because of holidays this semester on Labor Day and the day before Thanksgiving, the law school requires 78-minute sessions for M-W three-credit courses in order to meet an ABA accreditation standard of 700 minutes of instruction per credit hour.
    • Possibility of Webinar-style remote meeting if DCT will be absent.
    • Computer use:
      • Blackboard for quizzes, final exam, chat room (for in-class drafting exercises) and virtual whiteboard (ditto).
      • Backup plan: www.Zoom.us for chat room and remote classes, Workflowy virtual whiteboard for in-class exercises
    • Grading – 1,000 points for the semester, via the final exam, two in-class quizzes, homework, and class attendance.
  7. Possible DCT absence: Oct. 24 for a business trip (not firmed up yet).
  8. Overview of this course's approach.

2.1.3 Drafting exercise: Selling a used computer (part 1)

SETTING UP: Each group of four students is to divide into two teams. One team will represent Sarah Seller, the other will represent Billy Buyer. (No need to change seats.)

FACTS:

  • Sarah Seller owns a three-year-old laptop computer. She wants to sell it so that she can buy the latest and greatest model.
  • Billy Buyer is interested in buying Sarah's computer.

ASSIGNMENT:

  1. In your two-person teams, brainstorm a list of provisions that you would want to see in a "minimum viable contract," that is, a contract that you think would:
    • survive a motion to dismiss for failure to state a claim (hint: recall the 1L Contracts course);
    • cover the likely risks for your client; and
    • get signed reasonably quickly so that Sarah and Billy can "get it done" and get on with their lives.
  2. Compare notes with the other two-person team in your four-person group and see what if any consensus you can reach.

2.1.4 Drafting exercise: Ambiguity and Hillary's email server

SOURCE: A Politico piece titled FBI could leak Clinton email investigation, Grassley warns.

TEXT: "A hypothetical leak could occur, he said, if officials believed Clinton was not being prosecuted for political reasons." (Emphasis added.)

EXERCISE: There are two possible meanings of the italicized portion of the above sentence. In the Blackboard chat room, rewrite the sentence twice, once for each meaning, to make that meaning clear.

2.1.5 Questions for discussion

  1. In your practice, do you expect you'll be doing more drafting of contracts, or more review of drafts that others have prepared? Explain.
  2. What do you think are the main goals of a contract drafter or reviewer?
  3. In abstract terms, what do you think is the client's overarching goal in negotiating a contract?
  4. What makes for a workable contract?
  5. What do you think is likely to be the worst bottleneck in getting a contract to signature?
  6. What kind of contract language do you think business lawyers should aspire to write?

2.1.6 Lecture: The value of speed in getting to signature sooner

I don't hand out the PowerPoint slides,* but you can download a PDF of the associated paper, Getting a Workable Contract to Signature Sooner.

* The slides contain images that I copied and pasted from the Web — while I'm comfortable that use of the images in a classroom presentation is "fair use" under the copyright laws, I'm less confident about that being the case if I were to distribute copies, where they could end up who knows where.

2.1.7 Questions for small-group discussions

  1. PROPOSITION: A contract drafter should strive to anticipate and address all harms that might arise in the course of the parties' relationship.
  2. QUESTION: What is a "vague" term? What is an "ambiguous" term? (Hint: See here.)

2.2 Wed. Aug. 24, 2016

2.2.1 Reading (yes) & homework (none)

Read:

Preamble of agreement (including the comments)

Signatures (including the comments and additional notes)

Ambiguity and vagueness

Rick's Cabaret Purchase & Sales Agreement (preamble and signature blocks only)

  • Note the preamble style
  • Note the signature-block style
  • Line 875: Note the limited-purpose signature block

Homework: None.

2.2.2 Punctuation exercise: Making babies

From a spring-2016 student: Mice Breeding Chinese Scientists Say Making Babies in Space Is Possible (Inverse.com). The student's comment: "TL;DR: Hyphens are important, yo."

2.2.3 Ambiguity exercise: The burglars and the bystander

From the Houston Chronicle, Aug. 22, 2016 "Police apprehended two men accused of burglarizing two homes on the North Side with the help of a civilian who chased them Monday afternoon."

QUESTION: Did the citizen help the police, or the burglars?

QUESTION: Did the citizen chase the burglars, or the police?

EXERCISE: Rewrite to clarify.

2.2.4 Clarity exercise: The judge's daughter

From a sentence I typed (before editing it) in a Facebook conversation — a federal judge made his daughter give back a bracelet that her boyfriend had given him because the value of the bracelet exceeded the $50 maximum allowed by judicial ethics rules. (I said I thought that was a bit much, because the judge would have to recuse himself in any case involving the boyfriend anyway.)

Anyway, what I said originally was: "I didn't know the judge, but as the father of a daughter, another possibility comes to mind: Maybe the judge just didn't like the boyfriend?"

QUESTION: What's wrong with the italicized part? QUESTION: How can it be fixed?

2.2.5 Clarity exercise: The Iranian navy

From CNN: "The Iranian vessels moved at high speed toward the [USS] Nitze, which was operating in accordance with international law in international waters and ignored maritime "rules of the road" as set out in the 1972 Convention on the International Regulations for Preventing Collisions at Sea. "

QUESTION: What's wrong with the italicized part? QUESTION: How can it be fixed?

2.2.6 Pop quiz* Course information & policies

* Not really, it's just a review

Reference: Here

  1. QUESTION: How many points on your final grade can you earn for turning in all homework?
  2. QUESTION: According to the syllabus, what could happen if you didn’t turn in any homework?
    (a) You could still pass the course, but it likely would be difficult to make up the missing points.
    (b) Your grade will be dropped by one letter, e.g., A- to B- etc.
    (c) No adverse consequences, other than not getting the benefit of the work.
    (d) You will not be able to accumulate enough points to pass the course.
  3. QUESTION: According to the syllabus,to what extent are you allowed to collaborate with classmates in doing homework, and what are you supposed to do if you do collaborate?
  4. QUESTION: Which is worth more to your grade: The final exam, or the two mid-term quizzes?

2.2.7 Drafting exercise: Preamble

Draft a preamble for your used-computer-sale contract.

2.2.8 Preamble questions: The computer sale

  1. FACTS: Billy Buyer wants the computer-sale contract to recite, not his name, but his business name, "Bravo Builders" (just that – no Inc. or LLC or anything like that). QUESTION: Any problem with that?
  2. FACTS: It turns out that Billy Buyer is 15 years old. QUESTION: Any issues there?
  3. ALTERNATE FACTS: Billy is 28 years old, a successful Internet entrepreneur who is worth $300 million. Billy wants the contract with Sarah Seller to be in the name of his new business venture, Beta-Beta Research LLC. BBR will be renting from Sarah (not buying) a custom-built supercomputer for one year, for an annual rent of $1 million. QUESTION: Any financial issues here? How might those issues be addressed?

2.2.9 Discussion: Post-signature changes to document, exhibits, etc.

Facts

FACTS: Yesterday your client and "the other side" signed a contract that included several exhibits. You have all signed copies of the contract in your possession and are supposed to send one fully-signed copy to the other side today. You just noticed that one of the exhibits includes a significant typographical error.

QUESTION: Can you just change out the exhibit pages in the various copies before you send the fully-signed copy to the other side? Why or why not?

INSTRUCTIONS:

  • Write out your own answer
  • Compare your answer with those of your nearby "partners"
  • Stand by for class discussion

SUGGESTED READING (for later):

Question: What other options?

How else could you handle this situation?

2.2.10 Discussion: Switched-out pages?

Facts

Your client manually signs two originals of a contract. You mail both originals to the other side with a cover letter asking for one of the fully-executed originals to be returned to you.

A couple of days later, you receive a fully-executed original; per the client's request, you put it in your file.

Months later, a question comes up about the contract. You look at your file copy.

A significant point in the contract isn't drafted the way you remember; it's different from the earlier drafts.

You contact the other lawyer, who says he doesn't know what you're talking about.

Question: Prevention?

How could you have prevented this from arising?

INSTRUCTIONS:

  • Write out your own answer
  • Compare your answer with those of your nearby "partners"
  • Stand by for class discussion

2.3 Mon. Aug. 29, 2016

2.3.1 Homework due today: Microsoft Word Basics Worksheet

Starting sometime next week (after Labor Day), the Blackboard setup for the course will be up and running for homework assignments.

For now, though, email me your answers to the following in a Word document (so I can do markups and commentary more easily):

  1. QUESTION: In Microsoft Word, how do you adjust the spacing between paragraphs? (Pro tip: Don’t use a blank line to separate paragraphs – adjust the spacing instead.)
    YOUR ANSWER:
  2. QUESTION: In Microsoft Word, what's the proper way of creating a heading? Hint: It involves “styles.”
    YOUR ANSWER:
  3. QUESTION: In Microsoft Word, how do you keep one paragraph with the next one? Hint: Look up paragraph formatting.
    YOUR ANSWER:
  4. QUESTION: In Microsoft Word, how do you adjust the line spacing within a paragraph?
    YOUR ANSWER:
  5. QUESTION: In Microsoft Word, how do you create a table without borders? (Tables can sometimes be useful in contracts.)
    YOUR ANSWER:
  6. QUESTION: In Microsoft Word, how do you create a table of contents? (A table of contents can be useful in a long contract.)
    YOUR ANSWER:
  7. FACTS: You want to copy and paste a short snippet from a Web page into a Microsoft Word document without messing up the formatting of the paragraph into which you’re pasting the snippet. To do this, you will use the Paste Special menu item.


QUESTION: Which of the following Paste Special options would you use?
(a) Unformatted text
(b) HTML text
(c) Formatted text
YOUR ANSWER:

2.3.2 Reading assignment: A Somewhat-Barebones Contract

The reading assignment is here

2.3.3 Ambiguity exercise: Milk, eggs, and computer programmers

Check out this Facebook picture. The salient sentence is: "Honey, please go to the market and buy 1 [sic] bottle of milk. If they have eggs, bring 6 [sic]."

EXERCISE: In the Blackboard chat room, rewrite the above sentence to clarify the intended meaning.

2.3.4 Class discussion: A Somewhat-Barebones Contract

Be prepared to discuss the following:

  1. Title: Why not just have the title be “Agreement”?
  2. First paragraph: What is a one-word name by which this first, unnumbered paragraph is typically called?
  3. First paragraph: The words “Agreement,” “Buyer,” and “Seller” are in bold-faced type and surrounded by quotation marks and parentheses. Why?
  4. First paragraph: Why does this paragraph state (i) the type of organization of Betty's Used Computers, LLC ("BUCL") and (ii) the state in which BUCL is organized?
  5. First paragraph: Why does this paragraph state Buyer’s principal place of business?
  6. First paragraph: Why does this paragraph state Buyer’s initial address for notice? Why not just put that information in the Notices provision (if there is one)?
  7. First paragraph: Why state Sam’s place of residence (which is not necessarily the same as his initial address for notice)?
  8. First paragraph, comment [B]: What's a romanette?
  9. Section 1: What advantages might there be in including so much information about "the deal” in this paragraph?
  10. Section 1: This contract does not include recitals, a.k.a. "whereas" clauses, nor "words of agreement," e.g., "The parties agree as follows." Why might that be?
  11. Section 1: “Seller will sell” and “Buyer will buy”: Why includes both of these?
  12. Section 1: “Seller will sell”: Why not “Seller shall sell”?
  13. Section 1.3: What’s the point of this section – as a matter of law, aren't the parties free, if they so agree, to change the Closing Time and Closing Location?
  14. Section 1.4: What is a "safe harbor" clause in the context of a contract (as opposed to a statute or regulation)?
  15. Section 1.4: What’s the significance of “for the avoidance of doubt”?
  16. Section 1.4: Any danger in using “for example”?
  17. Section 1.4: In the term "USD $800," what does the prefix "USD" mean?
  18. Section 2: What types of agreement are likely to include this kind of clause?
  19. Section 2: Note the phrasing, “Seller will not use the Computer ….” How else could that be phrased? Is there any significance to the “will not” phrasing?
  20. Section 2.1: In the real world, would this sort of exception normally be included in a draft agreement prepared by Buyer? Contrariwise, if Seller had drafted the agreement, then would Seller have included section 2 at all?
  21. Section 3: “Seller will cause” a clean install of Mac OS X: Why phrase the obligation this way — why not just say that Seller will perform a clean install?
  22. Section 3: What type of covenant is this?
  23. Section 4: What term might traditional contract drafters use here instead of “prerequisite”?
  24. Section 4: Why include this section?
  25. Section 4: Why cross-reference to “the obligation stated in section 3,” instead of just saying, “Seller’s obligation to do a clean install is a prerequisite ….”?
  26. Section 5: How does this provision differ — significantly — from section section 3?
  27. Section 6: (i) Why use the phrase, “so far as he knows, without any particular investigation”? (ii) Why not simply say "to Seller's knowledge"? [Note how in this paragraph the question marks are outside the quotation marks because the question marks aren't part of the text that's being quoted.]
  28. Section 7: What options does Buyer have if Seller doesn’t allow Buyer to inspect the Computer before Closing?
  29. Section 7: Why use the term “commercially reasonable” in this section?
  30. Section 8.1: Why not use active voice here?
  31. Section 8.1: This provision uses “must be paid” for emphasis — what are some other possibilities for phrasing this term?
  32. Section 8.1: Any dangers in payment by cashier’s check? What are some possible alternative forms of payment?
  33. Section 9: This section uses the term "notarized." Does that likely refer to an acknowledgement, or to a jurat?
  34. Signature blocks: Is there any danger in having the signature blocks on a separate page for easier signing and FAXing of just the signature pages instead of the whole agreement?
  35. Signature blocks: Why does the date line say "Date signed" instead of just "Date"?

2.4 Wed. Aug. 31, 2016

2.4.1 Homework due today: Rick's Cabaret preamble (5 points)

In a Word document, rewrite the preamble and recitals to the Rick's Cabaret purchase agreement.

  • Use Microsoft Word.
  • Use plain English.
  • Use short, simple sentences.
  • See {PLACEHOLDER} and its commentary for tips.
  • Email me the Word document.

(I've asked the UH Blackboard people to finish the setup that will let you do these short homework assignments directly on Blackboard.)

2.4.2 Reading: Payment terms

Read the following Common Draft sections and commentary:

4.1 (payment terms) through 4.5 (deposits)

4.8 (interest) and 4.9 (usury savings)

2.4.3 Payment Terms Worksheet 1

  1. PROVISION: "Alice represents that she will pay Bob net 30 days."
    QUESTION: What does "net 30 days" mean?
    QUESTION: Is anything wrong with the "net 30 days" part?
    QUESTION: Is anything else wrong with this provision?
  2. FACTS: (A) Bob wants Alice to agree to the following provision: Alice will notify Bob of any dispute about a payment obligation no later than the due date of the payment. (B) Alice's lawyer objects to this provision.
    QUESTION: Should Bob push hard for this provision? QUESTION: Does this tell Bob anything about Alice?
  3. FACTS: A contract payment provision states that past-due payments will bear interest at 5% per month beginning on the due date. Texas law applies.
    QUESTION: Any problem with this provision?
    QUESTION: How could this provision be improved?

2.4.4 In-class exercise: Ambiguity and gerrymandering

EXCERPT: From a Vox.com article: "… gerrymandering forces the losing party to "waste" votes by placing all its voters into a small number of districts where the party gets a landslide, rather than spreading those voters out so they can have more impact."

QUESTIONS: Is it the losing party that's "placing all of its voters into a small number of districts"? Or is it gerrymandering that does so?

EXERCISE: In the chat room, each student is to rewrite this sentence to make it more clear. WAIT TO PRESS "ENTER" until I give the word.

2.4.5 Drafting exercise – signature blocks: The Addams family in Hawai'i

FACTS:

  • Your client is Addams Investments, L.P., a "family" limited partnership of the very-wealthy Addams clan in Galveston. The sole general partner of the limited partnership is Addams Operations, Inc.
  • It's 12:00 noon Houston time on March 31. The president of Addams Operations, Ms. Wednesday Addams, is on the phone. It's a bad connection, but she wants to talk about a contract that you and she have been negotiating for Addams Investments, L.P.
  • Under the contract, will buy a large quantity of widgets from Widgets, Inc., a Houston company that recently went public. (Family patriarch Gomez Addams is convinced the family will make a killing in the widget market.)
  • Wednesday Addams says that she has talked by phone with her opposite number at Widgets, Inc.; she reports that Widgets, Inc., has agreed to the last contract draft that you sent over, and that everyone is ready to sign.
  • The Widgets, Inc. people really, really want to get the contract signed and delivered today, March 31. They've told Wednesday Addams that they're willing to make significant pricing concessions to make that happen.
  • There's a problem, though: As you learn from Wednesday Addams over the bad phone connection, she and the rest of the Addams family are at the end of a rugged backpacking vacation on a small, primitive island in Hawai'i. The island has no Internet service and barely has cell phone service.
  • The family has just emerged from the back country. The plan is for everyone, smelly as they are, to take a private plane from a dirt landing strip on the island to the Honolulu airport. A shuttle bus will take them to a nearby hotel for a quick shower and change of clothes. The family will then board a United Airlines "redeye" overnight flight that will land in Houston on the morning of April 1.
  • One more thing, she says: In the interest of traveling as light as possible, no one in the group brought a laptop.

SIGNATURE BLOCK: How should the contract signature block for Adams Investments, L.P., be written?

QUESTION: Why might the Widgets sales rep be so eager to get the contract signed on March 31? Could that pose a problem?

What about just signing it on April 1 when the family gets back to Houston?

QUESTION: Is it possible for you to "make it happen" for the contract to be signed and delivered to Widgets, Inc. today, March 31? If so, how might you go about it?

3 September

3.1 Mon. Sep. 05, 2016

NO CLASS – LABOR DAY HOLIDAY

3.2 Wed. Sep. 07, 2016

3.2.1 Homework due today: Rewrite UAL-CAL provision for clarity

Rewrite the following provision from the Continental-United Airlines merger agreement and email it to me (or post it on Blackboard if I so announce):

  • to make the provision more readable; and
  • to get rid of the false imperatives:

    • in the first sentence, and
    • at the beginning of the final sentence

    See this article, scan down for the term "false imperative."

1.3 Effective Time. Subject to the provisions of this Agreement, as soon as practicable on the Closing Date, the parties shall file with the Secretary of State of the State of Delaware the Certificate of Merger and the Restated Charter, in each case in such form as required by, and executed and acknowledged in accordance with, the relevant provisions of the Delaware Law, and, as soon as practicable on or after the Closing Date, shall make all other filings required under the Delaware Law or by the Secretary of State of the State of Delaware in connection with the Merger. The Merger shall become effective at the time that the certificate of merger relating to the Merger (the Certificate of Merger) has been duly filed with the Secretary of State of the State of Delaware, or at such later time as United and Continental shall agree and specify in the Certificate of Merger (the time the Merger becomes effective being the Effective Time). The Restated Charter shall be filed with the Secretary of State of the State of Delaware immediately prior to the filing of the Certificate of Merger and shall become effective at the Effective Time.

3.2.2 Reading: Reps and warranties

Read the following Common Draft provisions and their commentary:

Implied-Warranty Disclaimer

Representation Definition

Misrepresentation Definition

Warranty Definition

Honeywell warranties provision (reading only for now; homework will be due next week)

3.2.3 Questions for discussion:

After this class, email me your answers to the following at your convenience (NOTE: I might announce that you should use Blackboard instead):

  1. QUESTION: What are the basic elements that a plaintiff generally must establish to succeed in a claim for misrepresentation?
  2. QUESTION: Does a representation normally relate to:
    (A) a past fact?
    (B) a present fact?
    (C) a future fact?
  3. QUESTION: Should factual representations be included in an agreement's recitals? Why or why not?

3.3 Mon. Sep. 12, 2016

3.3.1 Reading

3.3.2 Homework: Warranty-of-quality comparison: Honeywell vs. Honeywell

By the time this is due, I should be able to post it on Blackboard.

Briefly summarize the differences between the warranty- and remedy provisions that Honeywell sets out in:

on the following subjects:

  1. To whom does the seller make the warranty — and, thus, who might arguable be entitled to enforce the warranty in court?
  2. For goods: To what extent is the intended use of the goods relevant?
  3. For services: To what quality standards will services conform?
  4. With what laws will the seller comply?
  5. How long does the Warranty Period last?
  6. Are the stated warranties the exclusive ones?
  7. How restricted are the remedies for breach of warranty?

3.3.3 In-class discussion: Honeywell v. Honeywell

3.3.4 In-class discussion: Backdating a contract at the end of the quarter

Facts

It's the last week of March. Your client Big Public Software Company ("BPSC") has a calendar-year fiscal year, and its shares are traded on Nasdaq. That means it must file financial reports with the SEC within a certain number of days after each March 31, June 30, September 30, and December 31 (commonly referred to as Q1 through Q4 respectively, or sometimes 1Q through 4Q).

BPSC's sales people are working on a huge deal. If the deal closes, BPSC will "make the number," that is, its earnings will match analysts' expectations; if not, BPSC will "miss," and the price of its stock likely will nosedive.

The BPSC sales people stay late at the office on March 31, hoping to iron out the last negotiation points. But the parties don't actually come to agreement until April 3.

Question: Backdate the signatures?

On April 3, BPSC's vice president of sales calls you with an urgent question: Can the parties backdate their signatures to March 31, so that BPSC can book the sale in Q1 so that it won't "miss"?

Optional question: Personal motivations for backdating?

What personal motives might the VP of sales have for backdating the contract signatures? Consider, for example:

  • financial incentives
  • non-financial motivations

3.4 Wed. Sep. 14, 2016

3.4.1 Reading

[To be announced]

3.4.2 Homework: None

No homework due today - quiz day.

3.4.3 Quiz

This will be done on Blackboard.

3.4.4 Discussion

[To be announced]

3.4.5 Exercise

[To be announced]

3.5 Mon. Sep. 19, 2016

[To be announced]

3.6 Wed. Sep. 21, 2016

3.6.1 Reading

[To be announced]

3.6.2 Homework: Stanford-Tesla lease: Redraft § 4.3

FACTS:

(1) You have traveled back in time and are clerking at the law firm that represented Tesla Motors in negotiating a real-estate lease agreement in which Stanford University is the landlord and Tesla is the tenant.

(We will later review an annotated version of the lease agreement.)

(2) The draft lease agreement contains the following provision (which is in the actual final agreement):

4.3 Extension Option. In the event that Landlord determines in its sole discretion that Landlord does not intend to redevelop the Premises or to use it for Landlord’s own purposes after the Termination Date, and that therefore the Premises will be available for lease, Landlord shall provide Tenant with written notice of such determination, setting forth the period of time that Landlord has determined the Premises will remain available for lease by Tenant (the “Extension Period”). Tenant shall have the option (the “Extension Option”) to extend the Term for the Extension Period by delivering written notice to Landlord within thirty (30) days after receipt of Landlord’s notice. The Extension Option shall be void if an Event of Default by Tenant exists, either at the time of exercise of the Extension Option or the time of commencement of the Extension Term. The terms of this Lease during the Extension Period shall be the same terms and conditions as during the original Term, except that the Base Rent applicable to the Extension Period shall be equal to the Prevailing Market Rent as of the commencement of the Extension Period, as determined pursuant to Exhibit D. The Extension Option is personal to Tenant and shall be inapplicable and null and void if Tenant assigns its interest under this Lease, or if either party exercises its termination right under Section 4.4. The Extension Option (if not previously exercised) shall expire as of the Termination Date.

(3) The partner for whom you are working is concerned that Stanford might forget entirely about the property and therefore might not provide Tenant with the notice mentioned in section 4.3.

ASSIGNMENT: Redraft the above § 4.3 to do the following:

  1. give Tesla the ability to "nudge" Stanford and get a final yes-or-no decision about Stanford's intentions for redevelopment;
  2. give Tesla at least some voice in Stanford's decision about redevelopment — but don't change the "sole discretion" part (hint: consider a consultation requirement);
  3. create a "default" or "gap-filling" provision, in Tesla's favor, that will govern if Stanford drops the ball about giving Tesla notice concerning Stanford's redevelopment intentions; and
  4. redraft the section to:

Substantively, though, don't revise the terms of the section (apart from #1 through #3 above).

Feel free to use — or incorporate by reference — any Common Draft provision that you want.

3.7 Mon. Sep. 26, 2016

[To be announced]

3.8 Wed. Sep. 28, 2016

[To be announced]

4 October-November

To be announced

5 Course information

5.1 Contact information; computer use; email addresses

  • I can be reached at dc@toedt.com or (713) 364-6545 (which forwards to my cell); see also my About page.
  • Computer use in class is not just encouraged but required; you will need in-class Web access for some of the exercises (we will do some in-class drafting via an on-line chat room and/or a "virtual whiteboard"). If this will be a problem, be sure to contact me well in advance.
  • On the first class day I will be asking for your email addresses so that I can include it in a class Google Group. Please provide an email address that you check regularly.

5.2 Course goals, materials, assignments, etc.

5.2.1 Course goals

The goal of this course is to help students prepare for a type of assignment they will likely see throughout their careers: that of (sometimes) drafting, (very often) reviewing, analyzing, explaining, and negotiating contracts. Students will:

  • explore various legal- and business issues that might need to be addressed in various types of contract (see the list below);
  • study principles of plain-English drafting for contracts and other legal documents;
  • review the etiquette and ethics of contract negotiations;
  • survey some legal pitfalls that could lead to jail time for both clients and lawyers, such as backdating contracts, violating antitrust laws, failing to comply with Sarbanes-Oxley Act obligations, paying off foreign officials, etc.
  • discuss how to tactfully advise clients (and supervising lawyers) about their options, so as to earn a reputation as a deal-maker, not a deal-breaker;
  • compare and contrast the roles of outside- versus in-house counsel in contract negotiations;
  • consider ways of positioning the client for future litigation, just in case.

5.2.2 Course materials

As an experiment this semester, we will not use a course book per se; instead, we will make greater use of other materials available for free on-line, such as:

5.2.3 Course approach

We will take up various worksheets and other assignments; I'm in in a specified order (which I might change up).

Homework assignments will be due on specified dates.

Each student should be prepared to answer all questions in the agenda for each class. (But don't worry, I won't embarrass you if you don't know an answer.)

5.2.4 Homework

We will work through a series of short homework- and in-class worksheets and other assignments; some will involve drafting, others will involve short answers. Some will be turned in, others not. I will generally mark up and return the turned-in assignments, but I normally won't grade them other than pass-fail, that is, either zero points or full points for that particular assignment, based on whether it has been timely turned in and appears to reflect a good-faith effort. I want your best effort on each assignment, but I understand and accept that you might not get it exactly right on the first try.

EXCEPTION: If a submitted assignment has serious problems that I judge could have been avoided by more-careful work, I reserve the right to deduct points.

WARNING: In one past class, a student got a (low) passing grade on the final exam, but failed the course because the student had turned in almost none of the assignments.

We will review each drafting assignment in a subsequent class, in many cases using group discussion.

5.2.5 Collaboration

Unless I say otherwise in a particular case, feel free to consult with your classmates in doing homework, worksheets, and other assignments, but each student is to do, and turn in, his or her own work. (That's how it often happens in law firms and companies.) If you do so, please indicate whom you consulted with, so that when I see similar- or identical work I’ll know it’s OK.

5.2.6 Deadlines

Worksheet homework and drafting assignments are to be turned as specified. I will accept submissions that, for good reason, are not terribly late, but I reserve the right to deduct up to 20% of the possible points for lateness.

5.3 Grading: 1,000 points

5.3.1 Required average

As required by law school policy for a writing class, grades will be adjusted proportionally so that the average of the final class grades (before any class-participation bump-up) falls between 3.0 and 3.4.

5.3.2 Final exam: 400 points

The "essay" part of the final exam will be take-home, open-book, open-notes. It should take roughly four to six hours to complete. It will consist mainly of (brief) essay questions along with a couple of drafting- and review problems.

The essay portion will be distributed no later than the end of the last class period and is due at the library two weeks later (exact date and time to be determined). Late exams will not be accepted without the specific approval of the Associate Dean. The library staff will time-stamp the exams as they are submitted. WARNING: One semester, several students showed up at the library desk 30 seconds before the deadline, but the library staff was busy and wasn’t able to time-stamp the exams until after the deadline had passed. Plan accordingly.

In addition, I hope to have part of the final exam consist of a timed series of true-false, multiple-choice, and short-answer questions to be done on the UH Blackboard system.

5.3.3 Two midterm quizzes (Sept. 14 and Oct. 5): 400 points total

We will have two, in-class,* midterm quizzes, each lasting about 20** minutes.

*  Style note: I used commas to separate the interchangeable adjectives in the phrase "two, in-class, midterm quizzes." See Comma Rule 2 at GrammarBook.com.

*  Style note: I used the Arabic numerals “20” — not “twenty,” and *certainly not “twenty (20)” — to indicate the number of minutes.

The questions will be based pretty much entirely on the homework- and in-class assignments covered to date — but with some curve balls thrown in — so that the quizzes themselves serve as a reinforcing review that takes advantage of the testing effect.

The quizzes will be open-book, but it will behoove you to review all of the previous assignments in advance.

In preparing for the midterm quizzes and final exam, you might want to:

  • make flash cards from the worksheet questions and answers; and
  • work together to drill each other.

5.3.4 Homework (pass-fail): 100 points total

There will be up to 20 short homework assignments, graded pass-fail, each worth either 5 or 10 points.

5.3.5 Class attendance: 100 points

Because we will be doing a significant amount of in-class discussion and a significant number of in-class exercises,* in two- to four-person teams, it's important for each student to attend each class, not just for his or her own benefit, but so that his or her team won't be shorthanded.

* Note how it’s an AMOUNT of discussion (“discussion” is an uncountable noun) and a NUMBER of exercises (“exercises” is a countable noun); see the Grammarist.com discussion.

ABA accreditation rules and school policy require attendance at 80% of the class meetings for each course. We have 27 class meetings; rounding to the nearest whole number of classes, a student must attend at least 22 class periods to comply with the 80% rule.

To reward students who attend class, a student who attends a minimum number of class periods will automatically earn points out of the 1,000-point total for the course, as follows:

MIN. CLASSES ATTENDED (of 27) POINTS EARNED
26 to 27 100
24 to 25 50
23 or fewer 0

This means, of course, that students who miss more than two classes will have to do better in other areas to keep up with their classmates on the school-required grading curve.

EXCEPTION: I normally disregard absences for "official" law-school team travel, e.g., for moot-court competitions, etc., as long as I'm informed in advance.

When I see that all students are present, I don’t circulate a sign-in sheet; otherwise, I do, so that I can know who’s missing and have documentary evidence that the other students were present.

5.3.6 Class participation bump-up

As permitted by law-school policy, I will increase a student's grade by one-third of a grade level for outstanding class participation, e.g., from a B to a B-plus, assuming that this doesn't cause the class average to exceed the maximum permitted. Here's how it works administratively:

  • I send the Registrar a list with the final course grade for each exam number.
  • At the same time, I send the Registrar a list of the names of students who are to get a one-half grade increase for class participation, ranked in order of priority as subjectively and finally determined by me.
  • The Registrar then combines these two lists, implementing as many of one-half grade increases as will not cause the overall class average to to exceed the maximum.

I do not reduce grades for sub-standard class participation — but if you aren't here, you won't be earning the attendance points.

5.4 Office hours

I will be available for office hours from 5:30 (after the 4:00 p.m. class) until 7:30 p.m. (when that class starts). p.m. until Adjunct professors don't have offices at the school.

I'm happy to do office hours by appointment by Skype video or by phone.

I’m also pretty responsive to email questions — if I think your question might be of general interest, I'm very likely not to respond directly to you, but instead to email the question (without your name), and my response, to the whole class. (Note how I used commas for clarity in the last part of the previous sentense.)

5.5 Recording my lectures

I don't make audio recordings of my lectures, but I have no objection to students doing so and sharing the recordings with other UHLC students.

6 Readability

FROM Matthew Hutson, Life Isn't Fair (TheAtlantic.com 2016): "In one experiment, people at a job fair who were led to think that the job-search process was beyond their control offered to donate more money to an unrelated charity than did those who were led to believe the opposite."

BETTER: "In one experiment, people at a job fair were led to think that the job-search process was beyond their control, while others were led to believe the opposite. Each group was then asked to donate money to an unrelated charity. The people in the first group offered to donate more money than did those in the second group."

FROM Matthew Yglesias, Why I think Bernie Sanders will drop out and endorse Hillary Clinton soon (Vox.com 2016), concerning Bernie Sanders: "If Democrats win the Senate in November, he'll either chair that committee or the Health, Education, Labor, and Pensions Committee."

BETTER: "… he'll chair either that committee or the Health, Education, Labor, and Pensions Committee."

7 Worksheets

7.1 Ambiguities worksheets

7.1.1 Daughter of Nepture

Heard on The Ezra Klein Show, a podcast on Vox.com, when he interviewed his Vox co-founder Melissa Bell — she said, "I was raised by the ocean in San Diego." (Klein immediately responded: "I had a privileged upbringing: Poseidon was my father … I control the waves."

EXERCISE: Rewrite to eliminate the ambiguity.

7.1.2 Iron fish

From Philippa Roxby, Why an iron fish can make you stronger (BBC.com 2015): "… participants started using water from wells after a few months, because of drought, which was contaminated by arsenic."

QUESTION: What exactly was contaminated by arsenic?

EXERCISE: Rewrite to clarify.

7.1.3 Awkwardness

In an E.J. Dionne column after the Orlando gay-nightclub shooting: "He [President Obama] gave his critics who despise his views on guns nothing …"

EXERCISE: Move one word of this sentence to a different place in the sentence, and add another word, so that the sentence is more-immediately clear.

7.1.4 Ambiguity and Jewish grandmothers

From Joshua Rothman in The New Yorker: "My grandmother is ninety-three and, to my knowledge, has never kept kosher."

QUESTION: What are two plausible intepretations of the bold-faced phrase?

EXERCISE: Rewrite to clarify.

7.1.5 Ambiguity in "if applicable" parentheticals

"Except as provided in sections 5 and 6 (if applicable)" – does that imply that both sections 5 and 6 might not be applicable?

EXERCISE: Rewrite so that it's clear that only section 6 might not be applicable.

7.1.6 Ambiguity and the New York City nuns

From Matt A.V. Chaban, Down to One Resident in 15,600 Square Feet, a Missionary Sisterhood’s Home Is for Sale (NYTimes.com June 2016):

The Missionary Sisters of the Immaculate Heart of Mary was established in New York almost by accident. It was founded in 1897 by Mother Marie Louise De Meester, who was visiting during World War I [???] following a missionary trip to St. Croix. During her stay, she realized a residence in the city might not only ease the order’s work in the Western Hemisphere, but also improve recruitment.

EXERCISE: Rewrite the second and third sentences so as not to suggest that World War I was going on in 1897.

7.1.7 Grammatical errors

On Monday, June 6, 2016, the Associated Press announced that by its count, Hillary Clinton had clinched the Democratic presidential nomination. The next day she won the California primary, beating Bernie Sanders by a significantly-greater margin than polls had predicted. Asked whether the AP announcement might have changed the outcome, one observer responded: "'I doubt it will effect it very much,' Blum said." Philip Bump, Why did Hillary Clinton do so much better in California than polls suggested? (WashingtonPost.com June 2016).

QUESTION: How could the bold-faced sentence be improved?

7.1.8 Ambiguity and Memorial Day

From Hillary Clinton's foreign-policy speech, June 2, 2016: "We honor the sacrifice of those who died for our country in many ways – by living our values, by making this a stronger and fairer nation, and by carrying out a smart and principled foreign policy.

EXERCISE: Rewrite.

7.1.9 Ambiguity and lawyer spin

TEXT: From this comment (by a brilliant lawyer) in an on-line forum: "A classic lawyering tactic is to use the most favorable (to your side) characterization of something you can justify."

EXERCISE: Rewrite this to make it clear that the term "you can justify" applies to characterization and not to something.

7.1.10 Ambiguity and the Midnight Hour

TEXT: "Tenant will vacate the Premises no later than 12 midnight on December 15, 2020; Tenant's failure to do so will be a material breach of this Agreement."

FACTS: At 10:00 a.m. on December 15, Tenant is still occupying the Premises.

QUESTION: Is Tenant in material breach?

EXERCISE: Rewrite.

7.1.11 Ambiguity and Early Retirement

TEXT: From this headline: "Houston Technology Center CEO To Retire Early Next Year" (He'll retire Feb. 1, 2017 after serving for ten years.)

EXERCISE: Rewrite.

7.1.12 Ambiguity and Olivia Pope

TEXT: "Wait for me to do what I do best." (Spoken by Kerry Washington as Olivia Pope in an episode of Scandal aired April 7, 2016.)

QUESTION: What are the two possible meanings of this sentence?

EXERCISE: Rewrite the line of dialogue to be clear which version you think Olivia meant — and try to make it sound "natural" and not lawyer-like.

7.1.13 Ambiguity and IRS Form 1099

TEXT: "As we tend to receive the most questions related to Form 1099-MISC, we would like to provide you with some general guidelines and resources in order to assist you with the accurate and timely filing of Form 1099-MISC." (From Christie A. Gricius, CPA, Client Alert: 1099-MISC Reporting Guidelines (Jan. 2016) (emphasis added).)

QUESTION: What are the two possible meanings of the italicized text?

EXERCISE: Rewrite the italicized portion twice, once for each meaning.

7.1.14 Hillary Clinton's blue collar

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From Politico: "She’s dressed in a blue-collared shirt and wearing bold silver earrings."

QUESTIONS:

1. In the phrase "blue-collared shirt," is this use of the hyphen correct, given the shirt shown in the picture?

2. If yes, is such use optimal?

(Hint: See Purdue's style guide, although this is a subject about which opinions vary.)

7.1.15 Obama veto override vote fails

From the Washington Post: "The House GOP effort to override Obama's veto of a bill to repeal Obamacare and defund Planned Parenthood failed to get two-thirds, as expected."
ASSIGNMENT: In the chat room, rewrite this to eliminate the ambiguity in the "as expected" part. Send it only to me and not to "Everyone."

7.1.16 Ambiguity: Report of Rubio's concession speech

A tweet by Vox.com's Ezra Klein: If the upshot of this speech is "and I'll support the guy who did all these terrible things I'm talking about in the general [election]"…

Rewrite.

7.1.17 Ambiguity: Arenas awash in pleasure

From a Maureen Dowd column in the NY Times, March 5, 2016: "Like Bill Clinton, Trump talks and talks to crowds. They feed his narcissism, and in turn, he creates an intimacy even in an arena that leaves both sides awash in pleasure." (Emphasis added.)

The italicized part of this quotation arguably has two meanings: Both sides are left awash in pleasure by —

  1. An arena.
  2. The intimacy that Trump creates even in an arena.

EXERCISE: Rewrite the italicized portion of the Dowd quote to be clear that she intended the second meaning.

7.1.18 Ambiguity: Inept phonies in politics

From a Maureen Dowd column in the NY Times, March 5, 2016: "Trump was right about Romney. When you lose a race that you should have won by being an inept phony, you can’t call this year’s front-runner an inept phony." (Emphasis added.)

The italicized part of this quotation arguably has two meanings:

  1. Romney could have won the 2012 presidential race by being an inept phony (says Dowd).
  2. Romney lost the 2012 presidential race because he was an inept phony (ditto).

EXERCISE: Rewrite the italicized portion of the Dowd quote to be clear that she intended the second meaning. Extra points:* Keep something of the same rhythm or structure to the sentence.

 * Just kidding; there are no points associated with this exercise.

7.1.19 Ambiguity: Overseas trips

TEXT — from a parent's letter of recommendation for a prospective Eagle Scout: "We've taken a number of family trips, including trips to China, the Netherlands, and Italy this past year."

  1. Rewrite to be clear that only the trip to Italy was in the previous year.
  2. Rewrite to be clear that all trips were taken in the previous year.

7.1.20 Ambiguity at the rodeo

From Joey Guerra, Chris Young in fine voice at RodeoHouston, Houston Chronicle, Mar. 3, 2016, p. A8: "Nothing was ever too brash or too loud."

QUESTION: Did the writer think that Chris Young was, or wasn't, brash and loud?

7.1.21 Ambiguity in the (White Sox) Clubhouse

From Ken Hoffman's column in the Houston Chronicle, March 22, 2016, p. D2, col. 1:

White Sox management announced this week that the LaRoche matter was closed — and the right decision was made by all parties involved.

QUESTION: Was Hoffman —

  • reporting that the right decision was made, or
  • opining that the right decision was made?

7.1.22 Ambiguity: Less and less people

From Mark Kleiman, The Current Crime Debate Isn't Doing Hillary Justice (WashingtonMonthly.com Feb. 2016):

When the prison population is small, it consists mostly of serious, high-rate offenders, because prosecutors and judges try to single them out. Therefore, when the population grows, it grows mostly by adding less and less dangerous people.

(Emphasis added.)

QUESTIONS:

  1. Is the bold-faced portion ambiguous? If so, what are the two (or more) possible meanings?
  2. Would "fewer and fewer dangerous people" be a better fit here?
  3. Might hyphens be useful here? (See the Grammarist notes on phrasal adjectives.)
  4. Could the bold-faced portion be improved? If so, revise it.

7.1.23 Ambiguity: Book of Common Prayer (in class only)

From the Book of Common Prayer (1979) of the Episcopal Church, pp. 361, 377 (Eucharistic Prayer A with the Proper Preface for Lent):

It is right, and a good and joyful thing, always and everywhere to give thanks to you, Father Almighty, Creator of heaven and earth. Through Jesus Christ our Lord; who was tempted in every way as we are, yet did not sin ….

QUESTION: Ignoring the theology and christology, to what does the phrase "Through Jesus Christ our Lord" refer to:
(A) The people giving thanks through Jesus; or
(B) the Father Almighty creating heaven and earth through Jesus?

ASSIGNMENT: In the chat room, Revise the second sentence so that the passage refers clearly to choice A above. (Hint: Adding three words to the beginning would be one way to do it.)

7.1.24 Ambiguity: Medical report

"The young man had involuntary seminal fluid emission when he engaged in foreplay for several weeks." From an example given by Steven Pinker, The Sense of Style: The Thinking Person's Guide to Writing in the 21st Century (2014).

7.1.25 Ambiguity and the want ads

"Wanted: Man to take care of cow that does not smoke or drink." From an example given by Steven Pinker, The Sense of Style: The Thinking Person's Guide to Writing in the 21st Century (2014).

7.1.26 Ambiguity and the job recommendation

"I enthusiastically recommend this candidate with no qualifications whatsoever." From an example given by Steven Pinker, The Sense of Style: The Thinking Person's Guide to Writing in the 21st Century (2014).

7.1.27 Ambiguity: Superman and Wonder Woman

From a tweet by SCOTX justice Don Willett: "My heroes are my parents, Superman and Wonder Woman."

EXERCISE: Rewrite twice – once for each meaning.

7.1.28 Ambiguity: Merle Haggard in Same-Sex Marriage?

Rewrite to eliminate the ambiguity:

Among those interviewed were his two ex-wives, Kris Kristofferson and Robert Duvall.

(In http://nielsenhayden.com/makinglight/archives/012652.html and quoted in https://en.wikipedia.org/wiki/Serial_comma#Unresolved_ambiguity)

7.1.29 Ambiguity: Sex and the Supreme Pontiff

Rewrite this headline to eliminate the ambiguity:

Prostitutes Appeal to Pope

(Adapted from http://grammar.about.com/od/terms/g/ambiguity.htm)

7.1.30 Ambiguity: What to bring?

State the three possibilities for what the writer below will bring to a party:

I'll bring wine or beer and dessert.

(Adapted from http://www.literarydevices.com/ambiguity)

7.1.31 Ambiguity: Quack quack?

Rewrite to eliminate the ambiguity:

I saw her duck.

(Adapted from http://literarydevices.net/ambiguity/)

7.1.32 Ambiguity: Dog bite

Use one character to eliminate the ambiguity:

Passerby helps dog bite victim.

(Adapted from http://literarydevices.net/ambiguity)

7.1.33 Ambiguity: Umbrella strikes

Rewrite this headline to eliminate the ambiguity:

She hit the man with an umbrella.

(Adapted from http://literarydevices.net/ambiguity)

7.1.34 Ambiguity: Going to Oregon

Consider the following sentence:

The family went to Oregon with Betty, a maid, and a cook.

Rewrite the sentence (consider using parentheses and dashes, too) to be clear that the family went to Oregon with:

  • one person
  • two persons
  • three persons

(Adapted from https://en.wikipedia.org/wiki/Serial_comma#Unresolved_ambiguity)

7.1.35 Ambiguity: The Affordable Care Act

TEXT: (Adapted from a comment by a guest on the first hour of the Diane Rehm Show, Apr. 12, 2016): Before the Affordable Care Act, "if you had a pre-existing condition such as breast cancer, you could not be covered."

QUESTION: Does this mean that before the ACA, if you had a pre-existing condition insurance carriers: (A) were not permitted to offer coverage, or (B) might choose to deny coverage?

EXERCISE: Rewrite to make it clear that the intended meaning was (B).

7.1.36 Ambiguity: Meow

Rewrite to eliminate the ambiguity: "He gave her cat food."

(Adapted from http://literarydevices.net/ambiguity)

7.1.37 Ambiguity: Texas Democrats

TEXT: "[In the 1930s, some] of Texas's wealthiest families could not abide the new breed of Texas Democrats who found hope in the New Deal and wanted the federal government to do even more." (Adapted from Mary Beth Rogers, Turning Texas Blue – What It Will Take to Break the GOP Grip on America's Reddest State, at 49 (New York: St. Martin's Press 2016))

QUESTION: Who wanted the federal government to do more — (A) the new breed of Texas Democrats, or (B) some of Texas's wealthiest families?

EXERCISE: Rewrite to make it clear that the intended meaning was (A).

NOTE: This sentence correctly uses "Texas's" as the possessive, with the s-apostrophe-s and not merely s-apostrophe. (A generally-recognized exception to this rule is the possessive of Jesus of Nazareth, e.g., the centurions divided Jesus' robe among them.)

7.1.38 Ambiguity: NCAA Finals

REWRITE: "They reached the tournament finals for the seventh time this year."

7.1.39

This example is from a NY Times piece about how streaming-TV episodes are getting too long, but noting how exceptions exist, such as Louis C.K.'s Horace and Pete:

Its third episode — essentially a long dramatic monologue about infidelity by Laurie Metcalf — is 43 minutes of regret and catharsis, the camera holding tight to Ms. Metcalf’s face. I did not look at my watch once.

The italicized portion has two possible meanings:

​1. ​​a long dramatic ​​monologue about Laurie Metcalf's infidelity; and

  1. a long dramatic monologue, about infidelity, by Laurie Metcalf.​ [Note the commas.]​

In case #2, it'd be simpler just to rearrange the sentence, thusly: "a long dramatic monologue by Laurie Metcalf about infidelity."

7.2 Don't count on the spell checker

  • [Public] company
  • [Disk] surgery (in a court filing!)
  • Recall of frozen ground-beef panties

7.3 Forum selection worksheet

  1. QUESTION: Just what is a forum-selection provision?
  2. EXERCISE:
    • Using the Workflowy virtual whiteboard, draft a non-exclusive forum-selection provision specifying Houston. Do not just copy and paste the Common Draft provision.
    • Redraft to make it exclusive.
  3. QUESTION: Procedurally, how is the question of forum-selection enforceability likely to be presented to a court?
  4. QUESTION: In the "normal" case, is a court likely to enforce a forum-selection provision in a contract?
  5. QUESTION: What kinds of circumstance might cause a court to decline to enforce a forum-selection provision?
  6. FACTS: A forum-selection provision refers to "the courts of Virginia."
    • QUESTION: Does this include federal courts?
    • EXERCISE: Draft a forum-selection provision for Texas that does include federal courts.
  7. FACTS: A contract between Alice and Bob contains both an arbitration provision and a forum-selection provision. Alice sues Bob in court for breach of contract. Bob moves to compel arbitration.
    • QUESTION: What will the court do?
    • EXERCISE: Draft a forum-selection provision that accommodates arbitration.

7.4 Representations and Warranties Worksheet 1

Suggested reading:

  1. QUESTION: What are the basic elements that a plaintiff generally must establish to succeed in a claim for misrepresentation?
  2. QUESTION: Does a representation normally relate to:
    (A) a past fact?
    (B) a present fact?
    (C) a future fact?
  3. QUESTION: Should factual representations be included in an agreement's recitals? Why or why not?
  4. QUESTION: Under what circumstances, if any, can a representation relate to a future fact?

7.5 Magnuson-Moss Act

7.5.1 Question 11.1: "Limited" warranties

Why do so many consumer-product warranty clauses say "Limited Warranty"?

7.5.2 Question 11.2: Warranty statements

Under federal law, what are the three minimum requirements for a warranty statement for a consumer product?

7.5.3 Question 11.3: Implied warranty disclaimers

Does it make sense for a seller of a consumer product to offer a written warranty?

7.5.4 Resources

7.6 Confidential information

7.6.1 Will a two-way NDA be safe?

FACTS:

  1. Your client, Alpha LLC, is being asked by Bravo Corporation to sign a nondisclosure agreement (NDA) drafted by Bravo. The intent is for Bravo to disclose its confidential information to your client Alpha.
  2. The NDA is drafted to protect each party's confidential information.

TRUE OR FALSE: It likely would be dangerous for your client to sign the NDA "as is."

7.7 A sales quotation for keychain split rings

7.7.1 Facts

Your client is Seller L.P., a Houston-based Texas limited partnership that manufactures novelty items. You're on the phone with one of Buyer's managers, Betty Boop, with whom you've dealt before. Betty says:

  • Buyer has a short-notice opportunity to make 10,000 custom-branded novelty keychains for a buyer that wants to use them as giveaways at a Hong Kong trade show.
  • This wouldn't be a new product line for Buyer, which often manufactures customized keychains.
  • Buyer's keychains typically include the usual metal split rings that can tear your fingernail when you try to add or remove a key.
  • Buyer recently used up all of its inventory of split rings; Betty has been tasked with procuring 10,000 of them as soon as possible.
  • Betty has found a supplier, Seller Corporation of Galveston, that has enough of the split rings in stock.
  • Sam Seaborn, one of Seller's sales representatives, has sent Betty an email that includes a Word document as an attachment. He wants Betty to print, sign, and date the attachment and FAX it back to him.
  • Betty has forwarded Sam's email and its attachment to you.
  • The text of the Word document attached to Sam's email, in its entirety, is the following:

SALES QUOTATION – SELLER CORPORATION

Buyer: Betty Boop

Product: One-inch metal split rings

Quantity: 10,000.

Price: $1.00 each plus shipping.

Terms: Half up front, balance net 30 days after delivery.

ACCEPTED:

___________
Betty Boop

____________
Date


7.7.2 Question 1: "Merchant"?

For purposes of the Uniform Commercial Code (UCC), would a court likely hold that Buyer L.P. is a "merchant" with respect to metal split rings? Explain briefly.

SUGGESTED READING:

7.7.3 Question 2: Sufficient detail?

ASSUME ARGUENDO:

  • One of the parties later wants to challenge the enforceability of the sales quotation as a contract on grounds of "indefiniteness," because the sales quotation supposedly didn't contain enough detail.
  • The sales quotation is otherwise enforceable as a contract.

Would such a challenge be likely to succeed? Explain briefly.

SUGGESTED READING:

7.7.4 Question 3: Formation of a contract?

ASSUME ARGUENDO:

  • The sales quotation contains enough detail to be enforceable as a contract if duly signed and delivered.
  • Betty prints out the sales quotation; manually signs it with pen and ink; FAXes the signed document back to Sam Seaborn as he requested; and shreds the signed original.

On these assumed facts, would a court likely hold that a contract was thereby formed? Explain briefly.

SUGGESTED READING:

7.7.5 Question 4: Federal E-SIGN Act applicability?

7.7.6 Question 5: Delivery location

ADDITIONAL FACTS: Sam Seaborn, having received Buyer's 50% down payment, sends Betty Boop an email saying that the split rings are ready to be picked up at Seller's warehouse in Galveston.

Would Seller likely be found in breach of contract if it did not deliver the split rings to Buyer's Houston offices? Explain briefly.

RESOURCES:

7.7.7 Question 6: Payment terms

(a) In the "Terms" line, what does "net 30 days" mean?

(b) If the sales quotation hadn't specified payment terms, when would have payment have been due?

RESOURCES:

7.7.8 Question 7: Form of signature

Given that your client is Buyer L.P. and not Betty Boop personally, would you advise Betty to sign the sales quotation in its present form? Explain briefly.

7.7.9 Question 8: Liability for payment

SUPPOSE: Betty sends Sam a check, drawn on a Buyer L.P. account, for the 50% deposit, and takes delivery of the metal split rings. But then Buyer L.P. goes out of business before paying Seller's invoice for the remaining balance. Seller then sues Betty, personally, for the balance.

Betty moves for summary judgment that she is not personally liable because (she says) the contract was with Buyer L.P. Seller cross-moves for summary judgment that Betty is indeed personally liable.

(a) If you were the trial judge, how would you rule? Explain briefly.

(b) What advice would you have given Betty if she had consulted you before signing and

RESOURCES:

7.7.10 Question 9: Enforcement

ASSUME ARGUENDO: Sam Seaborn tells Betty that Seller Corporation is going to file suit for the 50% balance due.

Will Seller Corp. necessarily have to hire an attorney? Explain briefly.

RESOURCES:

7.7.11 Question 10: Merchandise quality

SUPPOSE:

  • When Buyer L.P.'s people unpack the 10,000 metal split rings, they find that one of them is so defective as to be unusable. The other 9,999 of them are fine.
  • Betty Boop contacts Sam Seaborn and asks for the defective split ring to be replaced; Sam refuses, saying that Buyer L.P.'s workers must have broken the defective ring.
  • Enraged by Sam's obstreperousness, the CEO of Buyer L.P. decides to sue Seller Corp. for breach of warranty because of the defective split ring.

Given the absence of any warranty language in the sales quotation, is Buyer L.P. likely to recover damages for breach of warranty? Explain briefly.

RESOURCES:

7.7.12 Question 11: Stolen property

SUPPOSE:

  • Split Rings, Inc., one of Seller Corp.'s competitors, successfully sues Buyer L.P. for recovery of the 10,000 split rings, on grounds that Seller Corp. stole the rings from Split Rings, Inc.
  • The sales quotation also contains the following language: All goods are provided "as is, with all faults."

Does Buyer L.P. have any recourse against Seller Corp.?

RESOURCES:

7.8 Limitations of liability

FACTS:

  • Your client, Buyer, ordered a large quantity of widgets from Seller, which uses a standard terms-of-sale form copied essentially verbatim from the Honeywell terms of sale.
  • Seller, however, was unable to deliver the widgets on time. Your client, Buyer, had to "cover" the purchase by ordering rush delivery from another manufacturer.
  • To find the substitute widgets, Buyer had to spend a fair amount of time and money on, for example:
    • travel expenses to visit the other manufacturer's factory, and
    • testing of the other manufacturer's widgets to make sure they would meet Buyer's requirements.

QUESTIONS:

  1. Under § 13 of the Honeywell terms of sale and UCC 2-715(1), can Buyer recover the expenses mentioned in the Facts from Seller as part of its "cover" damages?
  2. In § 13 of the Honeywell terms of sale, why does the last sentence carve out personal injury or death?

7.8.1 Resources

7.9 Diet Supplements

SUGGESTED READING: The following excerpts from the NY Times piece, New York Attorney General Targets Supplements at Major Retailers (Feb. 3, 2015)

The New York State attorney general’s office accused four major retailers on Monday of selling fraudulent and potentially dangerous herbal supplements and demanded that they remove the products from their shelves.

The authorities said they had conducted tests on top-selling store brands of herbal supplements at four national retailers — GNC, Target, Walgreens and Walmart — and found that four out of five of the products did not contain any of the herbs on their labels.

The tests showed that pills labeled medicinal herbs often contained little more than cheap fillers like powdered rice, asparagus and houseplants, and in some cases substances that could be dangerous to those with allergies.

 *  *  *

Among the attorney general’s findings was a popular store brand of ginseng pills at Walgreens, promoted for “physical endurance and vitality,” that contained only powdered garlic and rice.

At Walmart, the authorities found that its ginkgo biloba, a Chinese plant promoted as a memory enhancer, contained little more than powdered radish, houseplants and wheat — despite a claim on the label that the product was wheat- and gluten-free.

Three out of six herbal products at Target — ginkgo biloba, St. John’s wort and valerian root, a sleep aid — tested negative for the herbs on their labels. But they did contain powdered rice, beans, peas and wild carrots.

And at GNC, the agency said, it found pills with unlisted ingredients used as fillers, like powdered legumes, the class of plants that includes peanuts and soybeans, a hazard for people with allergies.

The attorney general sent the four retailers cease-and-desist letters on Monday and demanded that they explain what procedures they use to verify the ingredients in their supplements.

(Emphasis and extra paragraphing added.)

SCAN: The Common Draft clause headings to get ideas for tools to use in the exercise below.

FACTS:

  • You represent NileRiver.com, Inc., a new client. NileRiver is a growing Internet retailer that is competing with, and consciously patterning itself on, Amazon.com.
  • The company sells house-brand diet supplements; it uses some of the same (unidentified) supplement suppliers as do GNC, Target, Walgreens, and Walmart (the retailers mentioned in the New York Times piece).
  • The company's executives have called your office to ask for an urgent meeting to discuss the New York Times piece.
  • You know

QUESTIONS: In your groups, brainstorm and write group answers to the following:

  1. What players, that is, participants in the business- and legal worlds, might "take an interest" in NileRiver's supplements? (Hint: Consider who might stand to benefit, and how, from discovering deficiences in those supplements.)
  2. In what general ways might those "interests" of such other participants affect NileRiver.com?
  3. In general terms, what business practices could NileRiver.com adopt — and require its suppliers to adopt — to protect NileRiver's customers (and itself)? Hint: In this article, search for the term "old nuclear phrase."
  4. All business practices cost money. What are some sources of money that might be tapped to pay for the business practices that you come up with?
  5. What are some sources of leverage that NileRiver might use to encourage its existing suppliers agree to adopt such business practices? (Hint: Don't limit your thinking to contract provisions alone.)
  6. What are some actions that NileRiver could take to increase the company's confidence that its suppliers are in fact conforming to those practices that they agreed to adopt? (Note the use of the term increase the company's confidence, as opposed to ensure, in the previous sentence.)
  7. What are some actions NileRiver could take if it discovered that one of its suppliers was not conforming to the agreed business practices?
  8. What might NileRiver want its suppliers(s) to do in the event of a legal investigation like the one referred to in the New York Times piece?

7.10 A painting contractor's employee steals stuff

Suppose that a painting contractor enters into an agreement to paint the interior of the offices of a large company ("customer"). The agreement requires the painting contractor to cause background checks to be performed on any individual engaging in any of the following "Restricted Activities":

  1. working on-site at any premises of the customer;
  2. having access (including for example remote access) to the customer's equipment or computer network;
  3. having access to the customer's confidential information;
  4. interacting with the customer's employees, suppliers, or customers; or
  5. the following other activities: [None specified].

Now suppose that:

  • A particular employee of the painting contractor engages in more than one of the Restricted Activities.
  • The painting contractor's HR people slipped up and neglected to have a background check performed for that employee.
  • A background check would have revealed that the employee had been arrested several times for burglary and had served time in prison after one of those arrests.
  • The employee steals thousands of dollars' worth of stuff from desks and purses in the customer's offices.
  • The customer sues the painting contractor in Texas state court for breach of the agreement's requirement to perform background checks.
  • The "Plaintiff's Original Petition" includes a verbatim quotation of the background-check requirement in the contract.
  • The painting contractor's trial counsel moves to dismiss the case on the pleadings.
  • The motion to discuss argues that, under the literal language of the agreement, a background check wasn't required for that particular employee, because the employee performed more than one of the Restricted Activities.

QUESTIONS:

  1. Is there any way the italicized parts of the contract language could be revised to negate such an argument?
  2. Name two other types of contract provision that could offer at least some remedy to the customer for theft by the painting contractor's employees? (Hint: Both start with the letters "in.") Why might the customer insist on including both provisions in the agreement?
  3. Why did the painting contractor's trial counsel move for dismissal on the pleadings and not for summary judgment? Would the answer have been different if the plaintiff's original petition hadn't included a verbatim quotation? (Don't spend a lot of time on this question; it's for your general edification.)
  4. Could the criminal-past restriction in the contract cause either the painting contractor or the customer to be challenged by third parties? (Hint: See the discussion in the Common Draft notes.)

7.11 Contract review mechanics

READING:

Common Draft, Redlining Representation, including the commentary.

QUESTIONS:

  • List all the ways you can think of to revise a draft contract in a way that properly alerts the other side to the specific changes you made

7.12 Stanford-Tesla lease agreement worksheet 1

Reference: Stanford-Tesla real-estate lease agreement

  1. Lines 16-18 (Basic Lease Terms in Article I are subordinate to other provisions): What could go wrong? How could this be fixed?
  2. Lines 19-21 (Glossary) – DCT comments
  3. Line 26 (addresses for notice): What could go wrong? How could this be fixed?
  4. Lines 30-40 (premises): Is there any ambiguity in line 38? Is the ambiguity worth taking time to fix?
  5. Lines 47-49 (Tenant inspection): Does it matter that this doesn't say "Tenant represents [or /represents and warrants/] that it has made a thorough inspection …."? Why might a drafter choose to leave out those particular terms?
  6. Line 57 (disclaimer of Landlord warranties about structural components): Given the Premises' location (very near the San Andreas Fault), might the Landlord's drafter want to say any more as "cheap insurance"? Why or why not?
  7. Lines 83-85: Why attach a specific Acceptance Form? Could anything go wrong here? How else could this be approached?
  8. Line 89 (Term): Note what this is the "term" of.
  9. Lines 103-11 (Landlord can't deliver premises): Does this clause cause any problems for enforceability of the lease agreement? Would you recommend any changes?
  10. Lines 116-17 (no further rights): Would you advise either side to sign this? Would you recommend any changes?
  11. Line 119: Why is this called an "extension" option and not a "renewal" option?
  12. Lines 164-77 (relating to early termination): Can you think of a better way to present the information? Why might that be useful someday? (Hint: Consider who the future readers might be.)

7.13 Stanford-Tesla lease agreement worksheet 2

Reference: Stanford-Tesla real-estate lease agreement

  1. Lines 183-85 (alteration requirements): Any thoughts about the drafting "style" of this provision?
  2. [WE'RE GOING TO SKIP THIS – NO NEED TO EMAIL TO ME] Lines 186-92 (conditions): Redraft this in plain(er) English.
  3. Lines 204 et seq. (right of first offer):

    • If you were representing Stanford, would you rather give Tesla a right of first offer, or a right of first refusal (sometimes called "last look")?
    • What if you were representing Tesla?

    Hint: See this article (the link in the contract PDF is munged).

  4. Lines 263-81 (interest; administrative late fee): What if any differences are there in the legal implications of charging interest versus an administrative late fee?
  5. Lines 274-77 (reasonable estimate): What does this language sound like?
  6. Lines 294-96 (prohibited uses): Any issue with prohibiting use of the Premises for immoral purposes?
  7. Lines 311-13 (no loudspeakers, etc.): Redraft this using the virtual whiteboard. (Hint: Might passive voice actually be better in this context?)
  8. Percentage rent: List the pros and cons and how the "cons" could be addressed. Hint: Consider how relevant facts are to be determined.
  9. Section 7 (net lease): Would this provision in the agreement be characterized as single net, double net, or triple net? (Hint: Read section 7.3 carefully; check Wikipedia for definitions.)
  10. Lines 429-30 (tax increases as determined by Landlord): Would you agree to this if you were representing Tesla? What alternative(s) might you propose?
  11. T/F: The reasonableness of a contractually-stipulated liquidated-damages amount is to be determined from the perspective of the parties as of the time they sign the contract, not with 20-20 hindsight in an actual case. (Hint: Check the Common Draft annotation on liquidated damages, and also this post.)

7.14 Stanford-Tesla lease agreement worksheet 3

Reference: Stanford-Tesla real-estate lease agreement

  1. Lines 450-60 (disclaimer of landlord obligation to repair): DCT comment re statutory provisions
  2. Section 8.4 (Tenant's failure to repair): Discuss how Tesla's attorneys might try to negotiate this clause. (Would they try to negotiate it?)
  3. Section 9.1 (Landlord unreasonable withholding of consent to alterations):
    • Does the ten-day response requirement actually do Tesla any good? What if Stanford doesn't respond?
    • How might the parties plan to resolve a dispute on this point quickly and efficiently?
    • Given lines 505-13, should the possibility of a dispute be a genuine business concern for Tesla?
  4. Line 520 (additional Rent): DCT comment re inconsistent capitalization
  5. Lines 530-37 (Landlord approval not to be unreasonably withheld): Could timing be a problem with this clause?
  6. Lines 613-20 (Tenant covenants and agrees to do X):
    • Do the obligations imposed on Tesla actually "work" for Stanford? What might work better?
    • HOMEWORK: Draft a revision.
  7. Lines 621-22 (Tenant shall take all necessary safety precautions):
    • Any danger of 20-20 hindsight here?
    • How could this be reworded to protect both parties?
  8. Lines 892-93 (Tenant to continue to keep list of Hazardous Materials current):
    • What might be some of the practical reasons for Stanford to want such a list?
    • Is it realistic to impose this requirement with this wording? What might work better?
  9. Lines 902-05 ("total conformity" to environmental laws): Is this realistic? What might work better?
  10. Lines 920-22 (Landlord has right to "reasonably approve" haz-mat remediation contractors selected by Tenant): What does "reasonably approve" mean? REWRITE.
  11. Lines 920-22 (Landlord has right to "reasonably approve" haz-mat remediation contractors selected by Tenant): How could Tenant practically manage the risk that Landlord might dawdle with the approval? REWRITE. Hint: Lines 970-72 offer one possibility, but there's a still-better way.
  12. Lines 923-25 (Tenant to proceed "continuously and diligently" with haz-mat remediation work): What does "continuously" mean? REWRITE.
  13. Lines 927-28 (Haz-mat remediation "shall be performed in a good, safe and workmanlike manner"): This is a false imperative — REWRITE.
  14. Lines 927-28 (Haz-mat remediation "shall be performed in a good, safe and workmanlike manner"): What does workmanlike mean? Hint: See the Common Draft definition and its commentary.
  15. Line 1013 et seq. (Landlord's right to remediate haz-mat conditions): Note how this is a simple, two-part, expressly-authorized self-help remedy. QUESTION: What are the two parts of the remedy? Hint: "When in doubt, make it about money."
  16. Line 1013 et seq. (Landlord's right to remediate haz-mat conditions): Why does this say that Landlord has the right, but not the obligation, to remediate haz-mat conditions?
  17. Line 1022 et seq.: Note how Tenant must immediately notify Landlord of certain events.
  18. Line 1027 et seq.: Note how Landlord has complete control over actions taken to appeal certain governmental actions concerning haz-mat.
  19. Lines 1043-45 What if any difference is there between indemnify and hold harmless? Hint: See the Common Draft definition and its commentary.
  20. Lines 1043 et seq.: Is Tenant's indemnity obligation limited to third-party claims?
  21. Lines 1043 et seq.: What if any practical difference exists between (i) Tenant's liability to indemnify Landlord against the consequences of Tenant's breach of the lease agreement, versus (ii) straight-up breach-of-contract liability?
  22. Lines 1064-72 (Landlord is entitled to hire its own counsel to defend against indemnified claims, at Tenant's expense): What are the economic incentives for counsel that Landlord hires?
  23. Lines 1075-80 (Landlord is not entitled to indemnity for its gross negligence or willful misconduct): If this agreement were governed by Texas law, would Landlord be entitled to indemnity for its own simple negligence? Hint: Look up the express-negligence doctrine.
  24. Lines 1081-82: "Tenant shall procure at its sole cost and expense and keep in effect during the Term [certain insurance coverage]." (Emphasis added.) QUESTION: Stylistically, what's wrong with the "cost and expense" term? Hint: In the accounting world there's a difference between cost and expense — but is that difference relevant in this context?
  25. Lines 1107-08: "The Full Insurable Replacement Value [for which Tenant must maintain insurance] shall be determined by Landlord." QUESTION: Any process-type red flags here for Tenant? How could they be addressed?
  26. Lines 1109-10: "Tenant shall maintain coverage at the current Full Insurable Replacement Value throughout the Term …." QUESTION: Any ambiguity here? REWRITE.
  27. Lines 1119-20: What is the difference between "occurrence" insurance and "claims made" insurance? Hint: See this IRMI glossary entry.
  28. Lines 1139-41: Tenant must add, as additional insureds, "Landlord and any other party designated by Landlord …." QUESTION: Any red flags here for Tenant?
  29. Lines 1154-56: Tenant's insurance policies must "provide that Landlord will receive thirty (30) days' written notice from the insurer prior to any cancellation or material change in coverage[.]" QUESTION: What's the one stylistic error here? (I'll be greatly disappointed if anyone gets that part wrong. Hint: it's not that the "will receive" is passive voice.) QUESTION: Any substantive red flags for Tenant?
  30. Lines 1193-94: Policies must "include as additional insureds Landlord, and such other persons or entities as Landlord specifies from time to time." QUESTION: Any red flags here for Tenant?
  31. Lines 1233 et seq.: What is a waiver of subrogation? EXPLAIN in the virtual whiteboard.
  32. Lines 1247-49: "Either party shall notify the other party if the policy of insurance carried by it does not permit the foregoing waiver [of subrogation]."
    • STYLE QUESTION: Is there a better way of phrasing the "Either party shall notify the other party" term?
    • STYLE QUESTION: Is there a better way of phrasing the "policy of insurance carried by it" term?
    • PROCESS QUESTION: How likely is it that either party actually checked its insurance? If Tenant's insurance didn't include such a waiver, what could (and likely would) be the legal consequence if Landlord tried but failed to make a claim against Tenant's insurance?
  33. Lines 1307 et seq.: Note how the right of first refusal is drafted.
  34. Lines 1347 et seq.: How (if at all) can the lease agreement bind a Transferee that isn't a party to the lease agreement?
  35. Lines 1394-97 and 1411-16 (filing for bankruptcy protection, etc., is an Event of Default): Any red flags here for either party?
  36. Lines 1432 et seq.: Concerning Landlord's entitlement to a damages payment from Tenant in case of default, the "worth of …" language closely tracks the language of Cal. Civ. Code § 1951.2. QUESTION: Business people would probably use the term "net present value" (NPV) or "discounted cash flow" (DCF), so why didn't the drafter?
  37. Lines 1460 et seq.: Note how Landlord's drafter explicitly included a fairly-long list of monetary amounts to be factored into computing Landlord's
  38. Lines 1565 et seq.: Here's another example of what in the IP world might be called "march-in rights," expressly authorizing Landlord to take self-help action to cure Tenant's default and then bill Tenant for it.
  39. Lines 1628 et seq.: Still more Landlord self-help provisions, authorizing Landlord, e.g., to show the premises to a prospective purchaser or (during the last year of the lease) a prospective new tenant.
  40. Lines 1677 et seq. (Tenant's subordination obligation): Landlord's drafter was thinking ahead, requiring Tenant to subordinate Tenant's interests to that of a successor to Landlord. (This is pretty standard in a lease.)
  41. Lines 1709 et seq.: Tenant's drafter was likewise thinking ahead: Landlord is required to get certain potential successors to commit to allowing Tenant to stay in the place — but what if Landlord doesn't do so?
  42. Lines 1733 et seq. (rent must be paid no matter what): This is a form of hell-or-high-water clause. STYLE QUESTION: Would you expect to see "the rent must be paid no matter what" in a section entitled "17. Limitation of Landlord's Liability"?
  43. Lines 1738-39:
    • What exactly is "gross neglience"? (In the linked reading, be sure to read the annotations, especially concerning Texas and California law.)
    • How about "willful misconduct"?
    • How safe is it for a drafter to include such terms without defining them?
  44. Lines 1770-78 (no personal liability): Note how Landlord's drafter forecloses Tenant's right to sue anyone except Landlord; in maritime law this concept is sometimes referred to as a "Himalaya clause."
  45. Lines 1770-78 (limited recourse): If Tenant successfully sues Landlord for default, Tenant can't look to recover damages from Landlord's non-Premises assets. This is akin to a non-recourse loan.
  46. Lines 1779 et seq. (destruction of Premises): This is a standard issue to address in a lease agreement.
  47. Lines 1831 (arbitration): The subheading refers to arbitration, but the lease agreement doesn't include an arbitration provision.
  48. Lines 1879 et seq. (eminent domain): This is a standard issue to address in a lease agreement.
  49. Lines 2458-2462 (acceptance form – personal rep and warranty of due authorization): Would you sign a document with this language? Why or why not?

7.15 Worksheet: Verizon-Yahoo

How do schedules work?

7.16 Electronic signatures: This diamond ring doesn't shine for him anymore

7.16.1 Facts

Your client TexBling is a Houston company that sells jewelry on-line, but only to Texas customers. One particular customer is Nick, an individual living in Houston.

On January 17, Nick clicks on "I agree" to buy a $20,000 diamond engagement ring. He wants to pop the question to his girlfriend, Nora, at a Houston Rockets game on January 26. He has arranged with the Rockets to show his proposal on the Jumbotron at the Toyota Center.

The price of the ring would bust out Nick's credit-card limit, so he checks the box to pay C.O.D. instead and borrows the cash from his parents.

TexBling's Web site says that with ground shipping, the ring should arrive in 7 to 10 days, that is, some time between January 24 and January 26. Nick figures that's good enough, so he doesn't pay extra for second-day air.

January 26 arrives, but the ring doesn't. Nick goes ahead anyway with proposing to Nora at the Rockets game.

To Nick's horror, though, Nora turns him down, bursts into tears, and storms out of the arena to get a cab home — live on the Jumbotron and, as it happens, on national TV. (Here's a real-life example — supposedly.)

The next day, the delivery van arrives with the engagement ring from TexBling. The grief-stricken Nick no longer wants it, though. He refuses to take delivery, and he also refuses to pay for it. (Cue Gary Lewis and the Playboys' 1965 hit This Diamond Ring Doesn't Shine for Me Anymore.)

TexBling, the jewelry vendor — heedless of the potential bad publicity — tells you it wants you to sue Nick for breach of contract in failing to pay for the ring.

7.16.2 Question: Statute of frauds defense?

Could Nick assert a statute-of-frauds defense, on grounds that he never signed a contract? Briefly explain your answer.

7.16.3 Question: Hard copy signature needed?

Could Nick assert that TexBling failed to obtain his handwritten, hard-copy signature, agreeing that it was OK to use electronic signatures? Briefly explain your answer.

7.16.4 Suggested reading

7.17 Warranties: CBS v. Ziff-Davis, Inc. (email to me)

Read: CBS, Inc. v. Ziff-Davis Publishing Co., 75 N.Y.2d 496, 553 N.E.2d 997 (1990)

  1. T/F: The warranty that Ziff-Davis supposedly violated, according to CBS, was that Ziff-Davis's financial statements concerning certain consumer magazines had been prepared in accordance with generally-accepted accounting principles (GAAP).
  2. T/F: CBS concluded that Ziff-Davis wasn't in compliance with the warranty after the deal was closed.
  3. T/F: CBS concluded that Ziff-Davis wasn't in compliance with the warranty during pre-closing "due diligence."
  4. T/F: IF: CBS had concluded that Ziff-Davis wasn't in compliance with the wararanty in question before closing; THEN: CBS could have walked away from the deal.
  5. T/F: The NY Court of Appeals held that CBS's election to close the deal was fatal to CBS's warranty claim.
  6. T/F: The NY Court of Appeals held that CBS's lack of reliance on Ziff-Davis's warranty was fatal to CBS's warranty claim.
  7. T/F: The NY Court of Appeals held that CBS, in effect, purchased Ziff-Davis's promise to indemnify CBS if Ziff-Davis's warranty proved to be unfounded.

7.18 Generally accepted accounting principles (GAAP)

7.18.1 Question 7.1: Form 10-K

What is a Form 10-K? What kinds of companies care about it, and why?

SUGGESTED READING: The beginning of the SEC's How to Read a 10-K

7.18.2 Question 7.2: Form 10-Q

How does a Form 10-Q differ from a Form 10-K?

SUGGESTED READING:

7.18.3 Question 7.3: GAAP and the earnings process

Buyer sends a purchase order for 50,000 widgets to Widget Supplier, Inc. (WSI) at the list price of $1.00 each. WSI has the required number of widgets in inventory.

As previously requested by WSI's sales representative, Buyer wire-transfers a 50% deposit to WSI.

QUESTION: If WMI does its accounting in conformance with GAAP, what percentage of the $50K order can WSI immediately book as revenue?

RESOURCES: Wikipedia

7.18.4 Question 7.4: Significance of GAAP

Why do publicly-traded companies care about GAAP?

SUGGESTED READING: The SEC's How to Read a 10-K (read the beginning, then scroll down to Item 8)

7.18.5 Question 7.5: GAAP in Europe

What if any significance does "GAAP" have in Europe?

RESOURCES:

7.19 Reps and warranties strategy

FACTS: You are selling a car to a stranger. You don't know of any mechanical problems.

QUESTION: If the stranger asks you to represent and warrant that the car has no problems, how might you respond?

7.20 Warranty disclaimers in England

FACTS:

  • Your client, Seller, headquartered in Dallas, manufactures widgets.
  • Seller's CEO, while on a vacation in London, had the good fortune to make friends with a prominent British industrialist; the CEO landed a big order to deliver 1 million widgets to the industrialist's company in Liverpool, and brought back a signed purchase order.
  • You happen to know that Seller's standard terms-of-sale document:
    • includes a statement of limited warranties and remedies;
    • includes the following statement: "ALL OTHER WARRANTIES ARE DISCLAIMED"; and
    • is silent about choice of law.
  • You don't know whether the British industrialist's company has seen Seller's standard terms-of-sale document.

QUESTIONS:

(1) T/F: Texas law will likely apply.

(2) T/F: If article 2 of the Texas UCC applies, Seller's disclaimer will be enough, under UCC § 2-312, to disclaim an implied warranty that Seller has the legal right to convey ownership of the widgets to the purchaser.

(3) T/F: If English law applies, Seller's disclaimer will likely be enough to disclaim all potential liability about the widgets other than as stated in Seller's standard terms-of-sale document.

(4) QUESTION: Could Seller's disclaimer language be improved? How?

SUGGESTED READING:

7.21 Indemnities

7.21.1 Initial indemnity questions

  1. What is the difference between an indemnity and a warranty?
  2. IF FALSE, EXPLAIN WHY: IF: Alice agrees to indemnify Bob against damage arising from occurrence of Event X; THEN: This reduces the risk to the parties associated with the (possible) occurrence of Event X. (CAUTION: Read this carefully.)
  3. IF FALSE, EXPLAIN WHY: An indemnity obligation allocates at least some of the financial risk of Event X.
  4. IF FALSE, EXPLAIN WHY: The following is an acceptable conventional phrasing: Alice hereby indemnifies Bob against any damage Bob might incur if it rains tomorrow.

7.21.2 Indemnities: Outside-counsel fees

Suppose that:

  • You draft an indemnity obligation that does not expressly require the subcontractor to defend your client, the general contractor, from claims, but merely obligates the subcontractor to indemnify the general contractor.
  • An employee of the subcontractor writes a letter to the general contractor, asserting a claim. Assume for this purpose that the employee's claim comes within the scope of the subcontractor's indemnity obligation.
  • The general contractor spends some money on outside-counsel fees investigating the claim.
  • The general contractor and the subcontractor employee reach a settlement agreement, with the general contractor paying the employee a nominal sum — but the fees and expenses billed by the general contractor's outside counsel for investigating the claim are not insignificant.

QUESTIONS:

  1. Must the subcontractor reimburse the general contractor for its outside-counsel fees and expenses?
  2. Would your answer be different if all of this were taking place in Los Angeles instead of Houston? Cite the relevant authority.

7.21.3 Indemnities: Knock-for-knock

You represent General Contractor ("GC"), which has won a bid to build a skyscraper in the middle of Memorial Park in Houston.

As is customary, GC will hire a number of subcontractors. GC wants your firm to draft a template contract for use with the subcontractors.

The supervising partner at your firm asks you to draft a "knock for knock" indemnity agreement.

QUESTIONS:

  1. Under Texas law, could a knock-for-knock indemnity agreement even be enforceable on these facts?
  2. Under Louisiana law, would a knock-for-knock indemnity agreement even be enforceable on these facts?
  3. Assume arguendo that Texas law permits knock-for-knock indemnities in these circumstances. Are there any particular requirements that the contract language would have to meet to be enforceable?
  4. Under Texas law, how could you make an indemnity obligation "conspicuous"?
  5. Assume arguendo that a knock-for-knock agreement would not be per se unenforceable under Texas law. Draft a basic clause to that effect. Feel free to adapt whatever language you encounter in your research.

7.21.4 Exercise: The spontaneously-combusting widgets

FACTS:

  1. Alice manufactures electronic widgets. Each widget has a battery that is sealed into the widget and not replaceable.
  2. Bob manufactures electronic gadgets that include electronic widgets.
  3. Bob enters into a contract with Alice to buy electronic widgets from her.
  4. The contract includes, among other provisions:
    • a warranty that the widgets do not contain any defects in design or manufacture;
    • a provision requiring Alice to indemnify Bob against any harm Bob suffers from defects in the widgets; and
    • an exclusion of incidental- and consequential damages.
  5. Bob takes delivery of a large quantity of Alice's widgets and stores them in an appropriate storage room.
  6. In the storage room, the batteries in several of Alice's widgets spontaneously catch fire, resulting in major damage and causing significant "down time" for Bob's gadget-manufacturing operations. (Think: Hoverboards.)
  7. Citing the indemnity provision, Bob demands that Alice reimburse him for the cost of:
    • repairs;
    • replacement of the damaged contents of the storage room;
    • the travel expenses that Bob incurred in going to China and India to check out alternative sources of widgets;
    • the profits that Bob lost from the manufacturing down time.

QUESTIONS:

  1. EXPLAIN IF FALSE: Alice need not reimburse Bob because an indemnity provision covers claims by third parties against the protected party, not direct claims by the protected party against the indemnifying party.
  2. EXPLAIN IF FALSE: If Bob sues Alice for breach of her indemnity obligation, Alice can probably get Bob's claim for lost profits thrown out early (by moving for partial summary judgment) as barred by the contract's exclusion of consequential damages.
  3. EXPLAIN IF FALSE: If Alice had negotiated the indemnity provision to cover only third-party claims, the provision likely would be enforceable.
  4. EXPLAIN IF FALSE: Alice can probably get Bob's claim for travel expenses dismissed on partial summary judgment as barred by the contract's exclusion of incidental damages.

7.21.5 Exercise: Defense against indemnified claims

FACTS:


  1. (A) Alice's contract with Bob obligates her to reimburse Bob for his attorney fees and expenses in defending against certain third-party claims.
    (B) A third party, Carol, brings such a claim against Bob — who hires Skadden Arps (a top NYC firm) to defend him against Carol's claim.
    (C) Alice has plenty of money to pay legal bills.
    QUESTION: Speculate about what incentives might motivate Skadden in conducting Bob's defense.
    QUESTION: Name two ways that Alice, during negotiation of her contract with Bob, could have limited her financial exposure to Bob's cost of defending against Carol's claim.
  2. MORE FACTS:
    (D) Alice's contract with Bob also requires her to indemnify Bob against any monetary awards resulting from such third-party claims.
    (E) Bob neglects to mention to either Alice or Skadden that Carol had filed her third-party claim weeks before, and that when Bob failed to file a timely answer, Carol moved for and obtained a default judgment for a large amount of money.
    QUESTION: Name two ways that Alice, during negotiation of her contract with Bob, could have limited her exposure to Bob's screw-up.
  3. ALTERNATE FACTS:
    (F) Alice's contract with Bob requires her to provide Bob with a defense, as opposed to reimbursing Bob for his defense expenses.
    (G) Alice engages her regular lawyer, Andy, to conduct Bob's defense against Carol's claim.
    (H) Bob finds that he and Andy don't get along so well.
    QUESTION: During negotiation of the contract, what sort of clause could Bob have asked to be included in the contract to protect him against this uncomfortable situation?
  4. ALTERNATE FACTS:
    (I) It turns out that Alice can't afford to pay Bob's legal bills for defending against Carol's claim.
    QUESTION: What if anything might Bob have done during contract negotiation to mitigate this problem?

7.21.6 Reading

Texas indemnification law:

Anti-indemnity statutes:

Knock-for-knock indemnities:

7.22 Most-favored-customer pricing

7.22.1 Takeaways

Most-favored-customer clauses (and other "most-favored" provisions) can:

  • be a bear to manage;
  • lead to (very) unpleasant surprises.

7.22.2 Facts

Your client, Seller, has asked you to review a purchase order from Buyer. The PO includes two pricing clauses that appear to have been copied essentially verbatim from sections 12 and 13 of the Honeywell terms of purchase.

7.22.3 Questions

  1. How might Seller respond to Buyer about the most-favored-customer clause?
  2. What happened to Oracle when it breached its most-favored-customer clause with the U.S. Government (in its GSA contract)?
  3. What specifically did Oracle do that brought down the government's wrath on it?
  4. How much money did the whistleblower get for his trouble?

7.22.4 Resources

7.22.5 Other resources (read later)

7.23 Insurance

7.23.2 Facts

  • You represent ChemCo, which owns and operates a chemical refinery in Pasadena.
  • ChemCo has a periodic maintenance shutdown scheduled for some of its equipment scheduled for July. ChemCo is interested in engaging Provider to do some of the maintenance work. Provider's workers would be coming onto ChemCo's site for this purpose.
  • Provider has not only commercial general liability ("CGL") insurance coverage, but also professional-liability coverage, also knownn as errors-and-omissions ("E&O") coverage.
  • The ChemCo manager with whom you are working wants Provider to designate ChemCo as an "additional insured" on Provider's E&O policy. The manager reasons that this will give ChemCo an independent bucket of money against which it can make claims.

7.23.3 Questions

  1. What types of insurance coverage should ChemCo ask Provider to carry for this purpose?
  2. Should ChemCo ask for Provider's policy to be an "occurrence" policy or a "claims-made" policy?
  3. Should ChemCo ask to be named as an additional insured on Provider's policy? Why?
  4. Would you expect Provider to push back in response to the additional-insured requirement? Why or why not?
  5. Would ChemCo actually be able to make claims against Provider's E&O policy?
  6. How would you advise the ChemCo manager about whether, and how, to proceed with his idea about making ChemCo an additional insured? [Discuss with your partner(s).]

7.23.4 Negotiation strategies

If you represent a seller, should your "standard" T&Cs include an insurance provision? Why or why not? (Discuss)

7.23.5 Certificate

FACTS:

  • The contract draft requires Provider to maintain certain levels of insurance.
  • Before signing the contract, ChemCo asks Provider for a copy of its insurance certificate.
  • Provider's sales manager, Sam, notices that Provider's CGL and E&O insurance have expired. Sam is fairly sure that the Provider finance people are in the process of negotiating new policies with a new carrier. So Sam electronically changes the expiration date on the old certificate of insurance and emails it to his contact at ChemCo.
  • After the contract is signed, Provider's finance people put in place new CGL and E&O coverage with a new carrier.
  • Subsequently, Provider's workers accidentally injure a visitor to the ChemCo premises.

QUESTION: What are the parties' legal and practical positions?

7.24 Ambiguity in the obituaries

From an obituary (paraphrased): "Doris is survived by her loving husband Mark of 15 years."

QUESTION: Were Doris and Mark married for 20 years? Or is Mark 15 years old? How could this be clarified?

COMMA QUESTION: Is it possible that Doris had more than one husband? How could this be clarified?

7.25 Ambiguities and vagueness 1

  • St. Arnold's will ship 1,000 cases of Lawnmower to Labatt's in Ontario for $5 per case.
  • St. Arnold's will ship 1,000 cases of beer to Labatt's in Ontario for $5 per case.
  • I can't tell you how much I enjoyed meeting your husband.

7.26 Ambiguities and vagueness 2

  • Prostitutes appeal to Pope
  • No litigation against Borrower is pending or threatened to Borrower's knowledge.
  • The Trust may donate funds only to charitable and educational institutions.

7.27 Ambiguities and vagueness 3

  • I will give you and your husband $1 million.
  • The judge sentenced the killer to die in the electric chair for the second time.

7.28 Ambiguity in deadlines

EXERCISE: In the virtual whiteboard, rewrite the following to eliminate the ambiguity:

  1. Bids may be submitted until March 1.
  2. The lease expires at 12:00 a.m. on March 1.

7.29 Amendments and waivers in writing

7.29.1 Facts

  • Seller, a vendor of widgets, and Buyer have a contract under which Seller will deliver widgets to Buyer whenever Buyer submits and Seller accepts a written purchase order.
  • The contract states the pricing of the widgets, and also states that shipping charges are extra.
  • The contract contains a clause requiring amendments to the contract and to any purchase order to be in writing.
  • The contract contains a similar clause requiring waivers to be in writing.
  • During their business together, employees of the parties exchange a lot of emails, instant messages, and cell-phone text messages.
  • Buyer submits its purchase order #7833; Seller accepts the PO.
  • In a subsequent text-message exchange with a Buyer employee, a Seller employee says "whoops - can't deliver PO # 7833 on Tues – how about Fri?" The Buyer employee responds "np" Seller's employee responds "thx"
  • Later, the same employees talk to each other via Skype video about the same purchase order. The Seller employee tells the Buyer employee that Seller's costs have gone up, and that Seller is going to have to charge Buyer a total price that is 3% higher than the (previously-agreed) pricing stated in the P.O. The Buyer employee says "we can live with that if you can throw in free shipping."

7.29.2 Instructions

For this problem set, half of the teams in the class are attorneys for Buyer; the other half are attorneys for Seller.

7.29.3 Questions

  1. Apropos of the the text-message exchange:
    (a) What if any additional facts might you want to find out?
    (b) Given only the stated facts, how would you initially advise your client about whether the text-message exchange constitutes a binding amendment? Explain.
    (c) What might you say to the other side to try to get past this situation? Explain.
  2. Apropos of the Skype video conversation:

    (a) What if any additional facts might you want to find out?

    (b) Given only the stated facts, how would you initially advise your client about whether the Skype video conversation constitutes a binding amendment? Explain.

    (c) What might you say to the other side to try to get past this situation? Explain.

  3. 18.3 Buyer's CFO claims that Buyer is now entitled to free shipping on future orders. Advise the client and deal with the other side.
  4. 18.4 How, if at all, could the contract drafter have taken advantage of New York state's General Obligations Law § 15-301? (Careful — it's a two-part answer.)

7.29.4 Suggested reading

7.30 Amendments - unilateral

7.30.1 Facts

  • Your client is Videos Now!, a start-up video streaming service that wants to compete with NetFlix.
  • VN! has asked you to draft a set of terms of service for its Web site — the idea is that VN!'s users will be required to agree to the terms of service by clicking on an "I agree" button when they register to use the VN! service.
  • VN! wants the terms of service to include, among other things:
    • A mandatory arbitration clause that, among other things, prohibits class-action arbitration; and
    • A unilateral-amendment clause stating that VN! can modify the terms of service at any time.

7.30.2 Questions

  1. On the facts given, would the terms of service be enforceable? Explain.
  2. How would you advise Videos Now! about its request for these two particular clauses? Explain. Consider (perhaps among other things):
    • whether any enforceability problems might arise
    • what if anything could be done to modify the clause(s) to give them a better shot at enforceability.

7.30.3 Suggested reading

7.31 Attorneys' fees

  1. FACTS: You represent Buyer, which uses a standard purchase order form with lots of fine print on the back. The attorneys' fees clause in Buyer's PO form says that if Buyer ever successfully sues Seller, then Seller will reimburse Buyer for its reasonable attorneys' fees incurred in the action. QUESTIONS:
    1. On these facts, if Seller sues Buyer for non-payment and wins, will Buyer have to reimburse Seller for its attorneys' fees for the collection action? (Careful – do you know enough facts to make this determination?)
    2. Same question, with California law applying.
    3. Same question, with Texas law applying.
    4. Same facts, but this time Seller sues Buyer and loses, and Texas law applies.
  2. FACTS: A contract provision states as follows: "Alice warrants to Bob that she will pay Bob's attorneys' fees if Bob sues her and wins."

7.31.1 Suggested reading

  • Notes to the Common Draft attorneys' fees clause (scroll down to Texas and California rules)

7.32 Assignment of employment agreement

7.32.1 Suggested reading

7.32.2 Facts

A friend of yours is about to start a new job. Her new employer has asked her to sign an employment-agreement form. She has asked you to take a look at it.

  • The employment agreement says that the employee may not assign the agreement.
  • The employment agreement is silent as to whether the employer may assign the agreement.

7.32.3 Questions

  1. Can your friend assign the employment agreement, that is, hire someone to do her job for her?
  2. If instead the agreement were silent on the employee's right to assign, could your friend assign the agreement?
  3. Can the employer assign the employment agreement, e.g., if the employer decides to sell off, to another company, the division in which the employee works?
  4. What if any changes to the employment agreement assignment language might you suggest that the employee request? (Hint: Put yourself in the shoes of the employer.)
  5. Could your friend sue you or your law firm for malpractice if she didn't like the way things turned out with her employer? What if any steps could you take to reduce that risk to your career and your personal net worth?

7.33 Assignment of port operating agreement

FACTS:

  1. You represent Port Operations, Inc., which operates the Port of Bayou City under a contract with Harris County.
  2. The contract states that the contract may not be assigned without the County's prior written consent.
  3. Port Ops receives a buy-out offer from a Saudi shipping magnate who wants to do a "roll-up" of port-operating companies throughout the world.
  4. The County demands a $10 million fee in return for its consent to assignment of the contract.

QUESTIONS:

  1. If the contract didn't have an assignment-consent requirement, would the County's consent be required?
  2. How much does it matter whether the "roll-up" would take the form of (i) an asset purchase, or (ii) a merger?
  3. Name at least two ways in which, during the contract negotiation with the County, Port Ops have protected its ability to do the roll-up.
  4. Using the Workflowy virtual whiteboard, draft language that would effect the ideas of #3.

Suggested reading: Common Draft assignment-consent commentary

7.34 Assignment of Mickey-Dee franchise agreement

7.34.2 Facts

  • You represent Smith, LLC, a family business that operates three Mickey-Dee franchised restaurants in Houston.
  • Smith, LLC owns the land and buildings of the restaurants, which are built to specifications developed by the global franchising firm Mickey-Dee Incorporated.
  • The restaurants all use trademarks owned by Mickey-Dee Incorporated, including the signage, logos, the name "Mickey-Dee," uniform styles etc.
  • The franchise agreement is silent about assignability of the agreement.
  • Smith, LLC wants to sell its three franchised restaurants to Jones, Inc., another family business.

7.34.3 Questions

  • What if anything could Mickey-Dee Incorporated do if Smith, LLC were to assign the franchise agreement to Jones, Inc.?

7.35 Signed originals of Agreement

7.35.1 Facts

  • You represent Seller, a software licensor.
  • Seller wants your help in suing a renegade customer that is using the software far beyond the scope of its paid-for license.
  • The license agreement was signed five years ago, when Seller's administrative systems weren't as good as they are now.
  • Seller can't find the signed original of the license agreement.

7.35.2 Questions

  • In a U.S. federal court, would the absence of the signed original license agreement be a problem?
  • What might the license-agreement drafter have done to (maybe) avert this problem?

7.35.3 Suggested reading

7.36 Interpretation - contra proferentem rule

7.36.1 Facts

  • You represent Buyer in negotiating a long-term master purchase agreement with Seller.
  • You draft a price-increase clause that limits Seller's permissible price increases to no more than the increase in CPI (and no more than once a year as well).
  • A year later, Seller says it is increasing its price by the percentage stated in a particular CPI published by the U.S. Government for the specific industry in which Seller and Buyer operate. You hadn't known there even was such a thing.
  • Your client Buyer angrily tells you that Seller's price increase must be limited to the (much-lower) increase in the "regular" CPI, namely CPI-U, US City Average, All Items, 1982–1984=100.

7.36.2 Question

On these facts, how might a court rule on Buyer's claim that Seller's price increases must be limited to the increase in CPI-U and not to the increase in the special CPI?

7.36.3 Suggested reading

7.37 Counsel representation

FACTS:

  • A partner gives you an assignment to draft a contract, and suggests that you start with a particular prior agreement, which she gives you. You change the parties' names and the business terms in the prior agreement to reflect the current deal.
  • The parties sign the agreement, but the relationship quickly goes south. Your client claims that the other party has breached a particular clause in the contract.
  • The other party claims that the clause in question is too hard to understand — a sentiment with which you privately agree — and that your client had told him that the clause meant something entirely different from what your client is claiming now.
  • The contract does not include an entire-agreement ("integration") clause.
  • The General Provisions section says, among other things, that "Each party has been represented by counsel in negotiating this transaction."
  • Your client confirms, though, that the other side actually wasn't represented by counsel.

QUESTION: How might a court analyze this situation?

7.38 Competitive statements

7.38.1 Facts

  • You represent Big Box Retailer, Inc., which has a contract with Crabapple Computers, Inc. Under the contract, Big Box carries Crabapple's laptop computers, but it is not an exclusive relationship; Big Box also carries laptops made by Crabapple's competitors.
  • The contract says that neither party will disparage the other party or the other party's products or services.
  • Crabapple falls on hard times and has to cut its R&D budget. Its competitors start to bring out fancy new ultra-light, ultra-powerful laptops, while Crabapple's laptops begin to seem clunky by comparison.
  • You get a call from Big Box. A reporter from Laptops Monthly is doing a story on the laptop model. She wants a quote from a Big Box store manager about how Crabapple's products are "clunky."
  • The Big Box people would like to stay on this reporter's good side. They want to know what you think about giving her the quote she wants.

7.38.2 Question

  • 27.1 How might this situation play out? Consider:
    • Whether the requested "clunky products" statement would be literally true or literally false
    • Whether such a statement might be misleading to the public or otherwise deceptive even if literally true
    • Whether such a statement might be "disparaging" in violation of the contract's non-disparagement clause.
  • 27.2 If you had been involved in negotiating the non-disparagement clause, how (if at all) might you have tried to change it?
  • 27.3 Suppose that during the contract negotiation you had asked to revise the non-disparagement clause, which caused Crabapple's then-CEO (now dead) to throw a fit, and in the end the clause was left unchanged. How might that affect your thinking today?
  • 27.4 [NEW] Can you think of any situations where this omerta clause might cause significant problems for Big Box Retailer?
  • 27.5 [NEW] Suppose that you're negotiating the same clause again in a different deal. From a business perspective, what if any other provisions might you want to ask for to give Big Box Retailer more flexibility and/or business protection?

7.38.3 Suggested reading

7.39 Entire agreement – or not?

7.40 The end-of-quarter purchase order

7.40.1 Facts

  • It is September 27. You are a junior in-house counsel for Pet Rocks, Inc., a publicly-traded manufacturer of (wait for it) pet rocks for use as gifts.
  • Pet Rocks, Inc. is on a calendar-year fiscal year, which means that its third fiscal quarter ("3Q") will end in three days.
  • You've just gotten a call from Sam, one of the company's mid-level sales managers. Sam has just received a very large purchase order from Zall-Mart, a global retailer, in anticipation of an expected Christmas rush for pet rocks. Sam is excited because this order would put Sam's group over the top for its annual sales quota. That would mean that Sam (in addition to the sales rep) would get a big commission check in November — which wouild come in handy for him, because Sam and his wife Sue have been wanting to do some much-needed home remodeling. Moreover, under the Pet Rocks, Inc. sales-compensation plan, a.k.a. "comp plan," any additional sales that Same's group might make in the remainder of the year would have an extra commission "kicker" added — plus, Sam and Sue would get to go on the annual "club trip," which this year will be to Hawai'i. (The term club trip refers to the 100% Club, i.e., those sales personnel who achieve 100% of their annual sales quotas.)
  • The general counsel has told all in-house lawyers, in confidence, that Pet Rocks, Inc. is teetering on the brink of "missing" its 3Q number, that is, not meeting the published expectations of the stock-market analysts who follow the company. If that were to happen, Pet Rocks's stock price would almost surely drop significantly, which could trigger a shareholder lawsuit against the company.
  • Sam is not the reckless type, and you and he have worked well together on one past deal. To be on the safe side, Sam has asked you to look over the "fine print" on the Zall-Mart purchase order.
  • Sam tells you that he previously sent Zall-Mart the standard Pet Rocks sales quotation, which contained a link to the standard Pet Rocks terms of sale. He asked the Zall-Mart purchasing agent ("buyer") to sign and return the sales quotation. Zall-Mart's buyer, however, told Sam that as a matter of policy Zall-Mart does not sign vendor sales quotations, and that all purchases must be on Zall-Mart's purchase-order form alone.
  • The Pet Rocks terms of sale are essentially identical to the Honeywell terms of sale.
  • Likewise, the Zall-Mart purchase order terms are essentially identical to the Honeywell purchase order terms.
  • Both Pet Rocks and the Zall-Mart division placing the order are in Houston.

7.40.2 Questions

Taking into account only sections 1, 18.1, and 33 of the Zall-Mart purchase order terms and sections 1, 11.11, 11.12, and 13 of the Pet Rocks terms of sale:

  • 30.1 Suppose that Pet Rocks ships the order to Zall-Mart without any kind of sales-confirmation document. How long would Zall-Mart have to claim that the pet rocks were defective, in breach of the warranty? (Hint: Consider both the applicable warranty period and the applicable statute of limitations.)
  • 30.2 Same question as 30.1, except that Pet Rocks ships the order, accompanied by an invoice stating that the Pet Rocks terms of sale applied.
  • 30.3 Should you advise anyone else in the company about Sam's situation?
  • 30.4 What if any input might you want to get from others in the company?
  • 30.5 What action would you recommend to Sam?

7.40.3 Suggested reading

7.41 Early neutral evaluation

7.41.1 Reading assignment

7.41.2 Questions

32.1 What do you think the principal benefit of ENE would be?

32.2 Why might a party not want to commit to ENE?

32.3 Name three reasons that a lawyer might not want her client to have to go to ENE. (Cynical thinking is OK here.)

32.4 What is the most important way in which ENE differs from arbitration?

32.5 Is ENE automatic, or must it be triggered by some action?

32.6 In ENE, is it a concern that the trial judge might be influenced by the neutral evaluator's views? Why or why not?

7.42 Escalation of disputes

7.42.1 Suggested reading

7.42.2 Questions

  1. Under the sample clause language, must the parties' CEOs get involved in escalating a dispute if lower-level managers can't resolve it? Explain.
  2. When might it not be reasonable to expect the parties' CEOs to get involved? Explain.
  3. Does the Common Draft clause adequately cover the subject raised in Question 2? Explain.
  4. Is escalation automatic, or must there be some triggering event? Explain.
  5. Under the sample clause language, what happens if a lower-level manager for one party simply folds her arms and says "No, we're not taking this to upper management; I'm the decider here." Explain.

7.43 Internal clause numbering can be a good thing (substantive issue:  implied covenant of good faith)

7.43.2 Facts (based on an actual case)

  • A hospital and a catering company enter a contract for the catering company to provide various food services, including stocking selected hospital refrigerators with specific food items.
  • As a performance incentive, the contract sets up what amounts to a system of fines, under which the company's payment can be reduced for mistakes.
  • The hospital reduces the catering company's payment by more than $128,000 when the hospital finds, in one of its refrigerators, a chocolate mousse whose expiration date was the previous day.
  • The catering company claims that the hospital has violated its duty of good faith and fair dealing in imposing the payment reduction.

The specific contract language concerning "good faith" is as follows:

3.5 The Hospital and the Contractor will co-operate with each other in good faith and will take all reasonable action as is necessary for the efficient transmission of information and instructions and to enable the Hospital to derive the full benefit of the Contract.

7.43.3 Questions

  1. Under this contract language (and without regard to what the law might say), does the Hospital have: (A) a general duty to cooperate in good faith with the Contractor, or (B) only a limited, specific duty to cooperate in good faith with the Contractor "as is necessary for the efficient transmission of information and instructions and to enable the Hospital to derive the full benefit of the Contract" ?
  2. What would the answer be if Texas law applied?
  3. What would the answer be if the UCC applied?
  4. What would the answer be if the Restatement (Second) applied?
  5. What would the answer be if English law applied?
  6. How might you add internal clause numbering, e.g., (a), (1), (i), etc., to the contract language (but make no other significant changes) to make it clear that the Hospital did have a duty of good faith and fair dealing?
  7. How might you add such internal clause numbering to the contract language (but make no other significant changes) to make it clear that the Hospital did not have a duty of good faith and fair dealing?

7.44 [x]. Introductory paragraphs of a contract

[IN PROGRESS]

7.44.1 Question: Minimum information needed?

What do you think is the minimum information needed for the introductory paragraph of a contract? Compare, for example:

7.44.2 Question: Benefit to including information?

Is there any actual benefit to including the information you typically see in the introductory paragraph of a contract? Consider, for example, the usual recitations of:

  • the state(s) in which the parties are incorporated
  • the parties' principal places of business

SUGGESTED READING:

7.45 Entire agreement / disclaimers

7.46 Early neutral evaluation

7.47 Independent contractors

7.48 Jury trial waiver

7.48.1 Facts

  • You are a lawyer at a law firm in Houston.
  • A law school classmate, who moved to Atlanta after graduation, has referred one of her Atlanta corporate clients to you. (That's a good reason to get to know, and be on good terms with, the people you meet in school ….)
  • Your classmate's Atlanta client is hiring a Houston company to perform certain services. The client has agreed to your classmate's advice that a Texas lawyer should be involved in the negotiation.
  • The Houston service provider's contract form says that:
    • both sides waive the right to a jury trial
    • Texas law applies
    • litigation will be Houston
    • any action to enforce the contract must be brought within one year after the cause of action accrues.
  • Your classmate says that your mutual client would like to preserve its right to a jury trial and to get a longer limitation period.

7.48.2 Questions

40.1 Your classmate asks if the jury-trial waiver would be enforceable in a Texas court. What do you tell her?

40.2 You ask your classmate whether the jury-trial waiver would be enforceable in a Georgia court. What will her answer be?

40.3 Your classmate asks whether the one-year limitation period is enforceable in Texas. What do you tell her?

40.4 Would your answer on the limitation period be any different if the contract were for the sale of goods?

40.5 You ask your classmate whether the one-year limitation period is enforceable in Georgia. What will her answer be?

40.6 As a practical matter, who is more likely to file a breach-of-contract suit in the future — the Houston services company, or the Atlanta customer? What does that suggest about which of the contract provisions in question is, or are, likely to be most important to the Atlanta customer?

40.7 Name up to three changes that you could ask for in the contract to preserve the Atlanta company's right to a jury trial. (Hint: See the suggested reading — and consider what trade-offs you might be making. Also, one possible change could be to delete existing language.)

40.8 If any new language is necessary to implement your proposed changes, draft it.

40.9 Could you use a two-step strategy to try to get at least some of what your client wants? That is, propose Change A, and if you can't get the Houston services company to agree, then propose Change B as a fallback position? What might those two changes be?

(If time permits, we will do a mock negotiation).

7.48.3 Suggested reading

7.49 Confidentiality agreement

7.49.1 Facts

  • You represent Seller, Inc., which is considering signing a confidentiality agreement ("NDA," or nondisclosure agreement) with a potential customer, Buyer, Inc.

7.49.2 Everything is confidential?

The NDA says:

The Receiving Party acknowledges that the Confidential Information is proprietary to the Disclosing Party, has been developed and obtained through great efforts by the Disclosing Party and that Disclosing Party regards all of its Confidential Information as trade secrets.

QUESTION: Are you OK with this?

7.49.3 Whose information should be protected?

The NDA contains blanks to be filled in for who will be the "Disclosing Party" and who will be the "Recipient." QUESTION: What should be filled in?

7.49.4 Time limit on protected disclosures?

QUESTION: Should the NDA include a time limit for when disclosure can be made in confidence? Why or why not?

7.49.5 Subpoenas, etc.

The NDA includes a number of exclusions from the definition of Confidential Information. One of those exclusions is that information subject to a third-party subpoena is not considered Confidential Information.

QUESTIONS:

  1. Would you object to this? Why?
  2. What would be a better alternative?

7.49.6 Remedies

The NDA states: "The Receiving Party acknowledges that any breach or threatened breach of this Agreement by the Receiving Party would result in irreparable harm to the Disclosing Party, entitling the Disclosing Party to temporary and permanent injunctive relief against the breach; the Receiving Party waives any requirement that the Disclosing Party post a bond." You remember seeing this sort of clause in a lot of NDAs.

QUESTION: From Seller's perspective, do you see any problem with this clause?

7.50 Termination provisions in Honeywell purchase order

References (suggestion: open in separate tabs):

QUESTIONS:

  1. FACTS: Honeywell claims that its supplier has failed to cure a material breach of the P.O.'s terms by Supplier. But Supplier also claims that Honeywell is in material breach of the P.O. terms. QUESTION: What could happen if Honeywell were to give notice of termination of the P.O. on grounds of Supplier's alleged breach?
  2. FACTS: Section 20.1 specifies a single cure period of 10 calendar days in cases of material breach. (This is true.) QUESTION: What are the pros and cons of having just one cure period, as opposed to having separate cure periods for different types of breach?
  3. FACTS: Section 20.1 says in part that "A material breach includes, but is not limited to, late delivery or delivery of nonconforming Goods." QUESTION: What are some pros and cons of enumerating specific material breaches?
  4. QUESTION: Can Honeywell terminate a purchase order other than for breach by Supplier?
  5. FACTS: (A) Aardvark, Inc., issues a P.O. to your client, Supplier, for $10 million worth of goods, for delivery in four weeks. The P.O. contains the termination provisions of § 20 that we've just been looking at. (B) Supplier orders $4 million worth of the raw materials needed to make the goods and hires temporary help for a second shift. (C) Two weeks after Aardvark issues the P.O., Supplier hears that one of its competitors — whose sales manager is friends with an Aardvark executive — has approached Aardvark with a bid that's 2% lower than the price Supplier quoted. QUESTION: What are Supplier's options? What would you recommend?

7.51 Short exercises

7.51.1 SCOTUS: Ambiguity in a sexual-crimes statute

FACTS:

  1. A federal criminal statute requires a 10-year mandatory sentence enhancement in certain cases where the defendant had previously been convicted of crimes "relating to aggravated sexual abuse, sexual abuse, or abusive sexual conduct involving a minor or ward.”
  2. A convicted defendant argues that the qualifier, "involving a minor or ward," applies not just to the third-listed item (abusive sexual conduct), but also to the first two (aggrevated sexual abuse and (plain?) sexual abuse).
  3. The Supreme Court disagrees. See Lockhart v. United States, No. 14-8358 (U.S. March 1, 2016) (affirming Second Circuit and rejecting Eighth Circuit's contrary view).

EXERCISE: Using the virtual whiteboard, tweak the italicized statutory language to reduce the chances of a circuit split. [Notice that I didn't say "eliminate" the ambiguity – one doesn't want to overpromise ….]

7.51.2 Termination vs. expiration - email to me

FACTS:

  • Devin Hamlen operated an auto body shop as a franchisee of Total Car Franchising ("TCF").
  • The franchise agreement, which was a standard form contract of TCF, had a 15-year term.
  • The franchise agreement incorporated by reference a "non-compete" provision stating that, for two years following termination of the franchise agreement [sic], Hamlen may not operate a body shop in a stated geographical area.
  • The franchise agreement eventually expired, but no one noticed right away.
  • Several months later, TCF, the franchisor, approached Hamlen about renewing the franchise agreement.
  • Hamlen decided not to renew, but to keep operating on his own.
  • TCF says Hamlen is in violation of the non-compete provision; Hamlen files a suit for declaratory judgment.
  • Hamlen says that the non-compete clause applies only upon termination of the franchise agreement, not upon expiration.

POSSIBLE READING: The Fourth Circuit's opinion

QUESTIONS:

  1. QUESTION: In the U.S. federal-court system (and most state-court systems), how much authority does an appellate court have to review a trial court's interpretation of an unambiguous contract provision?
    (A) None — the trial court's interpretation is binding;
    (B) Substantial-evidence review — the trial court's interpretation is binding if supported by substantial evidence;
    (C) De novo review — the appeals court has full power to substitute its own interpretation for that of the trial court.
    Suggested reading: Id., slip op. at 6-7.
  2. TRUE OR FALSE: If the parties to a contract disagree as to the proper interpretation of a particular contract provision, it follows that the provision is ambiguous.
    Suggested reading: Id., slip op. at 6-7; id. at 9 n.5.
  3. TRUE OR FALSE: In common parlance, the expiration of a time period is a type of termination, even though no one had to commit any affirmative act of termination.
    Suggested reading: Id., slip op. at 9-10.
  4. TRUE OR FALSE: Depending on the context, the expiration of a time period might not be a "termination" because no one had to commit any affirmative act of termination.
    Suggested reading: Id., slip op. at 10-13.
  5. QUESTION: How does a nonsolicitation provision differ from a noncompetition provision?
    Suggested reading: Id., slip op. at 4, 5.
  6. REVIEW: On the facts here, what effect would the principle of contra proferentem have?
    Suggested reading: Id., slip op. at 17 n.8.
  7. QUESTION: Under Texas law, what two basic requirements must a post-employment noncompetition provision meet?
    Suggested reading: This article.
  8. EXERCISE: As attorney for the franchisor TCF, describe two ways you could revise the franchise agreement to (try to) prevent this issue from arising again.
  9. QUESTION: Legally, what makes a contract a "franchise agreement"? [For in-class discussion only; no need to include in homework]

7.51.3 Clarifying when a release becomes effective

FACTS:

  • In a contract between Ford Motor Company and one of its dealers, the termination provisions required Ford, among other things, to buy back the dealer's unsold inventory of cars if the dealer so requested (the "Termination Benefits").
  • The contract also included the following language (revised for use in this exercise), with defined terms whose definitions aren't otherwise relevant here:

(a) Upon the Dealer's demand of one or more Termination Benefits, Ford shall be released from any and all other liability to the Dealer with respect to all relationships and actions between the Dealer and Ford, however claimed to arise, except for the Stated Exceptions. (b) Simultaneously with the receipt of any Termination Benefits so elected or demanded, the Dealer shall execute and deliver to Ford a general release with the Stated Exceptions, satisfactory to Ford. …

  • For reasons not important here, the dealer terminated the contract and demanded that Ford buy back the dealer's unsold inventory, but it didn't execute and deliver the general release required by subdivision (b).
  • After settlement negotiations broke down, the dealer sued Ford, asserting a variety of claims. Ford moved for summary judgment that the release language of subdivision (a) automatically became effective as soon as the dealer requested that Ford buy back the unsold inventory. The dealer responded that the release was not effective because it (the dealer) didn't sign the general release; the dealer asserted that the language was ambiguous and that Ford's proposed interpretation:
    • would improperly render subdivision (b) superfluous; and
    • would violate the principle of contra proferentem (Ford had drafted the contract).
  • As it happens, the district court granted Ford's motion for summary judgment, and the Seventh Circuit affirmed — but it took years for the case to wend its way through the legal system and presumably cost each side a lot of money in legal fees and expenses. See DeValk Lincoln Mercury, Inc. v. Ford Motor Co., 811 F.2d 326 (7th Cir. 1987).

EXERCISE: As counsel for Ford, to (try to) block the dealers' argument, add (i) a maximum of two words to subdivision (a) and (ii) exactly two words to subdivision (b).

EXERCISE: As counsel for the dealer, make as few changes as possible to the contract language to support the dealer's desired interpretation.

7.51.4 Closing obligations left unclear

CLAUSE: From Gingras v. Avery, 90 Conn. App. 585, 591, 878 A.2d 404, 408 (2005):

The closing shall take place on or before sixty (60) days after subdivision approval; but in no event later than March 15, 2003.

QUESTION: This is an example of a a false [what]?

QUESTION – TRUE OR FALSE: This clause properly states the number of days after subdivision approval.

FACTS:

  • To be entitled to close the purchase, the buyer was required to meet certain prerequisites.
  • The buyer failed to do so before the stated date.
  • In court, the buyer claimed that it was still implicitly entitled to close the purchase, in part because in real-estate agreements, time (allegedly) is not of the essence.

ASSIGNMENT: In the chat room, rewrite this to be clear that the buyer's right to purchase turns into a pumpkin "on" (?) the stated date. (WAIT TO SEND IT until I give the word.)

(Hat tip: Ken Adams.)

8 Reference materials

8.1 Numbers

GUIDELINES:

Spell out one to nine: There will be four students per negotiating team.

Use numbers for 10, 11, 12, 13, etc.: There are 12 students in the class.

Use numbers for ages: My daughter is 8 years old.

Use all-numbers instead of mixing numbers and spelled-out words.

  • Awkward: The quiz will contain nine to 12 questions.
  • Better: The quiz will contain 9 to 12 questions.

If a sentence must start with a number greater than nine, spell it out (or rewrite it): Fifteen miles on the Erie Canal, goes the old folk song.

Spell out "million" for numbers ≥ 1 million.

  • Awkward: More than 300,000,000 people live in the United States.

= Better: More than 300 million people live in the United States.

Some partners will insist that you include both spelled-out numbers and parenthetical numerals. By all means follow their instructions in this regard, but that's an archaic and potentially-dangerous practice, because there's a non-trivial chance that an inconsistency will appear during editing and be overlooked. See

  • Archaic: Three hundred million dollars ($300,000,000.00)
  • Better: $300 million
  • Dangerous: Three hundred million dollars ($250,000,000.00) — which is it? That kind of mistake once cost a bank $693,000.

See also this summary

EXERCISE:

  • Instructions will be given orally. [BONUS QUESTION: Are written instructions "verbal"?]

8.2 Currency

There's no need to repeatedly say "X amount of money in United States dollars" – put that in the Definitions section (e.g., "all references to dollar amounts are in United States dollars").

If there's any chance of confusion, use the standard abbreviation USD to indicate U.S. dollars, e.g.: Buyer will pay Seller USD $30 million.

Abbreviations for other countries' currencies can be found at Wikipedia

8.3 Percentages

Spell out percentages at the beginning of a sentence; otherwise, just use the Arabic numerals.

  • Archaic: Thirty percent (30%) of the proceeds will be used to repay the Loan.
  • Better: Thirty percent of the proceeds will be used to repay the Loan.
  • Alternative: Of the proceeds, 30% will be used to repay the Loan.
  • Dangerous: Thirty percent (20%) of the proceeds will be used to repay the Loan — which is it?

8.4 Honeywell Standard Purchase Order Terms and Conditions for Goods and Services

Reformatted from the PDF document at http://www.honeywellaidc.com/Promos/APAC/Honeywell_Standard_Purchase_T_C.pdf

1. Acceptance - Order of Precedence - Modification

This Purchase Order is for the purchase of goods, services, or both as described on the face of this document (collectively, "Goods") and is issued by the member of the Honeywell International Inc. group of companies identified on the face of this document ("Honeywell").

This Purchase Order is deemed accepted when Supplier returns the acknowledgment copy of this Purchase Order or begins performing, whichever is earlier.

Honeywell rejects any additional or inconsistent terms and conditions offered by Supplier at any time.

Any reference to Supplier's quotation, bid, or proposal does not imply acceptance of any term, condition, or instruction contained in that document.

No course of prior dealing or usage of the trade may modify, supplement, or explain any terms used in this Purchase Order.

These terms and conditions together with any previously executed non disclosure agreement (the obligations of which remain in effect) and with the exhibits, schedules, specifications, drawings, or other documents referred to on the face of the Purchase Order, or attached, or any documents incorporated by reference, supersede any prior or contemporaneous communications, representations, promises, or negotiations, whether oral or written, respecting the subject matter of this Purchase Order.

All contract documents related to this Purchase Order are interpreted together as one agreement;

provided, however, that in the event of any conflict among the provisions of one or more of such contract documents as are validly in effect at the time of such conflict, the following order of precedence applies:

(a) any consignment, stocking or other replenishment agreement; then

(b) any supply agreement; then

(c) any contract for labor services; then

(d) the face of the Purchase Order and any supplemental terms included or incorporated by reference; then

(e) these general Purchase Order provisions; and finally

(f) other contract documents agreed to in writing by the parties.

No change to or modification of this Purchase Order will be binding upon Honeywell unless in writing, specifically identifying that it amends this Purchase Order, and signed by an authorized procurement representative of Honeywell.

If Supplier becomes aware of any ambiguities, issues, or discrepancies between this Purchase Order and any specification, design, or other technical requirement applicable to this Purchase Order, Supplier will immediately submit the matter to Honeywell for resolution.

No course of dealing, prior dealings, usage of trade or course of performance will be used to modify, supplement or explain any terms used in, or incorporated by reference into, this Purchase Order.

2. Delivery, Shipment and Packaging

2.1. Supplier will deliver Goods in the quantities and on the date(s) specified on the Purchase Order or Purchase Order schedule releases.

If delivery dates are not stated, Supplier will offer its best delivery date(s), which will be subject to acceptance or rejection by Honeywell.

Unless otherwise directed, all Goods shipped in one day from and to a single location must be consolidated on one bill of lading or air waybill, as appropriate.

TIME IS OF THE ESSENCE.

2.2. If the delivery schedule is endangered for any reason other than Honeywell's fault then Supplier will, at its expense, deliver Goods by the most expeditious shipping method required to fulfill the Purchase Order delivery requirements.

Honeywell reserves the right to reject, at no expense to Honeywell, all or any part of any delivery that varies from the quantity authorized by Honeywell for shipment.

Honeywell reserves the right to pursue additional remedies caused by late delivery, including but not limited to:

(a) incremental freight expenses incurred by Honeywell for shipments of Goods to Honeywell and for shipments of Goods or finished product containing or incorporating the Goods from Honeywell to any customer of Honeywell, and

(b) all liquidated damages payable by Honeywell as a result of any such late delivery.

Supplier will not make any substitutions without Honeywell's prior written approval.

All items will be packaged according to Honeywell's instructions or, if none, according to good commercial practice in a manner sufficient to ensure receipt in an undamaged condition.

Honeywell will not be liable for any discharge, spill or other environmental incident or condition (including clean-up costs) involving any Goods shipped under the Purchase Order unless caused by Honeywell and in no event until delivery to the destination designated by Honeywell.

All containers will be properly marked for identification as instructed on Honeywell's Purchase Order and contain a packing slip that details, at a minimum, the Honeywell Purchase Order number(s), product part number, detailed product description, country of origin, total number of boxes in shipment, quantity of product shipped, and final delivery address.

Items shipped in advance of Honeywell's delivery schedule may be returned at Supplier's expense.

For domestic shipments, if requested by Honeywell, and for all international shipments, Supplier will give notice of shipment to Honeywell when the Goods are delivered to a carrier for transportation.

The Purchase Order number(s) must appear on all correspondence, shipping labels, and shipping documents, including all packing sheets, bills of lading, and air waybills.

2.3. All Goods, unless specifically exempted by the destination country's governing authorities, must be marked with the country of origin (manufacture) of the Goods in a conspicuous place as legibly, indelibly, and permanently as the nature of the article or container permits.

2.4. Supplier will provide Honeywell with

(a) the Harmonized Tariff Schedule number, country of origin information or certificates, manufacturer's affidavits, applicable free trade agreement ("FTA") certificates, and any other documents or information Honeywell may require to comply with international trade regulations or to lawfully minimize duties, taxes, and fees, and

(b) FTA certificates for all Goods that qualify under one or more FTAs.

Supplier will provide Honeywell all documents, records, and other supporting information necessary to substantiate the Goods' qualification under an FTA.

Supplier will exert reasonable efforts to qualify the Goods under FTAs.

2.5. Within one business day after Supplier delivers the Goods to the carrier or at such earlier time as Honeywell may request, Supplier will send Honeywell a complete set of shipping documents including but not limited to the commercial invoice, packing list, and air waybill, or three original parts of the combined through-bill of lading, clean without notation, necessary to release the Goods to Honeywell's custody.

3. Notice of Delay.

Supplier must immediately notify Honeywell in writing with all relevant information relating to any delay or threatened delay or the timely performance of this PO.

4. Excusable Delay (Force Majeure)

Neither party will be in default for any delay or failure to perform due to causes beyond its control and without its fault or negligence, but any delay or failure to perform caused by the default of a sub tier supplier of Supplier will be excused only if

(a) it is beyond the control of both Supplier and its sub-tier supplier(s) and without the fault or negligence of any of them, and

(b) the Goods to be furnished cannot be obtained from other sources in sufficient time to permit Supplier to meet the delivery schedule.

Supplier's ability to sell Goods at a more advantageous price or Supplier's economic hardship in buying materials or processing necessary for manufacture of the Goods will not constitute an excusable delay event.

The party affected by an excusable delay will promptly provide written notice to the other, explaining in detail the full particulars and expected duration of the excusable delay, and will use its best efforts to remedy the delay if it can be remedied.

If Supplier's delivery is delayed, Honeywell may cancel deliveries scheduled during the excusable delay period or elect to extend the period of performance to cover the period of delay caused by the excusable delay.

If an excusable delay occurs that affects delivery of Goods to Honeywell, Supplier will allocate its available supply of Goods in a manner that assures Honeywell of at least the same proportion of Supplier's total output of Goods as was allocated to Honeywell before the excusable delay event.

If delivery of any Goods is delayed for more than 30 days, Honeywell may, without liability, cancel all or any part of this Purchase Order.

5. Performance Assurance Plan

If Honeywell, in its sole discretion, determines there is a significant risk that Supplier will fail to meet its performance or delivery requirements under this Purchase Order, Honeywell may require Supplier to perform under a Honeywell Performance Assurance Plan.

The Performance Assurance Plan may include specific reporting and performance requirements reasonably tailored to ensure Supplier's adequate performance under identified provisions of this Purchase Order.

Any failure by Supplier to satisfy the terms of the Performance Assurance Plan is a material breach of this Purchase Order.

6. Shipping Terms, Title and Risk of Loss

6.1. If the Goods will be transported from Supplier's location in the U.S. to Honeywell's designated delivery location in the U.S., unless otherwise specified on the face of the Purchase Order or in a separate signed agreement, the F.O.B. point is Honeywell's designated delivery location.

When the F.O.B. point is Supplier's location, Supplier bears all risk of loss or damage to the Goods and title passes to Honeywell upon delivery of the Goods by Supplier to the carrier designated or approved by Honeywell.

When the F.O.B. point is Honeywell's location, Supplier bears all risk of loss or damage to the Goods and title passes to Honeywell upon delivery of the Goods by Supplier at Honeywell's designated delivery location.

6.2. In all other cases, unless otherwise specified on the face of the Purchase Order or in a separate signed agreement,

(a) Supplier will deliver the Goods DAP (INCOTERMS 2010) at Honeywell's designated delivery location, and

(b) title to Goods passes to Honeywell upon receipt at Honeywell's designated delivery location.

6.3. The foregoing does not relieve Supplier of any responsibility for hidden damages discovered after acceptance of the Goods.

Notwithstanding the foregoing, title and risk of loss to Goods subject to a consignment, stocking or other replenishment agreement pass upon release of the Goods from consigned inventory or at such other time set forth in such consignment, stocking or other replenishment agreement.

Honeywell may direct Supplier to ship the Goods to Honeywell or to any third party designated by Honeywell.

7. Import/Customs Compliance

Supplier assumes all responsibility and liability for any shipments covered by this Purchase Order requiring any government import clearance.

If government authorities declare or otherwise impose countervailing duties, antidumping duties, or retaliatory duties on the Goods imported under this Purchase Order, Honeywell reserves the right to terminate this Purchase Order under the Termination provisions of this Purchase Order.

Supplier will be debited for any duties, fees, or freight incurred by Honeywell due to Supplier's failure to comply with the terms and conditions of this Purchase Order.

8. Drawback

To the extent applicable to any shipment of Goods to Honeywell or Honeywell's designee, all drawback of duties, and rights thereto, related to duties paid by Supplier or Honeywell when the Goods are imported or any materials or components used in manufacturing of the Goods will accrue to the exclusive benefit of Honeywell.

Duty drawback rights include rights developed by substitution and duty drawback rights obtained from sub-tier suppliers related to the Goods.

Supplier will provide Honeywell with all documents, records, and other supporting information necessary to obtain any duty drawback, and will reasonably cooperate with Honeywell to obtain payment.

9. Offset

If Supplier is a non-U.S. entity, Supplier will assist Honeywell in obtaining credit from Supplier's government for the value of relevant Goods purchased to meet any present or future contractual offer or industrial benefit requirements imposed upon Honeywell or its subsidiaries or affiliates.

Assistance includes, but is not limited to, providing upon Honeywell's request evidence of the existence, value, content, and other pertinent information relating to the purchases.

Honeywell reserves the right to claim these credits for itself or third parties.

If Supplier is a U.S. entity that awards any portion of the work under this Purchase Order to any lower tier non-U.S. supplier, Supplier will assign to Honeywell any credits obtained from the lower tier non-U.S. supplier's government relating to this transaction and assist Honeywell in obtaining the earned credits.

10. Honeywell-Supplied Materials, Tooling, Equipment and Technical Data

10.1. Title to any material, components, tooling, equipment, or technical data that Honeywell pays for or provides to Supplier or is responsible for providing to Supplier, including replacements ("Honeywell Property"), will remain or vest with Honeywell.

Supplier will conspicuously label Honeywell Property as such, maintain it in good condition, keep written records of the Honeywell Property in its possession and the location of the property, not allow any liens to be placed upon it, and not change its location without prior written approval from Honeywell.

Supplier is responsible for inspecting and determining that the Honeywell Property is in useable and acceptable condition.

10.2. Supplier will use Honeywell Property exclusively to fulfill Honeywell Purchase Orders unless otherwise authorized in writing by Honeywell's procurement representative.

Honeywell Property is intended for use at the Supplier's site only or as otherwise authorized in writing by Honeywell's procurement representative and, to the extent applicable, is subject to U.S. and other government export or re-export requirements.

Supplier is responsible for any loss, damage, or destruction of Honeywell Property and any loss, bodily injury, damage or destruction resulting from Supplier's use of Honeywell Property.

Supplier will not include the cost of any insurance for Honeywell Property in the prices charged under this Purchase Order and, to the ex tent that any Goods contain any Honeywell Property, will not include in the price of any such Good any mark-up or fee with respect to such Honeywell Property.

Supplier will return Honeywell Property or dispose of it as Honeywell directs in writing.

Honeywell makes no representations and disclaims all warranties (express or implied) with respect to Honeywell Property.

11. Price

Supplier will furnish the Goods at the prices stated on the face of the Purchase Order.

If prices are not stated on the face of the Purchase Order, Supplier will offer its lowest prices subject to written acceptance by Honeywell.

Unless otherwise provided on the face of the Purchase Order, the prices include all packaging and freight to the specified delivery point; applicable taxes and other government charges including, but not limited to, all sales, use, or excise taxes; and all customs duties, fees, or charges.

To the extent that value added tax (or any equivalent tax) is properly chargeable on the supply to Honeywell of any Goods, Honeywell will pay the tax as an addition to payments otherwise due Supplier under this Purchase Order, if Supplier provides to Honeywell a value-added tax (or equivalent tax) invoice.

To the extent Honeywell has not received from Supplier all applicable forms regarding compliance with applicable tax law, Honeywell reserves the right to deduct from any payment to Supplier pursuant to this Purchase Order those amounts that Honeywell, in its sole discretion, deems to be required to be withheld in order to comply with the tax laws of any applicable jurisdiction.

Upon the agreement of the parties to reduced pricing for the Goods, such pricing shall immediately apply to all Goods in consignment, stocking or replenishment arrangement with Supplier, all undelivered Goods, all open and unfilled Purchase Orders, all future Purchase Orders and all unconsumed inventory owned by Honeywell.

12. Price: Most Favored Customer and Meet or Release

Supplier warrants that the prices charged for the Goods delivered under this Purchase Order are the lowest prices charged by Supplier for similar goods.

If Supplier charges a lower price for similar goods, Supplier must notify Honeywell and apply that price to all Goods ordered under this Purchase Order by immediately paying Honeywell the price difference and applying the lower price to all Purchase Orders.

If at any time before full performance of this Purchase Order Honeywell notifies Supplier in writing that Honeywell has received a written offer from another supplier for similar goods at a price lower than the price set forth in this Purchase Order, Supplier must immediately meet the lower price for any undelivered Goods.

If Supplier fails to meet the lower price, in addition to other rights or remedies, Honeywell, at its option, may immediately terminate the balance of the Purchase Order without liability.

As directed by Honeywell, Supplier will provide the Goods at the prices listed on the face of this Purchase Order, subject to these terms and conditions, to other Honeywell divisions and affiliates and any third-party Honeywell sub-supplier or designee.

13. Invoicing and Payment

After each shipment made or service provided, Supplier will submit to the address indicated on the Purchase Order an invoice listing a description of the Goods provided and, as applicable, part numbers, quantity, unit of measure, hours, and the unit and total prices.

This invoice must match the corresponding Purchase Order pricing, quantities, and terms,

and must be sent to the invoice address listed on the Purchase Order.

All applicable taxes and other Government charges including, but not limited to, sales, use, or excise taxes; value added tax, customs duties, fees and all incidental charges including but not limited to royalties, selling commissions, nonrecurring engineering, or other incidental charges must be separately itemized and identified on the invoice.

The invoice must also include the following information in English, or in the destination country's official language if required:

(a) name and address of Supplier and the Honeywell entity purchasing the Goods;

(b) name of shipper (if different from Supplier);

(c) Honeywell's Purchase Order number(s);

(d) country of export;

(e) detailed description of the Goods;

(f) Harmonized Tariff Schedule number;

(g) country of origin (manufacture) of the Goods, or if multiple countries of origin, the country of origin of each part shipped;

(h) weights of the Goods shipped;

(i) currency in which the sale was made;

(j) payment terms;

(k) shipment terms used; and

(l) all rebates or discounts.

The invoice will be accompanied (if applicable) by a signed bill of lading or express receipt evidencing shipment.

Payment of an invoice does not constitute acceptance of the Goods and is subject to appropriate adjustment should Supplier fail to meet the requirements of the Purchase Order.

Payment terms are net 120 days from receipt of a Honeywell-approved compliant invoice unless otherwise stated on the face of the Purchase Order or other written agreement executed by both parties;

provided, however, that in the event that applicable law requires a payment terms period of shorter duration, payment terms shall be the maximum period allowed by applicable law.

Invoices will not be approved unless they accurately reference conforming Goods received by Honeywell or services satisfactorily performed for Honeywell, as well as a valid Purchase Order number, supplier name and address, line description, quantity at line level, price at line level, withholding rates and/or amounts for applicable taxes.

Payment will be scheduled for the next payment cycle following the net terms for the Purchase Order.

14. Set Off.

Honeywell may deduct any amount owing from Supplier to Honeywell as a set off against any amount owing to Supplier under this Purchase Order.

15. Inspection

15.1. All Goods may be inspected and tested by Honeywell, its customers, higher-tier contractors, and end users at all reasonable times and places.

If inspection or testing is made on Supplier's premises, Supplier will provide, without charge, all reasonable facilities and assistance required for the inspection and tests.

Supplier's standard inspection and testing system must be approved by Honeywell in writing.

All inspection and testing records, including sub-tier supplier records relating to the Goods, will be maintained by Supplier and made available to Honeywell during the performance of this Purchase Order, and for such longer periods if specified by Honeywell.

15.2. Final inspection and acceptance by Honeywell will be at destination unless otherwise specified in this Purchase Order.

Honeywell may inspect all or a sample of Goods, at its option, and may reject all or any portion of the Goods if Honeywell determines them to be defective or nonconforming within 90 days of delivery.

If Honeywell performs any inspection (other than the standard inspection) after discovering defective or nonconforming Goods, any additional inspection costs will be paid by Supplier.

No inspection, tests, approval, design approval, or acceptance of the Goods relieves Supplier from responsibility for warranty or any latent or patent defects, fraud, or negligence.

If Goods are defective or nonconforming, Honeywell may, by written notice to Supplier:

(a) rescind this Purchase Order as to the Goods;

(b) accept the Goods at an equitable reduction in price; or

(c) reject the Goods and require the delivery of replacements.

Delivery of replacements will be accompanied by a written notice specifying that the Goods are replacements.

If Supplier fails to deliver required replacements promptly, Honeywell may correct any retained defective or nonconforming Goods at Supplier's expense; replace them with Goods from another supplier and charge the Supplier the cost thereof, including cover, and any incidental costs; or terminate this Purchase Order for cause.

16. Warranty

16.1. Supplier warrants to Honeywell, its successors, assigns, customers, and end users that during the entire Warranty Period specified below, all Goods furnished (including all replacement or corrected Goods or components and regardless of whether all or any part of such furnished Goods or any replacement or corrected Goods was manufactured, distributed or otherwise commercialized by a third party prior to delivery by or on behalf of Supplier to Honeywell) will

(a) be free from defects in material, workmanship, and design, even if the design has been approved by Honeywell,

(b) conform to applicable drawings, designs, quality control plans, specifications and samples and other descriptions furnished or specified by Honeywell,

(c) be merchantable,

(d) be fit for the intended purposes and operate as intended,

(e) comply with all laws,

(f) be free and clear of any and all liens or other encumbrances, and

(g) not infringe any patent, published patent application, or other intellectual property rights of any third party and not utilize misappropriated third party trade secret information.

Goods that fail to meet the preceding standards are collectively called "non-conforming Goods."

Supplier must obtain third party warranties consistent with Section 16 for all raw materials, components, and services required by Supplier to perform under this Agreement ("Components") and Supplier is solely responsible for ensuring that all Components meet these requirements.

Any Component that fails to meet these requirements will be deemed to be a non-conforming Good.

16.2. As to services, in addition to any express or implied warranties, Supplier warrants that

(a) it possesses the requisite expertise, facilities and equipment necessary and appropriate to perform the services,

(b) the services will be performed in a safe and workmanlike manner, and

(c) the services will be performed in accordance with the highest standards in the industry.

16.3. The Warranty Period is 36 months from the date of delivery to the end user or such longer period of time mandated by any longer government requirement covering the Goods.

In addition to the warranties described above, Supplier also warrants all Goods to the same extent and for the same time period (if extending beyond 36 months) as the warranties provided by Honeywell to Honeywell's customers relating to such Goods.

These warranties are for the benefit of Honeywell, Honeywell's customers, and any other person claiming by or through Honeywell.

These warranties will survive any delivery, inspection, acceptance, or payment by Honeywell.

Claims for breach of warranty do not accrue until discovery of nonconformance, even if the Goods were previously inspected.

Any applicable statute of limitations runs from the date of discovery.

If conforming Goods are not furnished within the time specified by Honeywell then Honeywell may, at its election, have the nonconforming Goods repaired, replaced, or corrected at Supplier's expense or credited to Honeywell.

Supplier is responsible for the costs of repairing, replacing or correcting nonconforming Goods or crediting them to Honeywell, and for all related costs, expenses and damages including, but not limited to, the costs of removal, disassembly, failure analysis, fault isolation, reinstallation, re-inspection, and retrofit of the nonconforming Goods or of Honeywell's affected end-product; all freight charges, including but not limited to incremental freight expenses incurred by Honeywell for shipments of repaired, replaced, or corrected Goods to Honeywell and for shipments of repaired, replaced, or corrected Goods or finished product containing or incorporating repaired, replaced, or corrected Goods from Honeywell to any customer of Honeywell; all customer charges; and all corrective action costs.

Unless set off by Honeywell, Supplier will reimburse Honeywell for all such costs upon receipt of Honeywell's invoice.

Any replacement Goods are warranted for the same period as the original Goods.

Additionally, if any services are found not to be performed as warranted within a period of 36 months after the conclusion of the performance of the services by Supplier, Honeywell may direct Supplier to either refund to Honeywell the amount paid for the services, or perform the services again in a proper manner to the extent necessary to provide Honeywell with the result originally contemplated by Honeywell.

The warranties and rights provided are cumulative and in addition to any warranty provided by law or equity.

16.4. If, following delivery, Goods exhibit a substantially similar repetitive root cause, failure mode or defect indicating a common or systemic failure ("Epidemic Failure"), then, without prejudice to Honeywell's rights under Section 22:

(a) the party discovering the failure will promptly notify the other and Supplier will provide to Honeywell a preliminary plan for problem diagnosis within one business day of such notification, which plan Supplier will revise at Honeywell's request;

(b) Supplier and Honeywell will diagnose the problem, plan an initial work-around and effect a permanent solution;

(c) Supplier and Honeywell will agree on a plan for customer notification, replacement scheduling and remediation, including identification of suspect population, field removal, return and reinstallation, work in process ("WIP"), inventory replacement, and repair, or retrofitting, regardless of location or status of WIP completion; and

(d) Supplier is responsible for all costs and damages associated with any Epidemic Failure.

Honeywell and Supplier will work together in good faith to establish and expeditiously implement an Epidemic Failure action plan.

If Supplier or any of its Component suppliers initiate any Product or Component recalls, retrofits, or service bulletins that affect Product quality, Supplier will immediately communicate this information to Honeywell.

16.5. No part of any software or other deliverables delivered by Supplier under this Purchase Order shall contain any software or component licensed or obtained under any Open Source licensing program.

"Open Source" shall mean any software or other material that is distributed as "free software", "open source software" or under a similar licensing or distribution model (including but not limited to the GNU General Public License (GPL), GNU Lesser General Public License (LGPL), Mozilla Public License (MPL), and the Apache License)

If Supplier uses Open Source in any software or deliverable, Supplier must first seek written approval from Honeywell and if approved, Supplier must identify each Open Source item along with the applicable license terms.

For any such approved Open Source, Supplier represents that

(a) Supplier is in compliance with the terms and conditions of all applicable licenses for Open Source and

(b) Honeywell's use of such Open Source

(i) will not adversely impact Honeywell's proprietary software

(ii) will not require Honeywell to make available the source code for any Honeywell propriety software

(iii) will not prohibit or limit Honeywell from charging a fee in connection with sublicensing or distributing the software.

17. Changes

Honeywell may, by written or electronic notification, direct changes in the drawings, designs, specifications, method of shipment or packing, quantity, or time or place of delivery of the Goods; reschedule the services; or require additional or diminished services.

Only authorized Honeywell procurement representatives may issue changes to the Purchase Order.

If any change causes an increase or decrease in the cost of, or the time required for, performing this Purchase Order, an equitable adjustment will be made in the Purchase Order price, delivery dates or both, and this Purchase Order will be modified in writing or electronically accordingly.

Any claim by Supplier for adjustment under this provision may be deemed to be waived unless asserted in writing (including the amount of the claim) and delivered to Honeywell within 30 days from the date of the receipt by Supplier of the Honeywell-directed change to the Purchase Order.

If the cost of property made obsolete or excess as a result of a change is paid by Honeywell, Honeywell may prescribe the manner of disposition of the property.

Notwithstanding any disagreement between the parties regarding the impact of a change, Supplier will proceed diligently with its performance under this Purchase Order pending resolution of the disagreement.

18. Design and Process Changes

Supplier will make no changes in the design, materials, manufacturing location, manufacturing equipment, production process, changes between a manual and automated process, or any other processes related to the Goods specified in the Purchase Order or documents referenced in it, or if none, those in place when the Purchase Order is issued, without the advance written approval of Honeywell's procurement representative.

This requirement applies whether or not the change affects costs and regardless of the type of change, including product improvements.

19. Stop Work

At any time by written notice and at no cost, Honeywell may require Supplier to stop all or any part of the work under this Purchase Order for up to 120 days ("Stop Work Order"), and for any further period as mutually agreed.

Immediately upon receipt of a Stop Work Order, Supplier will comply with its terms.

At any time Honeywell may, in whole or in part, either cancel the Stop Work Order or terminate the work under the Termination section of this Purchase Order.

To the extent the Stop Work Order is canceled or expires, Supplier must immediately resume work.

20. Termination

20.1. The nonbreaching party may terminate this Purchase Order if the other party commits a material breach and fails to remedy the breach within 10 calendar days following receipt of written notice specifying the grounds for the breach,

except in the case of breach related to safety, health, or security, Honeywell will have the right to immediately terminate the Order.

A material breach includes, but is not limited to, late delivery or delivery of nonconforming Goods.

If Supplier breaches its obligations to Honeywell and Honeywell terminates this Purchase Order in whole or in part, Honeywell may charge Supplier for any additional cost it incurs in performing Supplier's obligations or in having such obligations performed by a third party.

The solvent party may terminate this Purchase Order upon written notice if the other party becomes insolvent or if any petition is filed or proceedings commenced by or against that party relating to bankruptcy, receivership, reorganization, or assignment for the benefit of creditors.

If a termination by Honeywell for breach by Supplier is determined to have lacked cause, such termination will be treated as a termination without cause under Section 20.2.

20.2. Notwithstanding any firm time period or quantity on the face of the Purchase Order, Honeywell may terminate this Purchase Order in whole or in part at any time with or without cause for undelivered Goods or unperformed services upon 10 days' prior written notice.

20.3. If Honeywell terminates this Purchase Order under either 20.1 or 20.2, Honeywell's sole liability to Supplier, and Supplier's sole and exclusive remedy, is payment for Goods received and accepted by Honeywell before the date of termination.

The payment can be set off against any damages to Honeywell.

Upon termination, Honeywell may require Supplier to transfer title and deliver to Honeywell any completed Goods and Honeywell will pay the Purchase Order price for those Goods subject to set off against any damages to Honeywell.

Honeywell may also require Supplier to transfer title and deliver to Honeywell any or all property produced or procured by Supplier to perform this Purchase Order.

Honeywell will credit Supplier with the reasonable value of the property, but not more than Supplier's actual cost or the Purchase Order value, whichever is less.

20.4. To the extent that any portion of this Purchase Order is not terminated under 20.1 or 20.2 above, Supplier will continue performing that portion.

21. Cessation of Production

If production of any Good is to be discontinued or suspended within 1 year after final delivery under this Purchase Order, Supplier must give Honeywell as much prior written notice as commercially reasonable of the discontinuance or suspension.

For at least 180 days from the discontinuance or suspension, Supplier must accept orders from Honeywell for the Good at the price and on the terms of this Purchase Order.

22. General Indemnification

Supplier will, at its expense, defend, hold harmless and indemnify Honeywell and its customers, subsidiaries, affiliates, and agents, and their respective officers, directors, shareholders, and employees, (collectively "Indemnitees")

from and against any and all loss, cost, damage, claim, demand, or liability, including reasonable attorney and professional fees and costs, and the cost of settlement, compromise, judgment, or verdict incurred by or demanded from the Indemnitee ("Loss")

arising out of, resulting from or occurring in connection with

Supplier's Goods or the performance of the Services by Supplier or its personnel (including any employment-related Loss arising out of, resulting from or occurring in connection with the performance),

the acts, omissions, negligence or willful misconduct of Supplier or its personnel,

Supplier's breach of the terms of this Agreement,

or any theft or other misappropriation of Honeywell's or its personnel's information, property or funds by Supplier or its personnel.

Supplier will not enter into any settlement or compromise without Honeywell's prior written consent, which will not be unreasonably withheld.

If Honeywell is obligated to pay any Loss or any damages pursuant to its contract with a customer, then Supplier will be liable for such Loss any damages to the extent Supplier causes or contributes to such Loss or any damages.

Nothing in this Section limits Honeywell's right to claim all actual damages sustained by Honeywell as a result of Supplier-caused delays.

23. Intellectual Property Indemnification

For Goods provided under this Purchase Order, Supplier will, at its expense, defend and indemnify Honeywell and its customers (Indemnitee) from and against any and all loss, cost, damage, claim, or liability, including reasonable attorney and professional fees and costs, and the cost of settlement, compromise, judgment, or verdict incurred by or demanded from Indemnitee arising out of, or relating to any alleged or actual:

(a) patent, copyright, or trademark infringement;

(b) unlawful disclosure, use, or misappropriation of a trade secret; or

(c) violation of any other third-party intellectual property right, and from expenses incurred by Indemnitee in defense of such suit, claim, or proceeding if Supplier does not undertake the defense thereof.

Supplier will not enter into any settlement without Honeywell's prior written consent, which will not be unreasonably withheld.

Indemnitee may participate in the defense or negotiations to protect its interests.

If any injunction or restraining order is issued, Supplier will, at Honeywell's option and Supplier's expense, obtain for Indemnitee either the right to continue using and selling the Goods or replace or modify the Goods to make them noninfringing; without any loss of functionality.

24. Insurance

Supplier will maintain and carry liability insurance in an amount no less than the greater of

(a) the minimum amount required by applicable law, or

(b) the following coverages:

commercial general liability (including product liability and, for services to be performed, completed operations liability) in a sum no less than $5 million,

automobile liability in a sum no less than $5 million,

worker's compensation in an amount no less than the applicable statutory minimum requirement, and

employer's liability in an amount of no less than $5 million,

all with insurance carriers with an AM Bests rating of no less than A- or equivalent.

In addition, Supplier is responsible for maintaining an adequate level of insurance to cover any potential losses due to damage to Honeywell Property, as defined in Section 10.

All insurance required by this Section must cover Honeywell, its subsidiaries and affiliates, and their respective officers, directors, shareholders, employees and agents as additional insureds.

Before delivery of any Goods or commencement of any services under the Purchase Order, Supplier will provide to Honeywell evidence that Seller maintains the described insurance, and that the coverage will not be changed without 30 days advance written notification to Honeywell from the carrier(s).

Except where prohibited by law, Supplier will require its insurers to waive all rights of recovery or subrogation against Honeywell, its subsidiaries and affiliated companies, and its and their respective officers, directors, shareholders, employees, and agents.

The amount of insurance carried in compliance with the above requirements is not to be construed as either a limitation on or satisfaction of the indemnification obligation in this Purchase Order.

25. Lien Waivers

Supplier will furnish, upon Honeywell's request, waivers by Supplier and all other persons entitled to assert any lien rights in connection with the performance of this Purchase Order

and will indemnify Honeywell against all costs, loss or liability incurred by Honeywell as a result of any failure by Supplier or any other person to comply with this provision.

26. Confidentiality; Intellectual Property; Data Protection

26.1. All information, including without limitation specifications, samples, drawings, materials, know-how, designs, processes, and other technical, business, or financial information, that:

(a) has been or will be supplied to Supplier by or on behalf of Honeywell; or

(b) Supplier will design, develop, or create in connection with this Purchase Order;

as to individual items or a combination of components or both, and whether or not completed, and

all derivatives of (a) and (b) that Supplier has or will design, develop or create

are deemed to be "Confidential Information" of Honeywell.

All Confidential Information is work made for hire and made in the course of services rendered.

All rights to it belong exclusively to Honeywell, with Honeywell having the sole right to obtain, hold, and renew, in its own name or for its own benefit, patents, copyrights, registrations, or other appropriate protection.

To the extent that exclusive title or ownership rights in Confidential Information may not originally vest in Honeywell, Seller irrevocably assigns transfers and conveys to Honeywell all right, title, and interest therein.

26.2. Honeywell's Confidential Information will remain the property of Honeywell.

It may not be used by Supplier for any purpose other than for performing this Purchase Order,

may not be disclosed to any third party, and

will be returned to Honeywell upon the earlier of Honeywell's written request or completion of the Purchase Order.

If, with Honeywell's prior written approval, Supplier furnishes Confidential Information to a sub-tier supplier, Supplier will bind the sub-tier supplier to confidentiality requirements substantially identical to this provision

and Supplier will remain responsible to Honeywell for any breach of this provision by its sub-tier suppliers.

No disclosure, description or other communication of any sort will be made by Supplier to any third person of[:]

the fact of Honeywell's purchase of Goods hereunder,

the terms of this Purchase Order,

the substance of any discussions or negotiations concerning this Purchase Order, or

either party's performance under this Purchase Order.

26.3. "Personal Data" means any information relating to an identified or identifiable natural person; an identifiable person is one who can be identified, directly or indirectly, in particular by reference to an identification number or to one or more factors specific to his physical, physiological, mental, economic, cultural or social identity.

Supplier will treat any Personal Data of all Honeywell officers, directors, employees, agents, contractors, customers, and suppliers as Confidential Information.

The Parties agree that the Supplier will be the Data Processor (as defined in the EU Data Protection Directive 95/46/EC or any successor Directive) for the purposes of processing Personal Data pursuant to this Purchase Order.

Supplier will:

(a) take appropriate technical and organizational security measures as are reasonably required by Honeywell to protect Personal Data;

(b) use and permit employees and third parties to use Personal Data pursuant to Honeywell's instructions only for purposes directly related to the provision of Goods or performance of services or related obligations under this Purchase Order;

(c) refrain from transferring Personal Data out of the European Union unless Honeywell has given its prior written consent to the transfer and Supplier has satisfied any further requirements reasonably imposed by Honeywell.

If with Honeywell's prior permission Supplier will process Personal Data that Honeywell transfers from any of its affiliates in the European Union to any of its affiliates in the U.S. pursuant to the U.S. - EU Safe Harbor Framework ("Safe Harbor Personal Data"),

[then] Supplier warrants that either Supplier self-certifies to the U.S. - EU Safe Harbor Framework with respect to the processing of the Safe Harbor Personal Data

and will notify Honeywell immediately if its self-certification terminates for any reason,

or Supplier must provide at least the same level of privacy protection as required by the U.S. - EU Safe Harbor Framework;

(d) indemnify Honeywell against all losses, costs, expenses, damages, liabilities, demands, claims, actions or proceedings which Honeywell may suffer or incur arising out of any breach of this Section; and

(e) promptly notify Honeywell about:

any legally binding request for disclosure of Personal Data by a law enforcement agency (unless otherwise prohibited); any accidental or unauthorized processing of Personal Data; and

any requests received from individuals to whom Personal Data relates,

without responding to that request unless it has been otherwise authorized to do so by Honeywell.

With the exception of Personal Data, this Agreement imposes no obligation upon Supplier if Supplier can demonstrate that the Confidential Information:

(a) was rightfully in Supplier's possession before receipt from Honeywell and was not accompanied by a duty of confidentiality;

(b) is or becomes a matter of public knowledge through no fault of Supplier;

(c) is rightfully received by Supplier from a third party and is not accompanied by a duty of confidentiality;

(d) is disclosed by Honeywell to a third party without a duty of confidentiality on the third party;

(e) is independently developed by Supplier without use of Honeywell's Confidential Information; or

(f) is disclosed under operation of law, provided Supplier notifies Honeywell and upon Honeywell's request and at Honeywell's cost cooperates in all reasonable respects to contest the disclosure or obtain a protective order or other remedy.

27. Audit

27.1. Supplier will maintain detailed records reflecting Supplier's compliance with this Purchase Order for at least 10 years from the date of last delivery.

Supplier will provide, and will cause each of its sub-tier suppliers to provide, access for Honeywell's personnel, auditors, all regulatory authorities and Honeywell's customers to have access at all reasonable times to facilities, books and other pertinent records and any other information as requested by Honeywell or Honeywell's auditors.

Supplier will require each of its sub-tier suppliers to do likewise with respect to their records and materials.

27.2. If any invoice submitted by Supplier is found to be in error, an appropriate adjustment will be made to the invoice or the next succeeding invoice following the discovery of the error and the resulting payment/credit will be issued promptly.

Supplier will, and will cause its sub-tier suppliers to, promptly correct any other Supplier deficiencies discovered as a result of the audit.

28. Limitation of Liability

HONEYWELL IS NOT LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES (INCLUDING ANY DAMAGES FROM BUSINESS INTERRUPTION, LOSS OF PROFITS OR REVENUE, COST OF CAPITAL, OR LOSS OF USE OF ANY PROPERTY OR CAPITAL) EVEN IF ADVISED, OR OTHERWISE AWARE, OF THE POSSIBILITY OF ANY SUCH DAMAGES.

THE EXCLUSION OF SUCH DAMAGES IS INDEPENDENT OF, AND WILL SURVIVE, ANY FAILURE OF THE ESSENTIAL PURPOSE OF ANY LIMITED REMEDY UNDER THESE TERMS AND CONDITIONS.

29. Assignment and Subcontracting

This Purchase Order will be binding on the parties and their respective permitted successors and assigns.

Supplier will not assign this Purchase Order or any rights or obligations under this Purchase Order or subcontract the manufacture of the Goods or performance of any related services without the prior written approval of Honeywell.

Any transfer of this Purchase Order by Supplier by merger, consolidation, or dissolution, or any change in ownership or power to vote a controlling share of the voting stock in Supplier, will constitute an assignment for the purpose of this Agreement.

Any assignment or subcontract without Honeywell's written approval will be voidable at the option of Honeywell.

Honeywell may assign this Purchase Order or any rights or obligations under this Purchase Order to any of its subsidiaries or affiliates or to any purchaser or successor to all or substantially all of the assets of Honeywell without Supplier's consent and upon written notice to Supplier.

To the extent Supplier assigns or subcontracts all or part of the manufacture of the Goods or performance of any related services as permitted under this Purchase Order,

Supplier will be responsible for its assignees and subcontractors (including but not limited to its affiliates) and their personnel to the same extent as if the acts or omissions were performed by Supplier and its employees, agents and personnel.

30. Relationship of Parties/Independent Contractor

Nothing in this Purchase Order will be construed to place Supplier and Honeywell in an agency, employment, franchise, joint venture, or partnership relationship.

Neither party has the authority to obligate or bind the other in any manner, and nothing contained in this Purchase Order will give rise or is intended to give rise to rights of any kind to any third parties.

Neither party will make any representation to the contrary.

The parties agree that Supplier will perform its obligations under this Purchase Order as an independent contractor.

Supplier will be solely responsible for all Employer Obligations with respect to Supplier personnel, even if a court or other body deems the personnel to be Honeywell employees.

"Employer Obligations" means all obligations of any kind imposed customarily or by law or agreement on persons acting in the capacity of an employer, including, without limitation, responsibility for

(a) hiring, assigning, compensating, and terminating personnel;

(b) withholding and paying taxes;

(c) verification of employment eligibility, including compliance with work authorization and immigration laws and export licensing and control requirements;

(d) compliance with all federal, state, and local laws (both common and statutory) and regulations related to employment and the rights of personnel.

Supplier represents and warrants that it and all its subcontractors, if any, comply and will continue to comply with all applicable employment laws and regulations related to personnel working on Honeywell matters, that all personnel working on Honeywell matters are authorized to work in the relevant jurisdiction, and that it does not employ child or forced labor.

31. Compliance with Laws and Integrity

31.1. Supplier will comply with all laws, regulations and ordinances and Honeywell's Code of Business Conduct ("Code") in performing this Purchase Order.

A copy of the Code may be obtained at http://www.honeywell.com/sites/honeywell/codeofconduct.htm.

Supplier agrees to abide by and maintain an integrity and compliance program that encompasses at a minimum the standards of business conduct set forth in the Code and that effectively prevents and corrects ethical violations and maintains compliance with laws.

Supplier will also comply with Honeywell's Information and System Security Supplier Terms and Conditions to the extent deemed applicable by Honeywell.

31.2. Upon request, in form and substance satisfactory to enable Honeywell to meet its compliance obligations with regard to Regulation (EC) No 1907/2006 ("REACH"),

Supplier will provide Honeywell with complete information regarding the chemical composition of any Goods supplied under this Purchase Order,

including all safety information required under REACH and information regarding the registration or pre-registration status of any Deliverables pursuant to REACH

promptly but no later than 30 days of receiving such request.

Supplier agrees that it will include any Honeywell "Identified Use" in its REACH registrations or applications for Authorization, unless Supplier notifies Honeywell that it rejects the Identified Use in order to protect human health or the environment and specifies the reason for the rejection.

In this case Honeywell will have the right to terminate this Purchase Order without incurring any damages.

31.3. Absent Honeywell's prior written consent, no Goods will contain any of the substances identified in

(a) Article 4(1) of the European Parliament Directive 2011/65/EU (the "RoHS Directive") as the RoHS Directive may be updated from time to time and as such Directive is implemented in any country,

but only to the extent that the Directive applies to the commercialization, sale or use of such Goods, or

(b) similar applicable laws or regulations, restricting the use of hazardous materials in such other jurisdictions to the extent that any such law or regulation applies to the commercialization, sale or use of such Goods .

31.4. Goods will comply with the restrictions set forth in the Montreal Protocol on ozone-depleting substances.

31.5. Supplier will be responsible for all costs and liabilities for or relating to the recycling of Goods pursuant to the most current version of European Parliament Directive 2012/19/EU (the "WEEE Directive") as the WEEE Directive may be updated from time to time and as such Directive is implemented in any country.

31.6. To the extent applicable, this Purchase Order is subject to the requirements of 41 CFR 60-1.4, 41 CFR 60-250.5 and 29 CFR part 471, Appendix A to Subpart A, which are incorporated into this Purchase Order by reference.

In addition, to the extent applicable, this Purchase Order is subject to the requirements of 41 CFR 60-300.5(a) and 41 CFR 60-741.5(a), which are incorporated herein by reference.

The latter two U.S. regulations prohibit discrimination against qualified individuals on the basis of protected veteran status and disability and, if applicable, require affirmative action to employ and advance in employment protected veterans and qualified individuals with disabilities.

31.7. In accordance with applicable "Conflict Minerals" laws, Honeywell must determine whether its products contain tin, tantalum, tungsten or gold ("3TG") originating in the Democratic Republic of the Congo and adjoining countries ("Conflict Minerals").

To the extent Supplier supplies Goods containing 3TG to Honeywell under any Purchase Order, Supplier commits to have a supply chain process to ensure and document a reasonable inquiry into the country of origin of the 3TG minerals incorporated into such Goods.

If requested, Supplier will promptly provide information or representations that Honeywell reasonably believes are required to meet its conflict minerals compliance obligations.

32. Applicable Law and Forum

32.1. United States

If Honeywell is a legal entity formed in the United States, then the construction, interpretation, performance, and enforcement hereof, all transactions hereunder and the parties relationship in connection therewith or any related claims whether founded in contract, tort or otherwise, will be governed by the laws of the State of New York, U.S.A. without regard to or application of its principles or laws regarding conflicts of laws,

and excluding the United Nations Convention on the International Sale of Goods of 1980 (and any amendments or successors thereto),

and the federal or state courts in New York, New York will have exclusive jurisdiction of any dispute.

32.2. China

If both parties are legal entities formed in The People's Republic of China, then the construction, interpretation, performance, and enforcement hereof, all transactions hereunder and the parties relationship in connection therewith or any related claims whether founded in contract, tort or otherwise, will be governed by the laws of The People's Republic of China without regard to or application of its principles or laws regarding conflicts of laws, and excluding the United Nations Convention on the International Sale of Goods of 1980 (and any amendments or successors thereto).

Any dispute not resolved by the parties through consultations will be subject to binding arbitration in accordance with the rules of the China International Economic Trade Arbitration Commission (CIETAC).

In any arbitration there will be three arbitrators.

Each Party will select and appoint one arbitrator within 30 days after the date of a request for arbitration.

The third arbitrator will be jointly selected and appointed by the Parties.

If the Parties fail to select and appoint the third arbitrator, the Chairman of CIETAC will select the third arbitrator.

If a Party does not select and appoint an arbitrator within 30 days after the selection and appointment of the first arbitrator, the relevant selection and appointment will be made by the Chairman of CIETAC.

The place of arbitration will be Shanghai.

If Honeywell is a legal entity formed in The People's Republic of China and the Supplier is not a legal entity formed in The People's Republic of China, then the construction, interpretation, performance, and enforcement hereof, all transactions hereunder and the parties relationship in connection therewith or any related claims whether founded in contract, tort or otherwise, will be governed by the laws of England and Wales without regard to or application of its principles or laws regarding conflicts of laws, and excluding the United Nations Convention on the International Sale of Goods of 1980 (and any amendments or successors thereto).

Any dispute not resolved by the parties will be subject to arbitration in accordance with the rules of the Singapore International Arbitration Centre.

32.3. Korea, Hong Kong, Malaysia, Singapore, Indonesia, Vietnam, Australia, and New Zealand

If Honeywell is a legal entity formed in Korea, Hong Kong, Malaysia, Singapore, Indonesia, Vietnam, Australia, and New Zealand, then the construction, interpretation, performance, and enforcement hereof, all transactions hereunder and the parties relationship in connection therewith or any related claims whether founded in contract, tort or otherwise, will be governed by the laws of the country under which the Honeywell entity is formed, excluding the UN Convention on Contracts for the International Sale of Goods of 1980 (and any amendments or successors thereto), and any dispute arising out of or relating to this Purchase Order, including the breach, termination or validity thereof, will be finally resolved in accordance with the rules of arbitration as noted below.

Judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof.

The place of arbitration will be selected by Honeywell.

" Singapore, Indonesia, Vietnam, Australia, New Zealand, - in accordance with the arbitration rules of the Singapore International Arbitration Center

" Korea - in accordance with the arbitration rules of the Korean Commercial Arbitration Board

" Hong Kong - in accordance with the arbitration rules of the Hong Kong International Arbitration Center " Malaysia - in accordance with the arbitration rules of the Kuala Lumpur Regional Arbitration Centre

" Taiwan - in accordance with the arbitration rules of the local Arbitration Act

32.4. Europe, Middle East, Africa

If Honeywell is a legal entity formed in India or in a European, Middle Eastern and African country or formed in a country not identified in Section 32.1, Section 32.2 or Section 32.3 above, then the construction, interpretation, performance, and enforcement hereof, all transactions hereunder and the parties relationship in connection therewith or any related claims whether founded in contract, tort or otherwise, will be governed by the laws of England and Wales without regard to or application of its principles or laws regarding conflicts of laws, and excluding the United Nations Convention on the International Sale of Goods of 1980 (and any amendments or successors thereto).

Any dispute arising out of or relating to this Purchase Order, including the breach, termination or validity thereof, will be finally resolved by a panel of three arbitrators in accordance with the Rules for Arbitration of the International Chamber of Commerce.

Judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof.

The place of arbitration will be London, England.

32.5. Additional Rules Applicable to Arbitration

Any award will be payable in the currency of this Purchase Order.

Either party may apply to the arbitrators seeking injunctive relief until the arbitration award is rendered or the controversy is otherwise resolved.

Either party also may, without waiving any remedy under this Purchase Order, seek from any court having jurisdiction any interim or provisional relief that is necessary to protect the rights or property of that party, pending the arbitrators' determination of the merits of the controversy.

The language of the arbitration will be English.

Pending settlement or final resolution of any dispute, Supplier will proceed diligently with the performance of this Purchase Order in accordance with Honeywell's directions.

33. Remedies

All Honeywell remedies set forth in this Purchase Order are in addition to, and will in no way limit, any other rights and remedies that may be available to Honeywell at law or in equity.

34. Notices

Notices relating to this Purchase Order must be in writing and may be delivered personally, by overnight courier, or by certified first class mail, postage prepaid (each to the respective addresses appearing on the face of this Purchase Order; or sent by fax to the respective fax number provided by Honeywell or Supplier.

Notice will be deemed given on the date delivered if delivered personally; three business days after being placed in the mail as specified above; or upon confirmation receipt that it was transmitted satisfactorily if transmitted by fax.

35. Publicity

Any news release, public announcement, advertisement, publicity or any other disclosure concerning this Purchase Order to any third party except as may be necessary to comply with other obligations stated in this Purchase Order requires prior written approval of Honeywell.

Supplier will not use Honeywell's name or marks or refer to or identify Honeywell in any advertising or publicity releases or promotional or marketing materials without Honeywell's prior written approval.

Furthermore, Supplier will not claim or suggest, implicitly or explicitly, that Honeywell's purchase of its Goods use of its services or deliverables constitutes Honeywell's endorsement of its Goods, services or deliverables.

36. Headings and Captions

Headings and captions are for convenience of reference only and do not alter the meaning or interpretation of any provision of this Purchase Order.

37. Waiver

The failure or delay of either party to enforce at any time any of the provisions of this Purchase Order will not be construed to be a continuing waiver of those provisions, nor will any such failure or delay prejudice the right of the party to take any action in the future to enforce any provision.

38. Severability

If any provision of this Purchase Order (or portion thereof) is held to be illegal, invalid, or unenforceable by a court of competent jurisdiction, the parties agree that the court will construe the provision in a manner that renders the provision valid and enforceable to the fullest extent possible under the law of the applicable jurisdiction and that the remaining provisions will remain in full force and effect.

39. Supply Chain Security

Supplier will implement the Business Partner Criteria of any Supply Chain Security Program that the country of import for the Goods may adopt such as the U.S. Customs-Trade Partnership AgainstTerrorism (C-TPAT) or the Canadian Partners in Protection (PIP) Program.

40. Survival

All provisions of this Purchase Order which by their nature should apply beyond its term will remain in force after any termination or expiration of this Purchase Order including, but not limited to, those addressing the following subjects: Import/Customs Compliance, Drawback, Offset, Honeywell-Supplied Materials, Tooling, Equipment and Technical Data, Price, Price: Most Favored Customer and Meet or Release, Invoicing and Payment, Set Off, Warranty, Cessation of Production, General Indemnification, Intellectual Property Indemnification, Insurance, Lien Waivers; Confidentiality/Data Privacy and Intellectual Property, Audit, Relationship Between the Parties/Independent Contractor, Applicable Law and Forum, Publicity, Waiver, and Survival.

Honeywell Standard PO Terms and Conditions for Goods and Services ACS Revision 01/03/2014

8.5 Honeywell International Inc. Terms & Conditions Conditions of Sale

1. APPLICABILITY

Unless and to the extent that a separate contract executed between the procuring party ("Buyer") and Honeywell International Inc. ("Honeywell") applies, any purchase order covering the sale of any product ("Product") contained in this Catalog ("Order") will be governed solely by these Conditions of Sale, whether or not this Catalog or these Conditions of Sale are referenced in the Order.

Except as provided in the "Buyer's Orders" section below, all provisions on Buyer's Order and all other documents submitted by Buyer are expressly rejected.

Honeywell will not be deemed to have waived these Conditions of Sale if it fails to object to provisions submitted by Buyer.

Buyer's silence or acceptance or use of Products is acceptance of these Conditions of Sale.

Any modification or addition to these Conditions of Sale must be in writing and signed by an authorized representative of Buyer and Honeywell.

Any irreconcilable conflict among these Conditions of Sale, the General Terms section and the Supplier CAGE Code Information section of this Catalog will be resolved by giving precedence in the following order from highest precedence to lowest: (1) Supplier CAGE Code Information, (2) General Terms, and (3) Conditions of Sale.

This Catalog and price list is not an offer.

Honeywell reserves the right to reject any Order submitted for its acceptance.

2. BUYER'S ORDERS

Orders should specify: (1) Purchase Order number; (2) Honeywell.s part number; (3) requested delivery dates; (4) price; (5) quantity; (6) location to which the Product is to be shipped; and (7) location to which invoices will be sent for payment.

Buyer's Orders are subject to Honeywell's minimum order requirements, if any, and Honeywell's acceptance.

Honeywell reserves the right to limit order quantities for certain Products.

Honeywell's order acknowledgment will not constitute acceptance.

Any additional or conflicting terms on an Order will not apply unless specifically agreed to in writing by Honeywell.

3. DELIVERY

Delivery terms are EXWORKS (Incoterms 2000), Honeywell's facility.

Honeywell will schedule delivery in accordance with its standard lead-time unless Buyer's Order requests a later delivery date or Honeywell agrees in writing to an earlier delivery date.

Buyer will pay all transportation costs (including insurance and customs duties) and for any claims to be filed with the carrier.

If Honeywell prepays transportation charges, Buyer will reimburse Honeywell upon receipt of an invoice for those charges.

Title and risk of loss or damage will pass to Buyer when Honeywell places Product at Buyer's disposal at Honeywell's facility,

except that title and risk of loss or damage to all Product shipped via air freight directly to Buyers located outside of the United States of America will pass to the Buyer immediately after such time as the Products first leave the overlying airspace of the United States.

Honeywell reserves the right to impose additional charges for any special routing, packing, labeling, handling or insurance requested by Buyer.

4. ACCEPTANCE

Products are presumed accepted unless {1} Honeywell receives written notice of rejection from Buyer explaining the basis for rejection within 10 calendar days after delivery and {2} Buyer dispositions the Product to Honeywell in accordance with Honeywell's written instructions.

Honeywell will have a reasonable opportunity to repair or replace rejected Product, at its option.

Subject to the terms of the article titled "Taxes", Honeywell assumes shipping costs in an amount not to exceed actual reasonable direct freight charges to Honeywell's designated facility to return properly rejected Products.

Buyer will provide copies of freight invoices to Honeywell upon request.

Following initial delivery, the party initiating shipment will bear the risk of loss or damage to Products in transit.

If Honeywell reasonably determines that rejection was improper, Buyer will be responsible for all expenses caused by the improper rejection.

5. CHANGES

Honeywell may, without notice to Buyer, incorporate changes to Products that do not alter form, fit or function of the Products.

Honeywell may, at its sole discretion, also make such changes to Products previously delivered to Buyer.

6. PRICES AND PAYMENTS

Prices for each Product are set forth in this Catalog, stated in United States currency, and valid for products shipped from January 1, 2010 through December 31, 2010, unless stated otherwise.

Honeywell reserves the right to correct any inaccurate invoices and to change Catalog prices.

Payment must be received by Honeywell 30 calendar days from date of invoice.

Payment(s) must be made in United States currency and must be accompanied by remittance detail containing at a minimum the invoice number and amount paid per invoice.

Payments must be in accordance with the "Remit To" field on each invoice.

Honeywell may without notice to Buyer, modify or withdraw credit terms including, but not limited to, requiring advance payment, guarantees, or other security.

If Buyer is delinquent in its payment to Honeywell, then until all delinquent amounts are paid:

(1) Honeywell will be relieved of its obligations with respect to guarantees, including without limitation, turnaround times, spares support and delivery lead times; and

(2) refuse to process any credit to which Buyer may be entitled;

(3) set off any credit or sum owed by Honeywell to Buyer against any undisputed amount owed by Buyer to Honeywell;

(4) withhold future shipments to Buyer;

(5) declare Buyer's performance in breach and terminate any Order;

(6) repossess Products for which payment has not been made;

(7) deliver future shipments on a cash-with-Order or cash-in-advance basis;

(8) charge interest on delinquent amounts at a rate of 1.5% per month or the maximum rate permitted by law, if lower, for each month or part thereof;

(9) charge storage or inventory carrying fees on Products;

(10) recover all costs of collection including, without limitation, reasonable attorneys' fees;

(11) if Buyer is delinquent on a payment schedule, accelerate all remaining payments and declare the total outstanding balance then due and owing; or

(12) combine any of the above rights and remedies as may be permitted by applicable law.

The above remedies are in addition to all other remedies available at law or in equity.

7. SETOFF

Buyer will not set off or recoup invoiced amounts or any portion thereof against sums that are due or may become due from Honeywell, its parents, affiliates, subsidiaries or other divisions or units.

8. PRODUCT WARRANTY

"Nonconformance" means failure to comply with, or failure to operate due to noncompliance with, applicable Honeywell drawings or having defects in workmanship or material.

Normal wear and tear and the need for regular overhaul and periodic maintenance do not constitute a Nonconformance.

For the purposes of this section the term Product includes end items, including its line replaceable units and components, including those returned for exchange.

Products that are normally consumed in operation or which have a normal life inherently shorter than the foregoing warranty period including, but not limited to, consumables (e.g. flashtubes, lamps, batteries, storage capacitors) are not covered under this warranty.

Honeywell warrants that at time of shipment to Buyer its Products will comply with applicable Honeywell drawings, and for a period of the earlier of 6 months from first use or 12 months after shipment of the Products will be free from defects in workmanship and material.

These warranties run to Buyer, its successors, permitted assigns, and customers.

Buyer must notify Honeywell in writing during the warranty period of a Nonconformance and, within 30 calendar days of discovery of the Nonconformance, disposition the Product in accordance with Honeywell's written instructions.

Honeywell's obligation and Buyer's sole remedy under this warranty is repair or replacement, at Honeywell's election, of any Product Nonconformance.

All Products repaired or replaced are warranted only for the unexpired portion of the original warranty period.

Honeywell assumes round trip shipping costs for Nonconforming Products in an amount not to exceed actual reasonable direct freight charges to and from Honeywell's nearest warranty repair facility for such Products.

Buyer will provide copies of freight invoices to Honeywell upon request.

Round trip shipping costs expressly exclude freight forwarding charges, taxes, duties and tariffs.

The party initiating transportation bears the risk of loss or damage to Products in transit.

If Honeywell reasonably determines that a Nonconformance does not exist, then Buyer will pay all expenses related to the improper return including, but not limited to, diagnostic and shipping charges.

Honeywell will not be liable under this warranty if the Product has been exposed or subjected to any:

(1) maintenance, repair, installation, handling, packaging, transportation, storage, operation or use that is improper or otherwise not in compliance with Honeywell's instruction;

(2) Product alteration, modification or repair by anyone other than Honeywell or those specifically authorized by Honeywell;

(3) accident, contamination, foreign object damage, abuse, neglect or negligence after shipment to Buyer;

(4) damage caused by failure of a Honeywell-supplied product not under warranty or by any hardware or software not supplied by Honeywell;

(5) use of counterfeit or replacement parts that are neither manufactured nor approved by Honeywell for use in Honeywell-manufactured Products;

Honeywell has no obligation under this warranty unless Buyer maintains records that accurately document operating time, maintenance performed and the nature of the unsatisfactory condition of Honeywell's Product.

Upon Honeywell's request, Buyer will give Honeywell access to these records for substantiating warranty claims.

THESE WARRANTIES ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES, WHETHER WRITTEN, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, AND FITNESS FOR PARTICULAR PURPOSE.

IN NO EVENT WILL HONEYWELL BE LIABLE FOR ANY INCIDENTAL, CONSEQUENTIAL, SPECIAL, OR INDIRECT DAMAGES, EVEN IF INFORMED OF THE POSSIBILITY OF SUCH DAMAGES AND NOTWITHSTANDING THE FAILURE OF THE ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.

NO EXTENSION OF THIS WARRANTY WILL BE BINDING UPON HONEYWELL UNLESS SET FORTH IN WRITING AND SIGNED BY HONEYWELL'S AUTHORIZED REPRESENTATIVE.

9. EXCUSABLE DELAY OR NONPERFORMANCE

Honeywell will not be liable to Buyer for any failure to meet its obligations due to any cause beyond its reasonable control

including, but not limited to: government embargoes or any other government acts that interfere with performance; blockades; seizure or freeze of assets; delays or refusals to grant an export license or the suspension or revocation thereof; fires, floods, severe weather conditions; any other acts of God, quarantines or regional medical crisis; labor strikes or lockouts; riots, strife, insurrection, civil disobedience, armed conflict, terrorism or war, declared or not or impending threat of any of the foregoing, if reasonably expected to cause injury to people or property; and shortages or inability to obtain materials or components.

The due date of any performance affected by such an event will be extended by the period of time that Honeywell is actually delayed.

If the inability to perform continues for longer than 6 months, either party may terminate the affected Order by providing written notice to the other party.

10. CANCELLATION

Buyer may cancel any Order or portion of an Order by giving Honeywell written notice specifying the detailed reason for the cancellation only if:

(1) Honeywell fails to correct a breach of these Conditions of Sale within 90 calendar days of written notice from Buyer of the breach; or

(2) any insolvency or suspension of Honeywell's operations or any petition filed or proceeding commenced by or against Honeywell under any state or federal law relating to bankruptcy, arrangement, reorganization, receivership or assignment for the benefit of creditors.

11. DISPUTES

Any dispute arising out of or relating to these Conditions of Sale, including the breach, termination or validity thereof ("Dispute"), will be finally resolved by arbitration.

The arbitration will be conducted in English.

If Buyer is incorporated in the United States, a single arbitrator will apply the Center for Public Resources Institute for Dispute Resolution Rules for Non-Administered Arbitration then currently in effect to finally resolve the Dispute.

The arbitration will be governed by the Federal Arbitration Act, 9 U's.C. secs. 1-16, and judgment upon on the award rendered by the arbitrator may be entered by any court having jurisdiction thereof.

The place of arbitration will be New York City, New York.

If Buyer is not incorporated in the United States, a panel of three arbitrators will apply the International Chamber of Commerce ("ICC") Rules for Arbitration to finally resolve the Dispute.

The place of arbitration will be Brussels Belgium.

Any award will be payable in U's. dollars, and judgment on the award rendered by the arbitrator(s) may be entered by any court having jurisdiction thereof.

Either party may apply to the arbitrator seeking injunctive relief until the arbitration award is rendered or the controversy is otherwise resolved.

Either party also may, without waiving any remedy under these Conditions of Sale, seek from any court having jurisdiction any interim or provisional relief that is necessary to protect the rights or property of that party, pending the arbitrator's determination of the merits of the controversy.

If any dispute, or response to any dispute, includes an allegation that potentially concerns whether any intellectual property right owned, controlled or licensable by either party is invalid, unenforceable or infringed or misappropriated, or is otherwise limited in scope or application, then either party may, in its sole discretion, elect to have that dispute adjudicated before a court of competent jurisdiction and this section will not be binding on either party with respect to that dispute in its entirety or any related dispute, including any portions of a dispute that do not concern intellectual property rights.

12. APPLICABLE LAW

These Conditions of Sale will be governed by the laws of the State of New York, U.S.A. without regard to conflict of law principles.

The United Nations Convention on Contracts for the International Sale of Goods, 1980, and any successor thereto, will not apply.

13. LIMITATION OF LIABILITY

IN NO EVENT WILL HONEYWELL BE LIABLE FOR ANY INCIDENTAL DAMAGES, CONSEQUENTIAL DAMAGES, SPECIAL DAMAGES, INDIRECT DAMAGES, LOSS OF PROFITS, LOSS OF REVENUES, OR LOSS OF USE, EVEN IF INFORMED OF THE POSSIBILITY OF SUCH DAMAGES.

HONEYWELL's LIABILITY FOR DAMAGES ARISING OUT OF OR RELATED TO THIS ORDER IS LIMITED TO THE ORDER PRICE FOR THE SPECIFIC PRODUCT THAT GIVES RISE TO THE CLAIM.

TO THE EXTENT PERMITTED BY APPLICABLE LAW, THESE LIMITATIONS AND EXCLUSIONS WILL APPLY REGARDLESS OF WHETHER LIABILITY ARISES FROM BREACH OF CONTRACT, WARRANTY, TORT (INCLUDING BUT NOT LIMITED TO NEGLIGENCE), BY OPERATION OR LAW, OR OTHERWISE.

14. NONDISCLOSURE AND NON-USE OF HONEYWELL's CONFIDENTIAL DATA AND INFORMATION

These Conditions of Sale do not supersede any confidentiality agreement executed by Buyer and Honeywell that otherwise applies to products, services, technical data or other information delivered in connection with an Order.

In the absence of such an agreement, Buyer may use Honeywell's confidential information only in the normal operation of Honeywell's Products.

Further, Buyer may disclose Honeywell's confidential information only on a need-to-know basis, will protect against inadvertent disclosure, and will not disclose such information to any third party without Honeywell's prior written consent.

15. INDEMNITY AGAINST PATENT AND COPYRIGHT INFRINGEMENT

Honeywell will defend Buyer against any suit arising out of any actual or alleged patent or copyright infringement of a valid patent or copyright, to the extent based on the Product as delivered by Honeywell, and indemnify for any final judgment assessed against Buyer resulting from such suit

provided that Buyer notifies Honeywell as soon as it is aware of the third-party claim,

and agrees to give sole and complete authority, information and assistance (at Honeywell's expense) for the defense and disposition of the claim.

Honeywell will not be responsible for any compromise or settlement made without Honeywell's prior written consent.

Honeywell will have no obligation or liability with respect to:

(1) Products provided pursuant to Buyer's designs, drawings or manufacturing specifications;

(2) Products used other than for their ordinary purpose;

(3) claims of infringement resulting from combining any Product furnished hereunder with any article not furnished by Honeywell; or

(4) any modification of the Product other than a modification by Honeywell.

Because Honeywell has exclusive control of resolving infringement claims hereunder, in no event will Honeywell be liable for Buyer's attorney fees or costs.

Further, Buyer agrees to indemnify and defend Honeywell to the same extent and subject to the same restrictions set forth in Honeywell's obligations to Buyer as set forth in this "Indemnity Against Patent and Copyright Infringement" section for any suit against Honeywell based upon a claim of infringement resulting from (1), (2), (3), or (4) of the preceding paragraph.

If a claim is brought or if Honeywell believes that a claim is likely, Honeywell may, at its option, and at its expense,

(1) procure for Buyer the right to continue using the Product;

(2) replace or modify the Product so that it becomes non-infringing; or

(3) accept return of the product or terminate Buyer's license to use the allegedly infringing Product and grant Buyer a credit for the purchase price or license fee paid for such Product, less a reasonable depreciation for use, damage, and obsolescence.

Further, Honeywell may cease shipping the subject Products without being in breach of these Conditions of Sale.

Any liability of Honeywell under this "Indemnity Against Patent and Copyright Infringement" is subject to the provisions of the "Limitation of Liability" section of these Conditions of Sale.

This "Indemnity Against Patent and Copyright Infringement" section states the parties.

entire liability, sole recourse and their exclusive remedies with respect to infringement.

All other warranties against infringement of any intellectual property rights, statutory, express, or implied are hereby disclaimed.

16. SOFTWARE LICENSE

"Licensed Software" means software, including all related updates, changes, revisions and documentation, if any, that Buyer is entitled to use under these Conditions of Sale and which is not subject to a separate software license between the parties.

Subject to Buyer's compliance with these Conditions of Sale, Honeywell grants to Buyer and Buyer accepts a nontransferable, nonexclusive license, without the right to sublicense, to use the Licensed Software in the ordinary and normal operation of the Product on which it is installed or with which it is intended to be used under this license.

Honeywell (and its licensors, if applicable) retains all title to the intellectual property related to all material and software provided under these Conditions of Sale.

Buyer may transfer its license to use the Licensed Software to a third party only in conjunction with Buyer's sale of any Honeywell or Buyer Product on which the Licensed Software is installed or with which it is used.

Buyer's transfer of the Licensed Software as authorized herein must be under terms consistent with and no less stringent than the terms set forth in these Conditions of Sale.

Except as specifically permitted in these Conditions of Sale, the Licensed

Software may not be sublicensed, transferred or loaned to any other party without Honeywell's prior express written consent.

Unless specifically authorized by Honeywell in writing, Buyer is prohibited from making copies of Licensed Software except for backup purposes.

Buyer will reproduce and include all Honeywell proprietary and copyright notices and other legends both in and on every copy made.

Buyer may not directly or indirectly make any effort to deconstruct the software provided, including, but not limited to: translating, decompiling, disassembling, reverse assembling, reverse engineering, creating derivative works or compilations, or performing any other operation to obtain any portion of its contents.

Buyer will take all reasonable actions necessary to prevent unauthorized access, disclosure or use of the software provided.

Notwithstanding the warranties provided elsewhere herein, Buyer acknowledges that Licensed Software may be product, aircraft, or sensor specific and, as such, may require reasonable adjustment or refinement to suit Buyer's specific requirements.

Subject to the receipt of adequate written notice and reasonable aid from Buyer, Honeywell will make reasonable, commercial efforts to accomplish reasonable adjustments or refinements for up to 90 calendar days after initial delivery of the Licensed Software.

Except as expressly granted herein, no license or right, including sublicensing rights, either expressly, implicitly, by estoppel, conduct of the parties, or otherwise, is granted by Honeywell to Buyer.

17. SPECIAL TOOLING AND DATA

Honeywell owns all rights to all specifications, drawings, engineering instructions, data, material, equipment, software, processes, facilities and tooling, including, but not limited, to jigs, dies, fixtures, molds, patterns, taps, gauges, test equipment, manufacturing aids and replacements items, now existing or hereafter created, except to the extent that title is specifically transferred in writing from Honeywell to Buyer.

18. EXPORT

Honeywell will apply for United States Government export authorizations required for delivery of any goods, services or technical data under an Order.

Buyer will promptly provide all information required by Honeywell to complete the authorization application.

Buyer will apply for all other necessary import, export or re-export approvals.

Buyer will comply with all applicable export and import control laws and regulations, including the United States Export Administration Regulation (EAR) and the United States International Traffic in Arms Regulations (ITAR), and will retain documentation evidencing such compliance.

Buyer is aware that U's. export law may impose restrictions on Buyer's use of the goods, services, or technical data, or on their transfer to third parties.

Buyer will immediately notify Honeywell and cease distribution activities with regard to the transaction in question if Buyer knows or has a reasonable suspicion that the products, technical data, plans, or specifications may be redirected to other countries in violation of export control laws.

Honeywell will not be liable to Buyer for any breach resulting from government actions which impact Honeywell's ability to perform, including but not limited to:

(1) refusal to grant export or re-export license;

(2) cancellation of export or re-export license;

(3) any subsequent interpretation of United States export laws and regulations, after the date of Honeywell's acceptance of an Order, that limits or has a material adverse effect on the cost of Honeywell's performance under an Order; or

(4) delays due to Buyer's failure to follow applicable import, export, transfer, or re-export laws and regulations.

If Buyer designates the freight forwarder to be used for export shipments from the United States, then Buyer's freight forwarder will export on Buyer's behalf and Buyer will be responsible for any failure of Buyer's freight forwarder to comply with all applicable export requirements.

Honeywell will provide Buyer's designated freight forwarder with required commodity information.

19. TAXES

Honeywell's pricing excludes all taxes (including, but not limited to, sales, use, excise, value-added or other similar taxes), duties and charges (collectively, "Taxes").

Buyer will pay all Taxes resulting from an Order or Honeywell's performance, whether imposed, levied, collected, withheld or assessed now or later.

If Honeywell is required to impose, levy, collect, withhold or assess any Taxes on any transaction under an Order, then in addition to the purchase price, Honeywell will invoice Buyer for the Taxes unless, at the time of Order placement, Buyer furnishes Honeywell with an exemption certificate or other documentation sufficient to verify exemption from the Taxes.

If any Taxes are required to be withheld from amounts paid or payable to Honeywell under an Order:

(1) such withholding amount will not be deducted from the amounts due Honeywell as originally priced;

(2) Buyer will pay the Taxes on behalf of Honeywell to the relevant taxing authority in accordance with applicable law, and

(3) Buyer will forward to Honeywell within 60 days of payment proof of Taxes paid sufficient to establish the withholding amount and the recipient.

In no event will Honeywell be liable for Taxes paid or payable by Buyer.

20. NOTICES

Every notice between the parties relating to an Order will be made in writing and, if to Buyer, to Buyer's authorized representative or, if to Honeywell, to Honeywell's authorized representative.

Notices will be deemed received when delivered either:

 1. Two (2) calendar days after mailing by certified mail, return receipt requested and postage prepaid; or

 2. One (1) business day after deposit for next day delivery with a commercial overnight carrier provided the carrier obtains a written verification of receipt from the receiving party.

All notices must be addressed as follows:

To Honeywell: Honeywell International Inc.

Address: See the Supplier CAGE Code Information section of this Catalog for complete addresses.

To Buyer: Address: Buyer's address on the Order or to Buyer's purchasing representative.

21. GENERAL PROVISIONS

Assignment.

Buyer will not assign any rights nor delegate any obligations under an Order or any portion thereof without Honeywell's advance, written consent which will not be unreasonably withheld.

Honeywell may assign an Order in connection with the sale or transfer of all or substantially all of the assets of the business to which it pertains.

Any attempt to assign or delegate in violation of this section will be void.

Waiver.

Failure of either party to enforce at any time any of the provisions of these Conditions of Sale will not be construed to be a continuing waiver of any provisions hereunder.

Severability.

If any provision of these Conditions of Sale is determined to be illegal, invalid, or unenforceable by an arbitrator appointed in accordance with the Disputes section of these Conditions of Sale or court of competent jurisdiction, the remaining provisions will remain valid and enforceable and, in lieu of the illegal, invalid, or unenforceable provision, there will be added as part of these Conditions of Sale one or more provisions as similar in terms as may be legal, valid and enforceable under applicable law.

Third Party Beneficiaries.

Except as expressly provided to the contrary in these Conditions of Sale, the provisions of these Conditions of Sale are for the benefit of the parties to these Conditions of Sale only and not for the benefit of any third party.

Independent Contractor.

The parties acknowledge that they are independent contractors and no other relationship, including without limitation partnership, joint venture, employment, franchise, master/servant or principal/agent is intended by these Conditions of Sale.

Neither party has the right to bind or obligate the other.

Headings.

Headings and captions are for the convenience of reference only and do not alter the meaning or interpretation of these Conditions of Sale.

Commercial Use.

Buyer represents and warrants that all purchases of Products hereunder will not be used in the performance of a contract or subcontract with any government in a manner so as to affect Honeywell rights to data, technology, software or other intellectual property supplied by Honeywell.

Survival.

All rights, duties and obligations which by nature should apply beyond the term of Honeywell's obligations under an Order including, but not limited to, Sections 6, 8, 12, 13, 14, 15, 16, 17, 20, and 21 will remain in force after the acceptance and complete performance of any Order.

Entire Agreement.

The terms contained in these Conditions of Sale, together with General Terms section and Supplier CAGE Code Information section of this Catalog, is the entire agreement between Buyer and Honeywell with respect to an Order and supersede any prior agreements and representations, oral or written, and all other communications between Buyer and Honeywell relating to an Order.

GENERAL TERMS

[PORTIONS OMITTED]

MINIMUM ORDER AMOUNT

Honeywell reserves the right to require a $500 minimum order amount for each line item, per delivery, in response to orders unless waived by Honeywell in writing.

MAXIMUM ORDER AMOUNT

Honeywell reserves the right to limit order quantities for certain parts.

PURCHASE ORDER CANCELLATION

Cancellation of an order, for any reason except those contained in the "Standard Conditions of Sale", will be allowed only upon written approval by Honeywell.

In the event Buyer cancels an order, Honeywell reserves the right to invoice Buyer for costs incurred due to the cancellation up to the price of cancelled part.

An order may be canceled only upon receipt of written acceptance of the cancellation fees from Buyer in the form of a purchase order in the amount of assessed cancellation fees.

The minimum cancellation fee for an order will be subject to is fifteen percent (15%) of the order value or $300 whichever is greater.

Buyer has a maximum of seven calendar days to cancel an Order for items not specifically listed in Honeywell's current catalogs or electronic commerce media ("Non Catalog Items").

Cancellation must be received by Honeywell in writing within seven calendar days following the date of Order placement by Buyer.

Failure by Buyer to cancel an Order within seven calendar days of the date of Order placement will result in Honeywell completing the Order within the agreed upon period and Buyer assuming the obligation to pay the full amount of the invoiced price in accordance with the Conditions of Sale.

PUBLISHED AVAILABILITY DATES

Buyer Orders requesting delivery of parts in less than catalog lead time are subject to review and acceptance, based on material availability.

In circumstances when parts are not available from stock, Honeywell may offer alternate delivery dates, not to exceed catalog lead time commitments (if any). In such cases, Honeywell will advise Buyer of the new request date in the Order acknowledgement.

Catalog lead times are based on the most current, available information, and unexpected demand may affect Honeywell's ability to meet these lead times.

Unusually large order quantities will be filled from available material; the balance of the requested delivery quantities and delivery dates may change based on material availability.

This policy is not applicable to AOG Orders.

[PORTIONS OMITTED]

RETURNED MATERIAL AUTHORIZATION (RMA)

Except for standard repairs (including warranty), the return of cores, quality and errors in shipment, returned materials will not be accepted.

Return of material to Honeywell must have prior approval or returned materials will not be accepted.

Requests for returns must be submitted within 30 days after original receipt of hardware by Buyer.

Requests for returns received by Honeywell beyond the 30 day period may not be accepted.

Credit may be issued upon return of new, unused, undamaged parts in the original packaging; however, Honeywell reserves the right to apply a restocking fee of 15% of the Item price or $250.00, whichever is greater.

If original packaging is opened a re-test fee could apply.

If the material was acquired on an AOG status order, the buyback will be subject to a restocking fee of 25% of the item price or $500.00 whichever is greater.

Return shipments to Honeywell without proper authorization and documentation may be returned at Buyer's expense.

For approved RMA's Honeywell must receive the product within 30 days of the RMA issue date.

Honeywell reserves the right to return the Product received beyond the 30 day window at Buyer's expense.

ERROR IN SHIPMENT

Written notification of any short shipments or receipt of incorrect material against an order must be received by Honeywell within 30 calendar days after receipt of the shipment.

CREDIT HOLDS / LIMITS

If Buyer has exceeded its credit limit and partial payment is received, Honeywell reserves the right to release order shipments on a part availability aged order basis.

If Buyer has not maintained acceptable credit practices, Honeywell reserves the right to review, adjust prices(s) and delivery schedules or cancel existing orders.

If Buyer's credit terms are Payment Prior to Shipment (PPS) and payment is not received within 30 days after order placement, Honeywell reserves the right to cancel order as stated in Honeywell's Terms and Conditions of Pro-forma Invoice.

Honeywell will consider the invoice correct and payable in accordance with its terms unless Buyer notifies Honeywell within 14 days of any suspected disputes or errors.

REQUESTS FOR CREDIT

All credit limit arrangements are made through Honeywell Aerospace Credit & Collection (ACC).

Terms:

Standard payment terms are Net 30 days from invoice date, subject to credit worthiness and the attached Standard Conditions of Sale.

Other possible payment terms are Payment Prior to Shipment, Credit Card, or Letters of Credit.

Honeywell may, without notice to Buyer, change Buyer's credit terms based on Buyer's payment practices or any other identified risk factors.

Additionally, if Honeywell does not receive Buyer's payment in accordance with the Catalog Conditions of Sale and General Terms, Honeywell may change Buyer's credit terms and credit limit without notice, and Honeywell may impose stop shipment, or PPS.

Honeywell may also review or amend price and delivery or cancel existing orders.

[PORTIONS OMITTED]

PAYMENTS

Payment Method:

Wire transfers are the preferred and requested method of payment for our Buyers, as they assure prompt and accurate credit to the Buyer's account.

Please contact ACC to obtain wire transfer instructions and the remittance address to which payments to Honeywell must be directed.

Remittance Advice:

It is critical for that all payments to Honeywell are supported by a detailed Remittance Advice.

Please send your remittance info by email to "GCTS AeroRemittance@Honeywell.com". The remittance advice will include Buyer identification number, as well as reference numbers of invoices and credit memos being paid or applied.

Remittance Advise must be sent with, or prior to, payment to ensure accurate and timely application.

Please contact ACC to obtain further remittance and wire transfer instructions.

[PORTIONS OMITTED]

PRICING AND DELIVERY

Orders will be priced in the year of confirmed delivery.

Except for Service Parts, orders for delivery beyond current year must be revised by Buyer at year end with next year's pricing to ensure delivery in the following year.

Honeywell reserves the right to arrange for partial or drop shipments directly from its supplier's facilities in order to comply with FAA requirements.

[PORTIONS OMITTED]

9 [OUTDATED] Other materials (being reorganized)

9.1 Worksheet batting order; "Virtual whiteboard"

We will use the Workflowy virtual whiteboard for a number of the exercises / worksheets below.

[IN PROGRESS]

These worksheets are listed in the order in which we will take them up, corresponding to the rough order, in my view, of their pedagogical importance. Also for pedagogical reasons, the order below has the effect of mixing up the topics of the worksheets; this will let us review important topics during the course of the semester. I reserve the right to "call an audible" in rearranging the order in which we take up the worksheets. If I do so, I'll do my best to give you reasonable advance notice.

[FINISHED IN CLASS THROUGH HERE 2015-02-03]

  • What is the contra proferentem principle of interpretation?
  • Stark Exercise 8-3

[FINISHED IN CLASS THROUGH HERE MON. 2015-02-08]

  • In the Workflowy virtual whiteboard, continue review of DCT comments to Stark Exercise 8-3 – no need to email to me
  • In Microsoft Word, redraft the Base Salary provision in table form – in-class only

[THE SECTION BELOW WILL BE CONTINUED MONDAY 2016-02-15:]

[FINISHED THE ABOVE IN CLASS MON. 2016-02-15]

[FINISHED THE ABOVE IN CLASS WED. 2016-02-17]

[FINISHED THE ABOVE IN CLASS WED. 2016-02-24]

[FINISHED THE ABOVE IN CLASS MON. 2016-02-29]

[STOPPED HERE WED. 2016-03-02]

[STOPPED HERE MON. 2016-03-07]

[RESUMING HERE AFTER SPRING BREAK ON WED. 2016-03-23:]

[STOPPED HERE WED. 2016-03-23 – email me Stanford-Tesla part 2]

[STOPPED HERE MON. 2016-03-28]

  • DCT comment about ambiguity and why it matters more in contracts than in other forms of writing (see, e.g., Maureen Dowd's arenas awash with pleasure)
  • Review of Quiz #2 – I've marked up all the quizzes but haven't assigned numerical grades. (Everyone did pretty well.)
  • Experiment — for tonight's work, instead of emailing me the answers to the questions we discuss, this weekend EACH STUDENT is to email me:

    • a list of three to five top takeaways from everything we've discussed this week — each student is to do his or her own writing, so as to get the memory-reinforcing benefits of having to "put words to paper," so to speak; and
    • anything about which you'd like more explanation or clarification.

    At the beginning of Monday's class we'll take a few minutes to compare notes in groups.

  • Termination: Honeywell purchase order

[STOPPED HERE WED. 2016-03-30]

Monday April 4, 2016

Wed. April 6, 2016

Mon. April 11, 2016

Wed. Apr. 13, 2016

Mon. Apr. 18, 2016 [class canceled due to storms]

Wed. Apr. 20, 2016

Mon. Apr. 25, 2016

Wed. Apr. 27, 2016

9.2 Worksheets: Stark book

9.2.1 Worksheet: Stark Chapter 3

  1. FACTS: A contract for services (not goods) states that the contract's terms cannot be amended or waived except in a writing signed by the parties. TRUE OR FALSE: A U.S. court is likely to enforce this provision. (Hint: See http://www.commondraft.org/#AmendmentsArt)
  2. Stark § 3.2: Explain how a representation could be reformulated as a covenant a.k.a. a promise.
  3. Stark § 3.2: TRUE OR FALSE: The following contract provision is an example of acceptable drafting: Tenant represents that she will pay the rent to Landlord no later than the fifth day of each month. Explain your answer.
  4. Stark § 3.2: TRUE OR FALSE: The following contract provision is, or is not, an example of acceptable drafting: Tenant will pay the rent to Landlord no later than the fifth day of each month. Explain your answer.
  5. Stark § 3.2: TRUE OR FALSE: The following contract provision is, or is not, an example of acceptable drafting: Tenant warrants that she will pay the rent to Landlord no later than the fifth day of each month. Explain your answer.
  6. Stark § 3.2: FACTS: Customer sues Service Provider for breach of an express contractual warranty about the quality of the services to be provided. (The details of the warranty are immaterial here.) In signing the contract, Customer had serious doubts whether Provider was capable of performing in accordance with the warranty. TRUE OR FALSE: In a jurisdiction that follows the CBS v. Ziff-Davis case, Service Provider can defeat Customer's breach-of-warranty claim by showing that it was unreasonable for Customer to have relied on the express warranty. Explain your answer.

9.2.2 Worksheet: Stark Chapter 4

  1. READING: Stark page 34, section 4.2.3, especially the shaded “Sally and Bob” hypothetical in the middle of the page.
    FACTS: 1) In the contract for sale between Sally and Bob, the “Condition to Closing” provision is not present. 2) Sally fails to renovate the kitchen before the closing date as required by the contract.
    QUESTION: On these facts, can Bob walk away from the deal?
  2. READING: Stark page 35, section 4.2.4, stopping just before the paragraphing beginning “Third, ….”
    QUESTION: In Stark’s hypothetical about Bob and his insurance, which would the insurance carrier prefer for the requirement that Bob timely notify the insurer of any losses:
    (a) a condition – if so, why?
    (b) a covenant – if so, why?
    YOUR ANSWER:
  3. READING: Stark page 35, text accompanying n.14.
    QUESTION: How eager is a court likely to be to find that a particular contract obligation is a condition, as opposed to a covenant?
    YOUR ANSWER:
  4. FACTS: You’re reviewing a contract for sale of a house, representing Seller (who has drafted the contract himself). Assume that the following provision is the only one in the contract that addresses Buyer’s getting a mortgage: “If Buyer does not obtain a mortgage, then Buyer need not buy the House on the Closing Date.”
    QUESTION: From Seller’s perspective, what’s wrong with this provision? (Hint: See Stark p. 30 – but there’s more wrong than you might think.)
    YOUR ANSWER:
  5. READING: Stark page 34, first shaded part in section 4.2.3.
    ASSUME: The shaded paragraph entitled “Condition to Closing” isn’t there.
    QUESTION: What if Buyer asked for the “Condition to Closing” paragraph to be included, but Seller didn’t agree, and the final contract didn’t include that paragraph – how does that affect the analysis of Question 1?
    YOUR ANSWER:

9.2.3 Worksheet: Stark Chapter 6, Introductory Provisions

  1. Pages 65-66: Does your group have a consensus about which of Versions 1 and 2 is easier to read?
  2. Page 65, first paragraph: How can a preamble bind the wrong party?
  3. Compare the all-caps name of the agreement in Version 1 on p.65 and the initial-caps ("nitcaps") name of the agreement at the bottom of p.67. Does your group have a consensus about which "looks better"?
  4. § 6.2.2: When might it be a really bad idea to use an "as of" date?
  5. Top of p.73: Why specify the state in which a corporate party is incorporated?
  6. Top of p.74: Think of a reason for reciting the locations of the parties' principal places of business? (Hint: Think litigation.)

9.2.4 Worksheet: Stark chapter 7 – defined terms

  1. Page 95: A financing company includes a provision in a loan agreement stating that the borrower will not make any investments other than "Permitted Investments," which the loan agreement defines as any non-margined, non-"short" investments, so long as the borrower always has at least 35% of the principal amount in "liquid" investments. Why? (Hint: See Stark's footnote 3.)
  2. Page 95, in the paragraph beginning "Second": In Stark's reference to the definition of business day, what might be wrong about her mention of holidays? (Hint: See the Common Draft definition of business day.)
  3. Page 96: How does § 7.1.2 relate to the D.R.Y. principle?
  4. Page 97: In Definition 1 of Force Majeure Event, what if any potential events might a party want to (i) add, or (ii) delete? (Hint: See the Common Draft force-majeure definition and notes.)
  5. Pages 98-100: Name all the places Stark mentions as possibilities for where to put definitions in a contract. At this stage of your experience, which one strikes you as the "best," and why? (I'm interested in your personal, subjective perspective.)
  6. Page 100, § 7.5.1: When might it be safe to re-use a defined term from an existing contract without modification?
  7. Page 101, Item #3: Can you think of any circumstances in which it might be useful to have multiple defined terms for a single definition — e.g., using both Purchaser and Buyer in the same agreement. (Hint: Think of how contracts are sometimes drafted in the real world, with parties going back and forth under time pressure and possibly borrowing language from various document sources.)
  8. Page 101: You are drafting a defined-terms section in a contract. You have already defined the parties' short names, Provider and Customer, in the contract's preamble. Do you include those short names in the defined-terms section? If so, how?
  9. Page 102: Is there any reason you might want to define a term as having a specified meaning even if it's not capitalized? (See, e.g., the Common Draft definition of affiliate.)
  10. Page 102, item 8: What term other than means could you use to introduce the meaning of a defined term? (Hint: Look at some of the Common Draft defined terms.)
  11. Page 104: In the "Wrong" and "Correct" example in the top third of the page, do you agree with Stark's position?
  12. Page 104, #15: How else could the "Wrong" example be fixed?
  13. Page 105: What's wrong with the "Wrong" version at the bottom of the page?
  14. Pages 105, 106-07: Do Stark's guidelines no. 18 and 20 violate the D.R.Y. principle?
  15. Page 106, #20: Explain this guideline in your own words.
  16. Page 108, #22: When might you want to "lock in" a reference to a particular version of another agreement, statute, arbitration rules, etc., as opposed to not doing so?
  17. Page 107, no. 21: What's a danger of defining something in term of an outside reference source?
  18. Page 107-08, nos. 21 and 22: What do these two guidelines have in common?
  19. Page 111: What could go wrong with the "permitted successors and assigns" phrase in the wording of sample clause 1.2(d)?

9.2.5 Worksheet: Stark Chapter 27

  1. Page 405, § 27.1: Does Stark think you'll be able to do as she describes in this chapter every time?
  2. Page 406, § 27.2: In a letter of intent (LOI, sometimes known as a memorandum of understanding), what kinds of terms might parties want to be binding? Can you think of any other such binding terms that Stark hasn't mentioned? Hint: Consider how long it might take to actually get the formal contract drafted and signed after the LOI is signed, and what external events might intervene during that interval.
  3. Suppose that an LOI contains lots of disclaimers of binding intent. What could go wrong anyway? Hint: At the Common Draft Web site, search for the Energy Transfer Partners case.
  4. Page 406, § 27.3: What's a good general rule of thumb for predicting which party to a deal will want to draft the contract (and be the one to do any agreed revisions)?
  5. Page 407, § 27.4.1 In the real world, how do you think you're likely to get instructions from a client about a contract-drafting (or contract-review) project?
  6. Page 407, § 27.4.1: At the bottom of the page and continuing on, what do you think might be the most-important question to ask your client? Explain.
  7. Page 408, below the diagram: What are the two basic negotiation strategies that Stark summarizes?
  8. Page 408, near the bottom: When drafting a contract, what sorts of things could you do to expedite the other side's contract review?
  9. Page 409, top: What factors might influence how you might choose between the two basic "sophistication levels" that Stark discusses?
  10. Page 409: When taking notes, what factors might you want to consider with an eye toward eventually having the notes produced in litigation — and perhaps having to testify about them? (For later reading: This essay.)
  11. Page 409, middle of page: What self-protective step(s) should you consider taking if the client specifically instructs you to do or not do something?
  12. Page 409, middle of the page: What are some of the reasons a client might instruct a drafter not to raise a particular issue in the first draft of a contract?
  13. Page 409: The client says not to bother dealing with Issue X in the draft contract, because the business people are getting along great and can always work it out later if the issue arises.
    • What could go wrong with that approach?
    • Who decides whether to go with that approach?
    • If the client wants to take that approach ALA (Against Legal Advice), what if any step(s) might you want to take for self-protection?
  14. Page 412, § 27.6.1: When using a prior contract as a "go-by" (a.k.a. a precedent), what should you not use?
  15. When might it be OK to use a prior contract essentially verbatim? Are there any alternatives to doing so?
  16. If you have questions about points in a prior draft, what's the best single way to resolve them?