Contract Drafting (Toedt - Spring 2018)

Updated Saturday June 02, 2018 11:27 Houston time

1 Preface & quick links

Welcome. This Web page contains the reading material and course information for my spring 2018 Contract Drafting course.

Quick links:

Important note (spring 2018): If you normally print out course materials such as this, you might want to wait. That's because, in response to student feedback about an experiment last semester, this semester we will do things slightly differently than before:

  • Starting in a few days, we will spend significant class time studying and rewriting selected "wall of words" contract provisions from publicly-available contracts.

    This rewriting approach proved to be surprisingly popular with students when we tried it last semester; more than one student said that it was one of the best things about the course.

  • The pre-class reading assignments will consist mainly of (i) previewing the upcoming in-class exercises, and (ii) looking over any reading materials cited (and, usually, linked) in the exercise.

2 Agenda for Emory

2.1 Please log into the Emory guest Web site

We'll be doing some exercises on-line.

2.2 Name tents

A template Word document can be used for creating name tents with students' names typed in.

2.3 This Web site

  • Site44.com and Dropbox.
  • Alternative: Shared Google Docs

2.4 Toedt background

  • UH Law Center; attorney and arbitrator
  • Last name is pronounced "Tate"; Roman numeral III
  • Formerly shareholder & management-committee member at Arnold, White & Durkee, a 150-lawyer IP litigation boutique
  • Formerly vice-president and general counsel of BindView Corporation, a publicly-traded software company in the network-security field (I helped the founders start the company) — 500-plus employees, six countries; "exit" when acquired by Symantec
  • Teaching since Jan. 2010; teaching approach informed in part by:
    • CLE faculty & planning-committee experience
    • Associate Development Committee at law firm
    • Navy nuclear-power training approach (Rickover program)

2.5 Read-along lecture: This course's approach

2.5.1 Course goals

The overall goal of this course is to help students prepare for a type of assignment they will likely see throughout their careers—

  • Sometimes: Drafting contract language.
  • Far more often: Reviewing, analyzing, explaining, and revising contract language drafted by others.

2.5.2 Emphasis: Really basic skills, plus generally-applicable themes

Remember the original version of The Karate Kid? "Wax on — wax off."

Social proof: Student comments

Following the sales-and-marketing principles of using social proof and setting the hook, here are some representative student comments from official course evaluations in past semesters:

"… really enjoyed the approach to class and quizzes."

"His course is different from the norm and his methods are re­freshing. … Professor Toedt's approach allows students to figure out the issue on their own but provides students with the tools necessary to reach an answer (which he then explains/corrects)."

"You learn piece by piece the process throughout the semester to be able to effectively draft/redline contracts."

"I liked the practical approach of the course – very effective teaching technique by using repetition and in class exercises."

A variation on Socratic method, with in-class study groups

Don't assume that we will "cover the material" in class. Instead, we'll use a supposedly-new approach known as "flipping the classroom." This approach has become popular in educational circles, because it has been shown to be more effective than the trad­i­tion­al lecture format. See, e.g., Cyn­thia J. Brame, Flipping the Classroom (Vand­er­bilt.edu 2013: https://goo.gl/trS6e4).

But flipping the classroom is really just what law schools have been doing for years:

Lots of contract revising

In this course, we will practice good drafting skills by revising the work of others. Specifically:

  • Each week, in small groups during class, we will spend significant class time studying and rewriting selected "wall of words" contract provisions from publicly-available contracts.
  • As students rewrite provisions, I will walk around and look over their shoulders, occasionally making (quiet) comments.
  • In some cases, you'll be asked to clean up your rewrites after class and submit them as (pass-fail) homework, which I'll mark up with comments.

The specific provisions that we rewrite will cover various substantive areas that are often encountered in contract drafting and -review. Accordingly, many of the pre-class reading assignments will consist of (i) previewing the upcoming in-class exercises, and (ii) looking over any reading materials cited (and, usually, linked) in the exercise.

This review-and-revise approach reflects what you're almost certain to see when you start out in practice: Contract drafters spend far less time drafting contracts than they do in reviewing and revising others' drafts. Even when you're the one who must prepare the first draft, you'll almost always be urged to find a previous form of agreement and modify it, instead of starting from scratch with a blank screen. Our approach in this course reflects that fact as well.

Learning to spot and root out ambiguity

In the in-class exercises, we will do a lot of practice in spotting and fixing ambiguities. This is because in the real world, ambiguity might well be the #1 source of contract disputes. Many of the short practice exercises will be drawn from non-legal sources.

Repetition, repetition, repetition — and jumping around

Some of the short exercises and quizzes will seem repetitive; they also will seem to jump around from topic to topic. This is a feature, not a bug, because:

  • It mirrors what you'll almost certainly see in practice; and
  • pedagogically it's been shown to be more effective at promoting long-term memory than lecture and repetitive reading. See generally Spaced retrieval (Wikipedia: https://goo.gl/4PRZTy).

This approach might strike some students as disorganized or even chaotic. Over the years, though, most students seem to have come to appreciate the value of the approach, so please try to "go with it."

Incidentally, you can do your own spaced-retrieval practice by using the online flashcards. The in-class quizzes and the non-essay portions of the final exam will be drawn very largely from these flashcard questions.

[EMORY session: Do a couple of flashcards.]

2.5.3 Course materials

The main reading material will be:

On Contract Drafting, still very much a work in progress (especially as we shift to doing more rewriting). I intend to keep making it available at no charge; I'm trying to set it up to print out nicely for those who prefer hard copy. Students are encouraged to make suggestions and comments as the semester progresses;

• the Common Draft annotated catalog of contract terms, a side project of mine that I'm converting into a book; and

• a Supplement, consisting of several real-world contracts that I've annotated and printed to PDF. We'll study selected portions of these contracts.

Optional: Tina L. Stark, Drafting Contracts: How and Why Lawyers Do What They Do (Amazon) (Barnes & Noble). This is the leading contract-drafting textbook in the United States.

2.5.4 Final grade based on 500 total points

Your course grade will be based on how many points you earn out of 500 total possible points, as explained below.

2.5.5 Four quizzes, one every third week: 200 points total

We will have an on-line quiz, administered via Blackboard, at the beginning of class on each of the following Mondays: Feb. 12; Mar. 5; Mar. 26; Apr. 16.

Each quiz will:

  • be timed for two- to five minutes (people with accommodations can get extra time — ask Dean Tennessee to let me know if you're one of those people);
  • consist of up to 40 true-false, multiple-choice, and fill-in-the-blank questions, and very likely more questions than most people can answer in the allotted time;
  • cover only the following:
    • any of the 100-plus online flashcards at https://goo.gl/o5gG5M — that is, anything in the flashcards is fair game for any of the quizzes, whether or not we've covered that material in class. I will likely add to the flashcards as the semester progresses, but I will segregate any new questions and give you plenty of advance notice before including new questions in a quiz; and
    • anything in the exercises that we have covered to date — the quizzes themselves will thus serve as a reinforcing review that takes advantage of the testing effect;
  • be closed-book, closed-notes;
  • be graded automatically by Blackboard — thus, quiz grading is effectively anonymous (even though I can see student names), except that I review the fill-in-the-blank answers so that I can give credit for simple misspellings, which Blackboard can't always pick up. (I program the quizzes on Blackboard to accept as many misspellings as I can think of, but you'd be surprised how … creative students can be ….)

In past quizzes, a few students have gotten the right answer to every question on every quiz. In response, one student suggested that I "[d]esign quizzes to have a wider score distribution." I continue to try to do so, but I'm far more interested in having as many students really learn as much as possible of what I regard as necessary material, than I am in sorting the students into a grade distribution; consequently, I'm not at all unhappy if lots of students get perfect scores on the quizzes.

2.5.6 Final exam: 200 points, May 9, 6 to 7 p.m. (both sections)

The final exam will:

  • be one hour in length;
  • consist in large part of what amounts to a mid-term quiz on steroids, namely true-false, multiple-choice, and short-answer questions, administered via Blackboard, drawn from the online flashcards at https://goo.gl/o5gG5M (I will be adding to these flashcards as the semester progresses);
  • also include a few short-answer questions, such as "Explain if false," to be made available at the exam time at, and to be uploaded (anonymously) to, the Blackboard system in the same way as the homework assignments;
  • take place in the to-be-designated final-exam room; and
  • be closed-book, closed-notes.

What's fair game? Anything:

  • in the reading materials;
  • in the homework, quizzes, and in-class exercises.

The honor code will of course apply.

Homework: 50 points

Homework assignments will be posted soon, WARNING: In one past semester, a student failed the course — even though the student had received a (very-low) passing grade on the final exam — and therefore didn't graduate that semester as planned, because the student had turned in almost none of the homework assignments.

2.5.7 Final grade includes a 50-point "starting bonus" for attendance — with a clawback

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.*

* Notice how it’s a significant amount of discussion, because “discussion” is an uncountable noun, versus a significant number of exercises, because “exercises” is a countable noun; see the Grammarist.com discussion.

Consequently, 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.

ABA accreditation rules and school policy require attendance at 80% of the class meetings for each course. We will meet a total of 26 times; rounding to the nearest whole number of classes, a student therefore must attend at least 21 class periods to comply with the 80% rule.

Every student starts out with 50 "freebie" points for class attendance, but can lose points for missing class, as follows:

TOTAL CLASSES MISSED TOTAL POINTS LOST
1 0
2 5
3 15
4 30
5 or more all 50

This means, of course, that students who miss more than one class will have to do that much better on the final, the quizzes, and homework in order to keep up with their classmates on the school-required average.

[DCT note for Emory: This takes advantage of loss aversion.]

Attendance exceptions:

  • I don't count absences for "official" law school travel, e.g., for moot-court competitions, etc., as long as I'm informed in advance.
  • I also don't count up to two absences for illness — if you're ill, please don't come to class and infect the rest of us. Please email me if you'll be absent for illness; I'll take your word for it without a doctor's note.
  • Other absences, e.g., for job interviews, office visits, work trips, etc., will be counted as missed classes and will lose points as set forth above; please schedule accordingly.

If I see that one or more students are missing, I will circulate an attendance sign-in sheet. If I see that everyone is present, I normally won't bother doing so.

2.6 Too-often overlooked: Make contracts easy to review

One of the specific skills we will learn and practice is how to draft contract language for quick review by the client and the other side.

Clients at best tolerate — and at worst, loathe — time spent in "lawyer stuff," almost uniformly identifying "legal review" as the biggest bottleneck in contract negotiations.

Other things being equal, the sooner you can get a(n acceptable) contract to signature, the happier your client will be.

2.7 Themes

The following is a rough draft:

  1. A short, simple contract that can be signed quickly might serve the client's short-term and long-term desires far better than the opposite.
    • GE Aircraft and Scottish & Newcastle examples.
    • George S. Patton: A good plan violently executed now is better than a perfect plan executed next week.
    • Short paragraphs are almost always better — avoid Walls of Words.
    • Single-topic paragraphs are always better.
    • Contract length isn’t as important as paragraph length.
  2. D.R.Y.: Don't repeat yourself — e.g., the $693K drafting error in a bank guaranty.
  3. Steer well clear of ambiguity:
    • A.T.A.R.I.: If a term is even arguably subject to multiple interpretations, Avoid The Argument: Rewrite It.
    • W.I.D.D.: When in doubt, define.
  4. Make contracts understandable to future readers.
    • Use tables where appropriate.
    • Use illustrative examples and sample calculations.
    • Consider drafting explanatory footnotes (the other side might not ask to delete them).
  5. Try for Seneca terms (other things being equal): Treat your inferior as you would wish your superior to treat you.
    • A friendly, balanced contract can signal reliability as a business partner.
    • BindView example
  6. But R.O.O.F.: Don't assume perfect performance by either party.
    • What might fall through the cracks?
    • Personnel changes can happen — reassignments, new jobs, promotions, retirements, deaths (the Mack Truck Rule of Contract Drafting).
    • Don't assume people will want to keep their promises. (See item 11 below.) That includes your client, incidentally.
    • Build in sensible default values, e.g., a specific date & location for performance unless otherwise agreed.
    • Try to put the monkey on the other party's back, e.g., your client will do X upon written request.
    • Be practical: E.g., don't insist on too-short a time frame, notice period, etc.
    • Time limits – earliest date ("sunrise"), latest date ("sunset") — or from Neil Wertlieb: "Always address timing!"
    • Consider expressly specifying remedies, to be easily understood by business executives — and judges and jurors.
  7. Don't assume you must go it alone:
    • A.T.P.: Ask The Partner.
    • A.T.C.: Ask The … ?
  8. Consider making the other party earn what they get (or what they want to keep).
    • Example: Tie the other side's exclusive rights to its meeting performance goals.
  9. Be sure the other side has the financial- and other wherewithal to perform:
    • Due diligence
    • Financial covenants
    • Backup funding sources, e.g., insurance, guaranties, SLOC, escrow
  10. You get what you INspect, not what you EXpect
    • Insist on the client's getting the information it needs / wants.
    • Due diligence, including getting third parties involved (e.g., a mechanic to inspect a used car)
    • Confirm your understanding & assumptions with reps and warranties
    • Audit provisions
  11. Humans can be funny — behavioral economics
    • Incentives matter — Charlie Munger (vice-chairman of Berkshire Hathaway)
    • Buyer's remorse
    • A better offer might come along
    • Many people secretly care far more about their own careers than about their employers' interests
    • People might cut costs to meet their KPIs. Example: PG&E criminal trial in SF over gas pipe exploding in 2010
    • People tend to point fingers to shift blame (lawyers are a favorite target).
    • People are great at rationalizing doing what they want to do.
    • People don't like to be told what they can and can't do.
    • Hanlon's Razor, though: Never attribute to malice that which can be adequately explained by stupidity — but don't rule out malice.
  12. "Absent reasonable objection, we can do X" might be better than "Mother May I?"
  13. Plan for transition after termination.
    • Phase-out period — e.g., SLEH using up blood-drive T-shirts after the sale to Catholic Hospitals
    • Transition of customer's businerss to another vendor
  14. When you can't just say no in a contract negotiation: Creative compromises
    • Non-discrimination language
    • Advance-warning or advance-consultation requirement
    • Transparency requirement
    • Cap the financial exposure for the onerous provision
    • Package the onerous provision as part of a premium offering
  15. Negotiate limitations of liability risk‑by‑risk, not one‑size‑fits‑all

2.8 Exercise: Streamlining sentences

Rewrite the following sentence in the virtual whiteboard to trim out the "fat" (feel free to revise in Word and then paste into the whiteboard).

Before:  
The team held a meeting to give consideration to the issue.

After: ???

2.9 A step-by-step approach to simplifying a wall of words

2.10 Rewriting exercise: Simplify Stormy Daniels language

In the virtual whiteboard, simplify the following (from this contract) using the basic steps we've practiced — pay special attention to the second sentence (the one beginning with, "The Parties agree that the claims released …."):

          2.5           The Parties wish to avoid the time, expense, and inconvenience of potential litigation, and to resolve any and all disputes and potential legal claims which exist or may exist between them, as of the date of this Agreement including but not limited to the PP Claims and/or the DD Claims. The Parties agree that the claims released include but are not limited to DD' s Claims against PP as relates to PP having allowed, whether intentionally, unintentionally or negligently, anyone else other than those listed in section 4.2 herein below to become aware of the existence of and content of the Property, to have gained possession of the Property, and to PP's having allegedly engaged in efforts to disclose, disseminate and/or commercially exploit the Images and/or Property and/or Confidential Information, and any harm suffered by DD therefrom. The Parties agree that the claims released include but are not limited to PP's Claims against DD as relates to DD having allowed, whether intentionally, unintentionally or negligently, anyone else to have interfered with PP's right to privacy or any other right that PP may possess.

2.11 Signatures: 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 Atlanta. The sole general partner of the limited partnership is Addams Operations, Inc.
  • It's 12:00 noon Eastern time on June 30. 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 Savannah 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, June 30. 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 Atlanta on the morning of July 1.
  • One more thing, she says: In the interest of traveling as light as possible, no one in the group brought a laptop.

QUESTION: How should the contract signature block for Adams Investments, L.P., be written? INSTRUCTIONS: Develop a consensus, then post your version on the virtual whiteboard.

QUESTION: Why might the Widgets sales rep be so eager to get the contract signed on June 30? (Hint: It has to do with the fact that Widgets, Inc. is a newly-public company.)

QUESTION: What about just signing it on July 1 when the family gets back to Atlanta?

QUESTION: Is it physically possible for you to "make it happen" for the contract to be signed and delivered to Widgets, Inc. today, June 30? If so, how might you go about it?

QUESTION: If Wednesday Addams asks you to sign it as the company's lawyer, how should you respond?

2.12 Rewriting exercise: Stanford-Tesla lease agreement

See the detailed, step-by-step instructions below for rewriting the following provision from the Stanford-Tesla lease agreement:

7.2 Real Property Taxes. Without limiting the foregoing, Additional Rent shall include, and Tenant agrees to bear, discharge and pay as the same become due, and before delinquency, all taxes, assessments, rates, charges, license fees, municipal liens, levies, excises or imposts, whether general or special, or ordinary or extraordinary, of every name, nature and kind whatsoever, including all governmental charges of every name, nature or kind that may be levied, assessed, charged or imposed or maybe or become a lien or charge upon the Premises or any part thereof; or upon the rent or income of Tenant; Or upon the use or occupancy of the Premises; or any document creating or transferring an estate or interest in the Premises; upon any of the buildings or improvements existing at any time during the Term upon the Premises; or upon the leasehold of Tenant; or upon Landlord by reason of its ownership of the Premises (but not including any franchise, transfer, inheritance, or capital stock taxes or income taxes measured by the net income of Landlord unless, due to a change in the method of taxation, any of such taxes is levied or assessed against Landlord as a substitute for, in whole or in part, any other tax that would otherwise be the responsibility of Tenant). If at any time during the Term, under any Applicable Laws, any tax is levied or assessed against Landlord directly, in substitution in whole or in part for real property taxes, Tenant covenants and agrees to pay and discharge such tax. All of the foregoing taxes, assessments and other charges which are the responsibility of Tenant are herein referred to as “Property Taxes.” Notwithstanding the foregoing, Tenant shall have no obligation to pay (a) any portion of an increase in Property Taxes, if any, attributable to a reassessment for assessment year 2007-2008 as a result of Landlord’s recent acquisition of the ground lease interest in the Premises; or (b) any environmental assessment, charges or liens arising in connection with the remediation of Hazardous Materials from the Premises, the causation of which arose prior to the delivery of the Premises to Tenant, or to the extent caused by Landlord or any of Landlord’s agents, (c) costs or fees (other than general real property taxes) payable in connection with Landlord’s right to further develop the Premises, and (d) property transfer taxes, stamp or recording taxes attributable to Landlord’s transfer of ownership of the Premises or any interest of Landlord therein.

  1. Change the existing (a), (b), etc., into (1), (2), etc. (We'll be using "(a)," etc., for another purpose.)
  2. Break up the paragraph into one-sentence paragraphs — don't give them "numbers" (a), (b), etc., just yet.
  3. In (what is currently) the first sentence/paragraph, start a new paragraph beginning with the words "all taxes, assessments, rates, charges," etc.
  4. In the first sentence/paragreaph, choose a defined term, then change the term "before delinquency" (which now marks the end of the paragraph) to "before delinquency, all [insert your defined term], as defined below."
  5. In (what is now) the second paragraph:
    • At the beginning of the paragraph, change "all taxes, assessments," etc., to "[Your defined term]" refers to all taxes, assessments," etc.
    • Put a period after "every name, nature and kind whatsoever."
    • Start a new paragraph beginning with "including all governmental charges …."
  6. In (what is now) the third paragraph:
    • At the beginning of the paragraph, change "including all governmental charges …" to "[Your defined term] includes, without limitation, all governmental charges …."
    • Change "maybe or become a lien or charge upon the Premises" to "may be or become a lien or charge upon: " (note the colon).
    • Separate each "upon …" into its own separate, indented paragraph (1), (2), etc. — for example, "upon the Premises or any part thereof; or upon the rent or income of Tenant …" becomes "upon: [¶] (1) the Premises or any part thereor; or [¶] (2) the rent or income of Tenant," etc.
  7. In the phrase that begins, "or upon Landlord by reason of its ownership of the Premises (but not including any franchise, transfer …)":
    • Change "ownership of the Premises" to "ownership of the Premises except as provided below."
    • Break the parenthetical "(but not including …" into a new paragraph.
    • Draft an introductory phrase to signal that the "parent" paragraph (the one you just broke up) is subject to the exceptions listed in the "(but not including …" language.
  8. Fix "Tenant covenants and agrees to pay and discharge such tax." Hint 1: What's a simpler way to say "Tenant covenants and agrees"? Hint 2: What's a simpler way to say "pay and discharge such tax"?
  9. In the last sentence, make separate, indented paragraphs of the (1), (2), etc. (which you changed from the original (a), (b), etc.).
  10. "Number" the main paragraphs with (a), (b), etc., so that (1), (2), etc., are subdivisions.
  11. Step back and admire your work!

Here's what your new provision should look like:

7.2 Real Property Taxes.

(a)     Without limiting the foregoing, Additional Rent shall include, and Tenant agrees to bear, discharge and pay as the same become due, and before delinquency, all [YOUR DEFINED TERM], as defined below.

(b)     [YOUR DEFINED TERM] refers to all taxes, assessments, rates, charges, license fees, municipal liens, levies, excises or imposts, whether general or special, or ordinary or extraordinary, of every name, nature and kind whatsoever.

(c)     Except as provided in subdivision (d) below, [YOUR DEFINED TERM] includes, without limitation, all governmental charges of every name, nature or kind that may be levied, assessed, charged or imposed or may be or become a lien or charge upon:

(1)     the Premises or any part thereof; or

(2)     the rent or income of Tenant; or

(3)     the use or occupancy of the Premises; or

(4)     any document creating or transferring an estate or interest in the Premises;

(5)     any of the buildings or improvements existing at any time during the Term upon the Premises; or

(6)     the leasehold of Tenant; or

(7)     Landlord by reason of its ownership of the Premises except as provided below.

(d)     [YOUR DEFINED TERM] does not include any franchise, transfer, inheritance, or capital stock taxes or income taxes measured by the net income of Landlord unless, due to a change in the method of taxation, any of such taxes is levied or assessed against Landlord as a substitute for, in whole or in part, any other tax that would otherwise be the responsibility of Tenant).

(e)     If at any time during the Term, under any Applicable Laws, any tax is levied or assessed against Landlord directly, in substitution in whole or in part for real property taxes, Tenant will pay that tax.

(f)     All of the foregoing taxes, assessments and other charges which are the responsibility of Tenant are herein referred to as “Property Taxes.”

(g)     Notwithstanding the foregoing, Tenant shall have no obligation to pay:

(1)     any portion of an increase in Property Taxes, if any, attributable to a reassessment for assessment year 2007-2008 as a result of Landlord’s recent acquisition of the ground lease interest in the Premises; or

(2)     any environmental assessment, charges or liens arising in connection with the remediation of Hazardous Materials from the Premises, the causation of which arose prior to the delivery of the Premises to Tenant, or to the extent caused by Landlord or any of Landlord’s agents,

(3)     costs or fees (other than general real property taxes) payable in connection with Landlord’s right to further develop the Premises, and

(4)     property transfer taxes, stamp or recording taxes attributable to Landlord’s transfer of ownership of the Premises or any interest of Landlord therein.

2.13 Business planning: Mnemonics

One of the big complaints clients have about lawyers is that “they just don’t understand the business.” But it’s not useful to just say, Hey! Lawyer! Understand the biz! (With apologies to Pink Floyd.) The beneficiary of such advice might not know what to do to make that happen.

Neither is it particularly helpful to add, Just ask questions! It might not be obvious what questions should be asked.

A series of mnemonic acronyms has been developed to help contract professionals and their clients — collectively, “analysts” — to perform “business reconnaissance” (a term coined by Maretta Comfort Toedt) :

  • T O P   S P I N: Identifying threats and opportunities that might need to be addressed in a contract during the various phases of the business relationship (S N I T S);
  • I N D I A   T I L T: Developing action plans to prepare for and respond to those threats and opportunities; and
  • W H A L E R: Fleshing out the details of the desired actions;

all with the goal of drafting practical contract clauses.

Getting a Workable Contract to Signature Sooner § 1.8 (2016).

And then ask the investigator's favorite all-round question: Anything else?

2.14 Collaborative outline

In the virtual whiteboard, collaborate with your groups to outline what you think are some of the key takeaways from the course.

2.15 Jeopardy!

As one last review: a Jeopardy! game.

3 Reading for week of April 23

Student's choice — come to class Monday with any questions you might want to discuss. (Don't worry, we'll have a class plan.)

4 Previous classes

4.1 Class 1: Mon. Jan. 22

4.1.1 Startup

  1. Student introductions:
    • Name
    • 2L? 3L? LLM?
    • Career intentions
    • Undergraduate school & degree
    • Work experience
    • Previous contract experience
  2. Small-group assignments
  3. Provide email addresses in the virtual whiteboards: the virtual whiteboard
  4. First in-class exercise: Where did DCT go to law school? Reason: It's a good idea to look up the people on the other side of a contract negotiation — or for that matter, anyone else you'll be dealing with. Google and LinkedIn are extremely useful for that purpose.
  5. PSA: Counseling is available.

4.1.2 Read-along lecture: General course information

4.1.2.1 This course's approach
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.

Social proof: Student comments

Following the sales-and-marketing principles of using social proof and setting the hook, here are some representative student comments from official course evaluations in past semesters:

"… really enjoyed the approach to class and quizzes."

"His course is different from the norm and his methods are re­freshing. … Professor Toedt's approach allows students to figure out the issue on their own but provides students with the tools necessary to reach an answer (which he then explains/corrects)."

"You learn piece by piece the process throughout the semester to be able to effectively draft/redline contracts."

"I liked the practical approach of the course – very effective teaching technique by using repetition and in class exercises."

A variation on Socratic method, with in-class study groups

Don't assume that we will "cover the material" in class. Instead, we'll use a supposedly-new approach known as "flipping the classroom." This approach has become popular in educational circles, because it has been shown to be more effective than the trad­i­tion­al lecture format. See, e.g., Cyn­thia J. Brame, Flipping the Classroom (Vand­er­bilt.edu 2013: https://goo.gl/trS6e4). But it's really just the same thing that law schools have been doing for years: The flipped classroom was pioneered by Harvard physics professor Eric Mazur, but he himself cites the law-school case study method as "one of the first implementations of the flipped classroom." The flipped classroom will redefine the role of educators (an interview with Eric Mazur) (Harvard.edu 2013: https://goo.gl/bSdh55).

More contract revising than drafting

In this course, we will practice good drafting skills by revising the work of others. Specifically:

  • Each week, in small groups during class, We will spend significant class time studying and rewriting selected "wall of words" contract provisions from publicly-available contracts.
  • As students rewrite provisions, I will walk around and look over their shoulders, occasionally making (quiet) comments.
  • In some cases, you'll be asked to clean up your rewrites after class and submit them as (pass-fail) homework, which I'll mark up with comments.

The specific provisions that we rewrite will cover various substantive areas that are often encountered in contract drafting and -review. Accordingly, many of the pre-class reading assignments will consist of (i) previewing the upcoming in-class exercises, and (ii) looking over any reading materials cited (and, usually, linked) in the exercise.

This review-and-revise approach reflects what you're almost certain to see when you start out in practice: Contract drafters spend far less time drafting contracts than they do in reviewing and revising others' drafts. Even when you're the one who must prepare the first draft, you'll almost always be urged to find a previous form of agreement and modify it, instead of starting from scratch with a blank screen. Our approach in this course reflects that fact as well.

SOCIAL PROOF: In a past semester, one student said:

At first, I was disappointed that the amount of writing was small. [That's no longer the case: We will be doing a lot of REwriting.] I took the course to learn how to write a contract. What I could not see at the time, I was learning the fundamental building blocks individually. By the end of the course, all that was left was to put it together and step back.

Learning to spot and root out ambiguity

In the in-class exercises, we will do a lot of practice in spotting and fixing ambiguities. This is because in the real world, ambiguity might well be the #1 source of contract disputes. Many of the short practice exercises will be drawn from non-legal sources.

Repetition, repetition, repetition — and jumping around

Some of the short exercises and quizzes will seem repetitive; they also will seem to jump around from topic to topic. This is a feature, not a bug, because:

  • It mirrors what you'll almost certainly see in practice; and
  • pedagogically it's been shown to be more effective at promoting long-term memory than lecture and repetitive reading. See generally Spaced retrieval (Wikipedia: https://goo.gl/4PRZTy).

This approach might strike some students as disorganized or even chaotic. Over the years, though, most students seem to have come to appreciate the value of the approach, so please try to "go with it."

Incidentally, you can do your own spaced-retrieval practice by using the online flashcards. The in-class quizzes and the non-essay portions of the final exam will be drawn very largely from these flashcard questions.

4.1.2.2 Course materials

The main reading material will be:

On Contract Drafting, still very much a work in progress (especially as we shift to doing more rewriting). I intend to keep making it available at no charge; I'm trying to set it up to print out nicely for those who prefer hard copy. Students are encouraged to make suggestions and comments as the semester progresses;

• the Common Draft annotated catalog of contract terms, a side project of mine that I'm converting into a book; and

• a Supplement, consisting of several real-world contracts that I've annotated and printed to PDF. We'll study selected portions of these contracts.

4.1.2.3 Typical class session

Our typical class session will go generally as follows, , with possible variations from time to time:

  1. Only on certain Mondays: a short Blackboard quiz;
  2. Sometimes, brief "in the news" discussions, to give students a sense of what kinds of situations they and their clients are likely to encounter;
  3. Sometimes, small-group and whole-class discussion of the reading;
  4. Review of the homework (if applicable);
  5. Two or three short exercises;
  6. One or more rewriting exercises and/or longer discussion exercises;
  7. Sometimes, a preview of upcoming exercises;
  8. Sometimes, group discussion of lessons learned.
4.1.2.4 Small-group assignments

The following groups were chosen randomly using Microsoft Excel. They'll be reshuffled twice during the semester, so that students will have an opportunity to work with different people.

Starting Monday January 22
6:00 p.m. section

GROUP 1
Vikas Atmakuri
Robert Garcia
Melanie Fridgant
Ruth Rivera-Arriaga

GROUP 2
Bernardo Sada-Paz
Graham Taylor
Melanie Volk
Jay Zhang

GROUP 3
Tania Alonzo
Christopher Lee
Tieumi Nguyen

GROUP 4
Kade Rhodes
Rebecca Sheinbaum
Dustin Webber

7:30 p.m. section

GROUP 1
Michael Goehring
Alexander Graf
Thomas McKee

GROUP 2
Zain Mohammad
Carson Severson
Lindsay Thorpe

GROUP 3
Brooke Alger
Brittnie Lasater
John Walker

GROUP 4
Olufunsho Oguntoyinbo
Shaleez Ozlat
David Pope
Michael Szymanski

Starting Monday February 26
6:00 p.m. section

GROUP 1
Vikas Atmakuri
Melanie Fridgant
Sean Santarelli

GROUP 2
Chris Lee
Robert Garcia
Melanie Volk

GROUP 3
Tania Alonzo
Dustin Webber
Ruth Rivera-Arriaga

GROUP 4
Mimi Nguyen
Jay Zhang
Rebecca Sheinbaum

7:30 p.m. section

GROUP 1
Alexander Graf
Lindsay Thorpe
Shaleez Ozlat

GROUP 2
Carson Severson
Brittnie Lasater
David Pope

GROUP 3
Michael Szymanski
Michael Goehring
Mary Oguntoyinbo
John Walker

GROUP 4 Zain Mohammad
Brooke Alger
Kelly McKee

Starting Monday April 2
6:00 p.m. section

GROUP 1
Bernardo Sada-Paz
Robert Garcia
Melanie Volk
Jay Zhang

GROUP 2
Dustin Webber
Kade Rhodes
Vikas Atmakuri
Melanie Fridgant

GROUP 3
Rebecca Sheinbaum
Christopher Lee
Tania Alonzo

GROUP 4
Ruth Rivera-Arriaga
Graham Taylor
Tieumi Nguyen

7:30 p.m. section

GROUP 1
Shaleez Ozlat
Carson Severson
Alexander Graf

GROUP 2
Lindsay Thorpe
Olufunsho Oguntoyinbo
Michael Szymanski

GROUP 3
Michael Goehring
Thomas McKee
Brittnie Lasater

GROUP 4 David Pope
Zain Mohammad
Brooke Alger
John Walker

4.1.2.5 Extra class time to avoid a makeup class

The ABA requires 700 minutes of instruction for each credit hour; that means we need 2,100 minutes of instruction for our three-hour course. The January 17 class was canceled because of freezing weather; that means we have 26 scheduled class meetings, and so we must achieve the needed minutes of instruction by either:

  • meeting for 80 minutes per class; or
  • meeting on one of our scheduled makeup days, which are all on Fridays at the same time as the regular class period. For the Monday classes the makeup days are Jan. 26, Feb. 23, and March 30; for the Wednesday classes the makeup days are Feb. 9, March 9 (the Friday before spring break), and Apr. 13.

I'm a practicing attorney and arbitrator; I normally don't have to miss class, but it has been known to happen, e.g., when I've had out-of-town commitments. There have also been times when class has been canceled due to weather, such as what was supposed to have been the first day of class in January 2018. (And on the evening of Game 7 of the 2017 World Series, we canceled the evening class.)

But very few students are eager to come to a makeup class on a Friday evening.

So as an alternative to makeup classes, and as recommended by the Law Center's administration:

  • we will end each class session at 7:20 p.m. and 8:50 p.m., respectively; and
  • we will do some "asynchronous" instruction, e.g., by email and/or Blackboard.

That will let us accummulate at least one extra class session's worth of minutes. With any luck, we can avoid having to do a Friday-evening makeup class.

4.1.2.6 Last-day agenda

The last day of class will generally include:

  • Pizza for the section (6:00 p.m. or 7:30 p.m.) that has the highest average for the quizzes; and
  • An overview of the final exam plan;
  • A collaborative review of key concepts, using the virtual whiteboards to create a master outline for each group — the virtual whiteboard;
  • A group discussion of what would make the course and/or the materials more useful to next semester's students, and what didn't work so well, again using the virtual whiteboard;
  • Course evaluations, using the UH online system;
  • As one last review: a Jeopardy! game.
4.1.2.7 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 many of the in-class exercises. If this will be a problem, be sure to contact me well in advance.

(You might, however, want to rethink whether to use laptops in your other classes; see, e.g., this article by a professor at the University of Michigan about how classroom laptop users not only do worse than those who take notes by hand, they also interfere with the learning of non-laptop users around them.)

» 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.

4.1.2.8 Office hours

I'm happy to do office hours by appointment by Skype or Zoom.us video or by phone. I’m also very responsive to email questions.

4.1.2.9 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.

4.1.2.10 Microsoft Word: Crucial things to know

1. The safest way to format a paragraph without corrupting the document and crashing the Word program is to format the style of the paragraph, not the individual paragraph itself. See generally, e.g., The Styles advantage in Word (support.microsoft.com: https://goo.gl/v8Jbej); Item 3 in the 2013 list of tips to avoid crashing Word, by John McGhie (answers.microsoft.com: https://goo.gl/VxqJKs). NOTE: McGhie's tip no. 2 is to avoid Track Changes, but I've never had a problem with it — at least so far as I know.

2. To create a heading, use Heading styles: Heading 1, Heading 2, etc.

The following apply mainly to the formatting of styles, but can be used with caution to format individual paragraphs:

3. On rare occasions, to adjust the line spacing within a specific paragraph, use the menu sequence: Format | Paragraph | Indents and Spacing | Spacing (almost smack in the middle of the dialog box on a Mac).

4. To adjust the spacing between paragraphs, use the menu sequence: Format | Paragraph | Indents and Spacing menu. Don’t use a blank line to separate paragraphs — adjust the spacing instead.) See generally Practical Typography: Spacing Between Paragraphs (PracticalTypography.com: https://goo.gl/vNjeKF).

5. To keep one paragraph on the same page with the following paragraph (which is sometimes useful), use the menu sequence Format | Paragraph | Line and Page Breaks | Keep with Next.

Here are some other tips:

6. A table of contents can be useful in a long contract. To create a table of contents, in the References tab, use the Table of Contents dropdown box and select Custom Table of Contents.

7. Tables can sometimes be useful in contracts. To remove the borders from a table (the way Word normally creates them), first use the menu sequence: Table | Select | Table. Then use the menu sequence: Format | Borders & Shading | Borders | None.

8. 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, use the menu sequence: Edit | Paste Special | Unformatted text. (Alternatively: Edit | Paste and Match Formatting.)

4.1.3 Read-along lecture: Grading

4.1.3.1 School-required average: 3.0 to 3.4

As required by law school policy for a writing class, grades will be adjusted pro­por­tion­al­ly to the extent necessary to make the average of the final class grades fall within the range specified in the heading of this section.

4.1.3.2 Final grade based on 500 total points

Your course grade will be based on how many points you earn out of 500 total possible points, as explained below.

4.1.3.3 Four quizzes, one every third week: 200 points total

We will have an on-line quiz, administered via Blackboard, at the beginning of class on each of the following Mondays: Feb. 12; Mar. 5; Mar. 26; Apr. 16.

Each quiz will:

  • be timed for two- to five minutes (people with accommodations can get extra time — ask Dean Tennessee to let me know if you're one of those people);
  • consist of up to 40 true-false, multiple-choice, and fill-in-the-blank questions, and very likely more questions than most people can answer in the allotted time;
  • cover only the following:
    • any of the 100-plus online flashcards at https://goo.gl/o5gG5M — that is, anything in the flashcards is fair game for any of the quizzes, whether or not we've covered that material in class. I will likely add to the flashcards as the semester progresses, but I will segregate any new questions and give you plenty of advance notice before including new questions in a quiz; and
    • anything in the exercises that we have covered to date — the quizzes themselves will thus serve as a reinforcing review that takes advantage of the testing effect;
  • be closed-book, closed-notes;
  • be graded automatically by Blackboard — thus, quiz grading is effectively anonymous (even though I can see student names), except that I review the fill-in-the-blank answers so that I can give credit for simple misspellings, which Blackboard can't always pick up. (I program the quizzes on Blackboard to accept as many misspellings as I can think of, but you'd be surprised how … creative students can be ….)

In past quizzes, a few students have gotten the right answer to every question on every quiz. In response, one student suggested that I "[d]esign quizzes to have a wider score distribution." I continue to try to do so, but I'm far more interested in having as many students really learn as much as possible of what I regard as necessary material, than I am in sorting the students into a grade distribution; consequently, I'm not at all unhappy if lots of students get perfect scores on the quizzes.

4.1.3.4 Final exam: 200 points, May 9, 6 to 7 p.m. (both sections)

The final exam will:

  • be one hour in length;
  • consist in large part of what amounts to a mid-term quiz on steroids, namely true-false, multiple-choice, and short-answer questions, administered via Blackboard, drawn from the online flashcards at https://goo.gl/o5gG5M (I will be adding to these flashcards as the semester progresses);
  • also include a few short-answer questions, such as "Explain if false," to be made available at the exam time at, and to be uploaded (anonymously) to, the Blackboard system in the same way as the homework assignments;
  • take place in the to-be-designated final-exam room; and
  • be closed-book, closed-notes.

What's fair game? Anything:

  • in the reading materials;
  • in the homework, quizzes, and in-class exercises.

The honor code will of course apply.

Homework: 50 points

Homework assignments will be posted soon, WARNING: In one past semester, a student failed the course — even though the student had received a (very-low) passing grade on the final exam — and therefore didn't graduate that semester as planned, because the student had turned in almost none of the homework assignments.

Class attendance: 50 point "starting bonus" (which can also be lost for non-attendance)

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.*

* Notice how it’s a significant amount of discussion, because “discussion” is an uncountable noun, versus a significant number of exercises, because “exercises” is a countable noun; see the Grammarist.com discussion.

Consequently, 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.

ABA accreditation rules and school policy require attendance at 80% of the class meetings for each course. We will meet a total of 26 times; rounding to the nearest whole number of classes, a student therefore must attend at least 21 class periods to comply with the 80% rule.

Every student starts out with 50 "freebie" points for class attendance, but can lose points for missing class, as follows:

TOTAL CLASSES MISSED TOTAL POINTS LOST
1 0
2 5
3 15
4 30
5 or more all 50

This means, of course, that students who miss more than one class will have to do that much better on the final, the quizzes, and homework in order to keep up with their classmates on the school-required average.

Attendance exceptions:

  • I don't count absences for "official" law school travel, e.g., for moot-court competitions, etc., as long as I'm informed in advance.
  • I also don't count up to two absences for illness — if you're ill, please don't come to class and infect the rest of us. Please email me if you'll be absent for illness; I'll take your word for it without a doctor's note.
  • Other absences, e.g., for job interviews, office visits, work trips, etc., will be counted as missed classes and will lose points as set forth above; please schedule accordingly.

If I see that one or more students are missing, I will circulate an attendance sign-in sheet. If I see that everyone is present, I normally won't bother doing so.

Class participation bump-up

As permitted by law-school policy, I reserve the right:

  • to award discretionary increases in student grades by one-third of a grade level for excellent 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; and
  • to reduce grades for sub-standard class participation. In the past I said I would not do that; in recent semesters, though, I've had a couple of students for whom it was like pulling teeth to get them to participate even minimally.

4.1.4 Flashcard questions about the course info

1. QUESTION: How many points on your final grade can you earn for turning in all homework? [1]

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 you'd have 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. [2]

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? [3]

4. QUESTION: In Microsoft Word, what's the best way to put space between paragraphs for improved readability?
A. Format the individual paragraph.
B. Format the style of the paragraph.
C. Include an extra blank line.
D. Indent the first line. [4]

4.1.5 (S) Streamlining sentences (1)

Rewrite the following sentence in your group's virtual whiteboard to trim out the "fat" (feel free to revise in Word and then paste into the whiteboard).

Before:   The team held a meeting to give consideration to the issue.

After:

4.1.6 Thumbsucker questions: Goals, etc.

For discussion, in small groups:

  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 do you think is likely to be the worst bottleneck in getting a contract to signature?
  5. What kind of contract language do you think business lawyers should aspire to write?
  6. TRUE OR FALSE: A contract drafter should strive to anticipate and address all harms to the client that might occur in the course of the parties' relationship.

4.1.7 Preview question: Vagueness vs. ambiguituy

QUESTION: What is a "vague" term? What is an "ambiguous" term?

4.2 Class 2: Wed. Jan. 24

[Off the menu:] Reality: Qualcomm fined $1.23B for illegal payments to Apple

From the online Wall Street Journal, Jan. 24, 2018:

The EU said Qualcomm had abused its dominant position by paying billions of dollars to Apple from 2011 to 2016 on the condition it wouldn’t buy from rivals, hindering other companies from competing in the market.

“These payments were not just reductions in price—they were made on the condition that Apple would exclusively use Qualcomm’s baseband chipsets in all its iPhones and iPads,” said EU antitrust chief Margrethe Vestager. “This meant that no rival could effectively challenge Qualcomm in this market, no matter how good their products were.”

4.2.1 In-class group reading: Ten basic writing rules

4.2.1.1 D.R.Y. (Don't Repeat Yourself): Avoid the $693,000 proofreading error

Stating information more than once in a contract can cause severe problems if (i) the information is revised during negotiation, and (ii) the revision is not made everywhere in the contract documents. Just this type of mistake once cost a bank $693,000:

• The bank sued to recover $1.7 million from defaulting borrowers and their guarantor. In the lower court, the bank won a summary judgment.

• Unfortunately for the bank, the loan documents referred to the amount borrowed as “one million seven thousand and no/100 ($1,700,000.00) dollars” (capitalization modified, emphasis added).

• The appeals court held that, under standard interpretation principles, the words, not the numbers, controlled, and so the amount guaranteed was only $1.007 million, not $1.7 million.

See Charles R. Tips Family Trust v. PB Commercial LLC, 459 S.W.3d 147 (Tex. App.–Houston [1st Dist.] 2015) (reversing and remanding summary judgment).

Here's an example:

Bob will pay Alice one hundred thousand dollars ($100,000.00) $100,000 for the House, with 50% due upon signing of this Agreement.

And another:

Before: Alice will sell the house at 1234 Main Street to Bob. … [and later in the document:] Alice will not alter the house at 1234 Main Street before the Closing.
After: Alice will sell the house at 1234 Main Street (the "House") to Bob. … Alice will not alter the House before the Closing.

Sometimes, though, repetition can be used (cautiously) to emphasize a point; the mission, after all, is to educate and persuade (see § 6.1.2), not to slavishly follow rules.

4.2.1.2 Avoid false imperatives

A false imperative exists when a contract purports to impose an obligation, but without specifying who is responsible for carrying it out. "Let there be [whatever]"

To help identify a false imperative, ask: If this doesn't happen, who could be sued? Or, to adapt a tired business cliché: Whose throat do I choke?

Here's a before-and-after example:

Before: The apartment shall be regularly serviced by a professional pest-control service. [So whose job is it?]
After: Tenant [or, perhaps, Landlord?] is to cause the apart­ment to be serviced, at least once per calendar quarter, by a professional pest-control service.

For a discussion of false imperatives in the context of legislative drafting, see generally Jery Payne, The False Imperative, in The Legislative Lawyer (Dec. 2010).

4.2.1.3 Short, single-topic sentences and paragraphs
Introduction

You'll normally get a contract to signature sooner if you draft it as a series of short, single-issue sentences and paragraphs, because:

  • Short paragraphs and sentences can be reviewed more quickly.
  • Short paragraphs and sentences are easier to save for re-use, and later to snap into a new contract draft like Lego blocks, without inadvertently messing up some other contract section.
  • Short paragraphs and sentences are easier to edit during drafting and/or negotiation.
  • Short paragraphs and sentences reduce the temptation for the other side's reviewer to tweak more language than necessary — and that's a good thing, because language tweaks take time to negotiate, which in turn causes business people to get impatient and to blame "Legal" for delaying yet another done deal.

So: If a sentence or paragraph starts running long, seriously consider breaking it up.

Oh, and one major topic per paragraph, please. Too many contract drafters are guilty of mixing a variety of topics into a single paragraph (often with topics separated by “provided, that ….”). That just makes the paragraph all the harder for the other side's legal reviewer, which in turn will slow up getting the agreement to signature.

Subdivisions can help

Here's an example from the PlainLanguage.gov site, slightly modified:

Before: Except when this part provides for the granting, approval, or enforcement of leases and permits, the provisions in this part that authorize or require us to take certain actions extend to any tribe or tribal organization that is administering relevant programs or providing specific services under a contract or self-governance compact entered into under the Indian Self-Determination and Education Assistance Act (25 U.S.C. § 450f et seq.).
After: Any tribe or tribal organization that is administering programs or services under 25 CFR part 900:

(a) may administer the provisions in this part that authorize or require us to take certain actions; and

(b) may not administer the provisions of this part relating to the granting, approval, or enforcement of leases and permits.

Subdivisions can be internal to a paragraph, as seen in this slightly-modified example from the PlainLanguage.gov site:

Before: If any member of the board retires, the company, at the discretion of the board, and after notice from the chairman of the board to all the members of the board at least 30 days before executing this option, may buy, and the retiring member must sell, the member's interest in the company.
After: A retiring board member must sell his or her interest in the company to the company if (i) the chairman of the board gives notice to all board members at least 30 days in advance of the sale, and (ii) the board, in its discretion, approves the sale.
Actually, never mind. (A satire.)

Forget everything you just read; instead, follow the example of the drafters who wrote the warranty provision reproduced below, which is excerpted from a Collaborative Research and License Agreement between Pfizer and Rigel Pharmaceuticals. (For now, you don't need to read the provision other than to see how long it is.)

9.2.12 PATENTS AND TRADEMARKS. To the best of its knowledge (but without having conducted any special investigation), Rigel owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, and proprietary rights and processes (including technology currently licensed from Stanford University) necessary for its business as now conducted and as proposed to be conducted without any conflict with, or infringement of the rights of, others. Rigel currently licenses certain technology from Stanford University (the "Licensed Technology") on an "as is" basis, with no representation or warranty from Stanford University that such technology does not infringe the proprietary rights of others. To Rigel's knowledge, Rigel has not, as of the date hereof, received any claims from any third party alleging that the use of the Licensed Technology infringes the proprietary rights of such party. Except for agreements with its own employees or consultants and standard end-user license agreements, there are no outstanding options, licenses, or agreements of any kind relating to the foregoing, nor is Rigel bound by or a party to any options, licenses, or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, and proprietary rights and processes of any other person or entity, other than the license agreements with Janssen Pharmaceutica N.V., Stanford University, SUNY, and BASF. Rigel has not received any communications alleging that Rigel has violated or, by conducting its business as proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights, trade secrets, or other proprietary rights or processes of any other person or entity. Rigel is not aware that any of its employees is obligated under any contract (including licenses, covenants, or commitments of any nature) or other agreement, or subject to any judgment, decree, or order of any court or administrative agency, that would interfere with the use of such employee's best efforts to promote the interests of Rigel or that would conflict with Rigel's business as proposed to be conducted. Neither the execution nor delivery of this Agreement, nor the carrying on of Rigel's business by the employees of Rigel, nor the conduct of Rigel's business as proposed, will, to the best of Rigel's knowledge, conflict with or result in a breach of the terms, conditions, or provisions of, or constitute a default under, any contract, covenant, or instrument under which any of such employees is now obligated. Rigel is not aware of any violation by a third party of any of Rigel's patents, licenses, trademarks, service marks, tradenames, copyrights, trade secrets or other proprietary rights.

Think about all the advantages of having such a long provision:

  • When your client reads a provision like the one above, she'll be impressed by your lawyering skills, and happy to be paying your fees to support the creation of a true work of art.
  • Your client isn't that interested in getting the deal to signature quickly, so it won't bother her that the dense verbiage will take longer for everyone to review, edit, and sign off on.
  • The other side's contract reviewer, lulled by the MEGO effect ("Mine Eyes Glaze Over"), might unwittingly skip over the problematic phrase that you (inadvertently?) buried in the middle of the paragraph. Don't fret — surely your counterpart won't think you were trying to pull a fast one on him.
  • Nor will your counterpart object to spending a lot of time puzzling over long sentences and paragraphs; it means more billable hours for him.
  • Your firm's managing partner will thank you for using such a dense writing style — using less white space in a contract draft means you need less paper and toner to print it out, and those things aren't free. And readability is such a vague, subjective thing. But the cost savings you achieve by printing out fewer pages? Now those are easily measured, and will be noticed and rewarded.
  • If the signed contract ever has to go to litigation, the judge's law clerk will be glad to have a fine specimen to study, to help fill those endless idle hours in chambers.

So by no means should you ever consider breaking up a long paragraph like the above into shorter ones.

Remember, lawyers have drafted contracts with long, hard-to-read paragraphs since time immemorial. That alone justifies their continuing to do so.

Bonus tip: Challenges to this or any other established practice can be met by closing your eyes, sticking your fingers in your ears, and chanting, "we've always done it that way; we've always done it that way …."

4.2.1.4 Use active voice, mostly

Active voice gets to the point by putting the actor first. Look at the following before-and-after examples:

Before: A song was sung by her.
After: She sang a song.
Before: The part must have been broken by the handlers.
After: The handlers must have broken the part.

But sometimes passive voice is better, for example if the doer or actor of the action is unknown, unimportant, obvious, or better left unnamed:

  • The part was shipped on 1 June. (The actor is unimportant.)
  • Presidents are elected every four years. (The actor is obvious.)
  • Christmas has been scheduled as a workday. (The actor is better left unsaid.)

And clear, forceful, active-voice language might be inappropriate in diplomacy or in political negotiations. [DCT comment: The original USAF sentence said "… may be inappropriate," but it's better to stick with "might be."]

4.2.1.5 Streamline your sentences

It's easy to let a sentence get fat and sloppy:

Before:   They made the decision to give their approval.

After:   They decided to approve it.

Not quite the same:   They approved it.

4.2.1.6 Numbers; currencies; percentages

Spell out the numbers one to ten; use numbers for 11, 12, 13, etc. Both in the same sentence? Consider using just numbers. There will be four students per negotiating team. There are 21 students in the class. The quiz will contain between 8 and 12 questions.

As a general rule, don't start a sentence with numerals; either spell out the numerals in words or (preferably) rewrite the sentence.

Before: 42 was Douglas Adams's answer to The Ult­im­ate Question of Life, the Universe, and Everything.
After: According to Douglas Adams, the answer to The Ultimate Question of Life, the Universe, and Everything is … 42.

Large numbers? Use million, billion, etc. (but not thousand):

  • More than 300,000,000 300 million people live in the United States.
  • More than 43 thousand 43,000 students are enrolled at the University of Houston.

Don't spell out a number in words and then restate the number in numerals — there's too much danger of changing one but not the other (see also § 4.2.1.1).

  • More than three hundred million (300,000,000) 300 million people live in the United States.
  • Guarantor will pay Bank USD one million seven thousand dollars ($1,700,000.00). (In a real-world lawsuit, the bank lost the difference, i.e., $693,000; see § 4.2.1.1.)

For domestic contracts, there's usually no need to say "in United States dollars." (You can put that in the Definitions & Usages section if you want.)

In (potentially) international contracts, use ISO 4217 currency abbreviations such as USD, as in, "Arshad will pay Betty USD $30 million." (The USD abbreviation goes where indicated, not after the numbers.)

Generally, omit zero cents unless it's relevant:

Alice will pay Bob $5,000.00 $5,000.

Spell out a percentage if it's at the beginning of a sentence — or just use numbers and rewrite the sentence to avoid starting with the percentage

Before: 30% of the proceeds will be donated to charity.
After: Thirty percent (30%) of the proceeds will be donated to charity.
Alternative: Of the proceeds, 30% will be donated to charity.
4.2.1.7 Parallelism in lists: Be consistent

Use a consistent pattern when making a list.

Before: The security policeman told us to observe the speed limit and we should dim our lights.
After: The security policeman told us to observe the speed limit and to dim our lights.


Before: The functions of a military staff are to advise the commander, transmit instructions, and imp­le­men­ta­tion of decisions. ["Advise" and "transmit" are verbs, while "implementation" is a noun.]
After: The functions of a military staff are to advise the commander, transmit instructions, and implement decisions. [The verb "implement" is stronger than the noun "implementation."]


Before: The functions of a military staff are to advise the commander, transmit instructions, and implement decisions. [Also: Passive voice.]
After: A military staff advises the commander; transmits his instructions; and implements his decisions.


Before: Universal military values include that we should act with integrity, dedication to duty, the belief that freedom is worth dying for and service before self.
After: Universal military values include commitment to integrity, dedication to duty, service before self, and the belief that freedom is worth dying for. [DCT comment: Here, semicolons might be better than commas.]

If one of the items in a list can't be written in the same grammatical structure, then consider placing it at the end of the sentence. In the last row above, beginning with "Universal military values," the phrase “the belief that freedom is worth dying for” doesn't match the three-word construction of the other items; placing that phrase at the end of the sentence improves overall readability.

If your sentence contains a series of items separated by commas [DCT comment: Or by semicolons], keep the grammatical construction similar—if two out of three items begin with a verb, then make the third item begin with a verb too.

Don't mix things and actions, statements and questions, or active and passive instructions.

Make ideas of equal importance look equal.

Here's another example, from the SEC's Plain English Handbook (at 34), slightly edited:

Before: If you want to buy shares in Fund X by mail, fill out and sign the Account Application form, making your check payable to “The X Fund,” and put your social security or taxpayer identification number on your check.
After: (with semicolons separating the clauses instead of commas) If you want to buy shares in Fund X by mail, fill out and sign the Account Application form; make your check payable to “The X Fund”; and put your social security or taxpayer identification number on your check.

And one more, from the same source:

Before: We invest the Fund’s assets in short-term money market securities to provide you with liquidity, protection of your investment, and high current income. After: We invest in short-term money market securities to provide you with liquidity; protect your investment, and generate high current income.

For this last example, the SEC Handbook points out that the Before sentence "is unparallel because its series is made up of two nouns and an adjective before the third noun. It’s also awkward because the verb provide is too closely paired with the nominalization protection." The After sentence uses verbs throughout, and also uses semicolons instead of commas.

4.2.1.8 Use industry-standard terminology

When you're drafting a contract, you'll want to try to avoid coining your own non-standard words or phrases to express technical or financial concepts. If there's an industry-standard term that fits what you're trying to say, use that term if you can.

• First, someday you might have to litigate the contract. You'll want to make it as easy as possible for the judge (and his or her law clerk) and the jurors to see the world the way your client does. In part, that means making it as easy as possible for them to understand the contract language.

The odds are that the witnesses who testify in deposition or at trial likely will use industry-standard terminology. So the chances are that the judge and jurors will have an easier time if the contract language is consistent with the terminology that the witnesses use—that is, if the contract "speaks" the same language as the witnesses.

• Second — and perhaps equally important — the business people on both sides are likely to be more comfortable with the contract if it uses familiar language, which could help make the negotiation go a bit more smoothly.

4.2.1.9 Omit needless words — but remember your mission

"Omit needless words" is a famous quotation from Strunk & White's The Elements of Style. Here are some examples of possibly-needless words, from the SEC's Plain English Handbook (slightly edited):

  • in order to : to
  • in the event that : if
  • subsequent to : after
  • prior to : before
  • despite the fact that : although
  • because of the fact that : because; since
  • in light of : ditto
  • owing to the fact that : ditto

But remember your mission: To educate, and possibly persuade, readers (see § 6.1.2). That’s why it can sometimes be helpful to (judiciously) record reasons and explanations in a contract, to educate later readers about why the neg­o­ti­a­tors agreed to certain things.

Certainly brevity in a contract is a  virtue, but it's far from the only one or even the most important one. Sometimes a few words of explanation or clarification (possibly in footnotes) can be cheap insurance.

4.2.1.10 But: Do what your supervising partner prefers

The above rules aren't ethical mandates. A new lawyer might find that her supervising partner prefers to write, for example, one million seven hundred thousand dollars ($1,700,000.00) instead of the simple $1.7 million recommended in § 4.2.1.1 above. Don't fight the partner over it — for purely-stylistic matters, just do it the way that the partner prefers. There'll be plenty of time to adjust your style as you get more experienced and more trusted to handle things on your own.

(In the meantime, of course, you'll have to be extra-careful not to make the kind of mistakes that can result from some of these stylistic practices, as discussed above.)

4.2.1.11 Bonus: Tips for plainer English
Improve the "flow" of the words
Before: … in a writing signed by the party sought to be bound …. After: … in a writing that is signed by the party sought to be bound ….
Modifier order might matter

Place modifiers correctly–"we want only the best" not "we only want the best."

Be careful when using a verb that doubles as a noun

Let's look again at an example from the SEC's Plain English Handbook (at 32). The word supplements can be a verb, but it can also be a noun, as in, dietary supplements. That can interrupt the flow of the sentence and slow down the reader's comprehension.

Before: The following description of the particular terms of the Notes offered hereby (referred to in the accompanying Prospectus as the “Debt Securities”) supplements, and to the extent inconsistent therewith replaces, the description of the general terms and provisions of the Debt Securities set forth in the Prospectus, to which description reference is hereby made.
After: * This document describes the terms of these notes in greater detail than our prospectus. It might provide information that differs from our prospectus. If the information in this document does differ from our prospectus, please rely on the information in this document.
Gobbledygook

Adapted from the PlainLanguage.gov site:

Before: Consultation from respondents was obtained to determine the estimated burden.
After: We consulted with respondents to estimate the burden.
Gobbledygook (2)

Adapted from the PlainLanguage.gov site:

Before: The amount of expenses reimbursed to a claimant under this subpart shall be reduced by any amount that the claimant receives from a collateral source in connection with the same act of international terrorism. In cases in which a claimant receives reimbursement under this subpart for expenses that also will or may be reimbursed from another source, the claimant shall subrogate the United States to the claim for payment from the collateral source up to the amount for which the claimant was reimbursed under this subpart.
After: If another source pays you, then we will reduce our payment by that amount. If we pay you, and another source also pays you for the same expenses, then you must repay us the amount that we paid you.
Gobbledygook (3)

From the PlainLanguage.gov site:

Before: When a filing is prescribed to be filed with more than one of the foregoing, the filing shall be deemed filed as of the day the last one actually receives the same.
After: A document is considered "filed" only when all parties that are supposed to receive the document have actually received it.
Sources

In a few places, this section steals — don't worry, it's perfectly legal — from the following sources:

The theft is legal because under 17 U.S.C. § 105, copyright is not available for works that were created by officers or employees of the U.S. Government in the course of their official duties; see generally the Wikipedia article Copyright status of work by the U.S. government.

4.2.2 Short exercise: Drafting problems with a contract (1)

From a contract drafted by The Other Side of a deal (sanitized):

Within thirty (60) days of the close of previous quarter term, ABC shall provide XYZ with a revenue report that provides a total amount of Data Revenue and Software Revenue obtained by ABC during the referenced quarter term, minus any associated costs or expenses and customer returns or refunds ("Revenue Report").

QUESTIONS:

  1. Any drafting problems with this?
  2. Ignoring the substance, how might this be otherwise improved to make it more readable?

ANSWERS: (DCT to show his version)

4.2.3 Short exercise: Streamlining sentences (2)

Rewrite the following sentence in your group's virtual whiteboard to trim out the "fat" (feel free to revise in Word and then paste into the whiteboard).

Before:   We will make a distribution of shares.

After:  

4.2.4 Read-along lecture: Rewriting a wall of words

4.2.5 Rewriting exercise: From the satire

On your own computer (i.e., not in your virtual whiteboard), break up the following, which is from a Collaborative Research and License Agreement between Pfizer and Rigel Pharmaceuticals:

EDITED 1/29/18: We'll take this one step at a time.

9.2.12 PATENTS AND TRADEMARKS. To the best of its knowledge (but without having conducted any special investigation), Rigel owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, and proprietary rights and processes (including technology currently licensed from Stanford University) necessary for its business as now conducted and as proposed to be conducted without any conflict with, or infringement of the rights of, others. Rigel currently licenses certain technology from Stanford University (the "Licensed Technology") on an "as is" basis, with no representation or warranty from Stanford University that such technology does not infringe the proprietary rights of others. To Rigel's knowledge, Rigel has not, as of the date hereof, received any claims from any third party alleging that the use of the Licensed Technology infringes the proprietary rights of such party. Except for agreements with its own employees or consultants and standard end-user license agreements, there are no outstanding options, licenses, or agreements of any kind relating to the foregoing, nor is Rigel bound by or a party to any options, licenses, or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, and proprietary rights and processes of any other person or entity, other than the license agreements with Janssen Pharmaceutica N.V., Stanford University, SUNY, and BASF. Rigel has not received any communications alleging that Rigel has violated or, by conducting its business as proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights, trade secrets, or other proprietary rights or processes of any other person or entity. Rigel is not aware that any of its employees is obligated under any contract (including licenses, covenants, or commitments of any nature) or other agreement, or subject to any judgment, decree, or order of any court or administrative agency, that would interfere with the use of such employee's best efforts to promote the interests of Rigel or that would conflict with Rigel's business as proposed to be conducted. Neither the execution nor delivery of this Agreement, nor the carrying on of Rigel's business by the employees of Rigel, nor the conduct of Rigel's business as proposed, will, to the best of Rigel's knowledge, conflict with or result in a breach of the terms, conditions, or provisions of, or constitute a default under, any contract, covenant, or instrument under which any of such employees is now obligated. Rigel is not aware of any violation by a third party of any of Rigel's patents, licenses, trademarks, service marks, tradenames, copyrights, trade secrets or other proprietary rights.

4.3 Class 3: Mon. Jan. 29

4.3.1 News: Drilling rig blast could lead to indemnity claims

Source: Jordan Blum, Drilling rig blast draws high-level inquiry (HoustonChronicle.com Jan. 26, 2018).

Relevance: The various contractors and suppliers at the rig site — where five people were killed in last week's blast and fire — probably have contracts that contain some or all of the following provisions (among others, of course):

  • Indemnification obligations (indemnification is just a fancy word for reimbursement)
  • Insurance requirements, with minimum types and -amounts of coverage
  • Knock-for-knock provisions

From the article:

The U.S. Chemical Safety Board said Thursday it will launch a full investigation into the Oklahoma rig explosion that killed five people this week as Oklahoma authorities suggested that an equipment failure might have contributed to the tragedy. …

Oklahoma regulators said their initial findings suggest that the failure of the blowout preventer - the same type of equipment that failed in the Deepwater Horizon accident - may [sic] have led to the blast at a drilling site near Quinton, about 100 miles southeast of Tulsa.

(Emphasis added.)

NOTE: Indemnification provisions are often among the most-negotiated provisions in contracts.

4.3.2 News: Kevin Spacey might have cost Netflix $39 million

Source: Rex Crum, Netflix $39 million charge related to Kevin Spacey (SiliconBeat.com Jan. 23, 2018).

Relevance:

  1. Kevin Spacey's contract with Netflix probably included a so-called morals clause, expressly allowing Netflix to terminate the relationship for various reasons with different financial consequences.
  2. Conceivably, Spacey's contract might have included an indemnification provision that obligated Spacey to reimburse Netflix for harm that resulted from Spacey's misconduct. Query whether Spacey has sufficient assets to cover such an obligation — and if not, where would the money come from?

From the article:

And then there are [one-time] charges for things that don’t fit the traditional business mold. Like the $39 million in charges that Netflix took related to what the company described as “unreleased content we’ve decided not to move forward with.” Netflix made the charge public as part of its fourth-quarter results, which it released late Monday.

But this wasn’t $39 million worth of just any kind of “unreleased content.” A source close to the matter said the charge was related to the dismissal of actor Kevin Spacey from the Netflix series “House of Cards” and the cancellation of other projects Spacey and Netflix had in the works. Among those was a planned movie starring Spacey as the late author Gore Vidal.

* * * 

On a conference call to discuss Netflix’s results Monday, Chief Financial Officer David Wells didn’t mention Spacey directly with regards to the $39 million charge. However, Wells said the writedown this time was “related to the societal reset around sexual harassment.”

(Emphasis added.)

4.3.3 Short exercise: Streamlining sentences (3)

Consider the following sentence — each student is to rewrite the sentence in Microsoft Word; we'll then compare notes.

Before:   We will provide appropriate information to shareholders.

After:

4.3.4 News: SEC is investigating GE's accounting practies

Source: Steve Lohr, G.E. Reports $9.8 Billion Loss and Discloses S.E.C. Accounting Inquiry (NYTimes.com Jan. 24, 2018).

Relevance: When people start having trouble meeting their performance goals, they can be tempted to cut corners in various ways, sometimes including deceiving company accountants. Sooner or later, those chickens usually come home to roost.

From the article:

General Electric reported quarterly results on Wednesday that illustrated how far it has fallen, and the steep hill the company — once a titan of American industry — must climb to turn itself around.

There were no big surprises; those had mostly come earlier.

But in a conference call with analysts, G.E. disclosed that the Securities and Exchange Commission had opened an investigation into the company’s handling of its insurance obligations and how it accounted for certain services contracts. The inquiry was in its “very early stages” and G.E. was “cooperating fully,” said Jamie Miller, the company’s chief financial officer.

Last week, G.E. made a startling announcement that it would take a $6.2 billion charge in the fourth quarter, and set aside $15 billion over seven years to pay for obligations held by its finance unit, mainly on long-term care insurance policies.

(Emphasis added.)

4.3.5 News: Lyondell-Basell might acquire stake in Braskem

Source: Katherine Blunt, Is Braskem still an acquisition target for LyondellBasell? (HoustonChronicle.com Jan. 24, 2018).

Relevance: If Lyondell-Basell does acquire some or all of Braskem, the transaction might take one of two forms:

  1. Lyondell-Basell might buy the stock of Braskem, thereby taking control of the company; or
  2. Instead, Lyondell-Basell might buy only specific business assets of Braskem, without buying the stock of Braskem itself.

(Depending on the circumstances, the transaction might even include elements of both forms above.)

Either type of transaction would entail:

  • Due diligence
  • Negotiation of:
    • Price
    • Walkaway conditions ("MAC clause")
    • Kill fee
  • Signing of agreement
  • Approvals of third parties — governments, etc.
  • Detailed due diligence
  • Closing

From the article:

Petrobras, Brazil's state-controlled oil company, is reportedly preparing to sell its $4.5 billion stake in Braskem, a South American petrochemical maker with several plants along the Gulf Coast.

How Petrobras structures the sale could determine whether Houston chemical company Lyondell-Basell attempts to acquire Braskem, analysts said.

4.3.6 Short exercise: Carbolic acid and Queen Victoria

From this NPR piece:

[Joseph] Lister was the closest surgeon to [Queen Victoria's] residence in Scotland, Fitzharris says, so she directed Lister to come drain a large abscess growing under her armpit. Before the surgery, Lister's assistant sprayed carbolic acid with a machine Lister invented called the donkey engine all over the operation area, sterilizing it but also accidentally spraying the queen in the face.

QUESTION: How could the italicized text be rewritten to "flow" better? (Hint: Consider rewriting it so that it would sound more-natural if read aloud — which isn't bad advice for any writing.)

4.3.7 News: Baker Hughes seeks own identity (during GE troubles)

Source: Jordan Blum, The new Baker Hughes developing its own identity (HoustonChronicle.com Jan. 24, 2018).

Relevance:

  1. If GE were to sell its stake in Baker Hughes, the transaction might take the form of (i) a stock sale, or (ii) an asset sale, or (iii) conceivably, some combination of both.
  2. The restrictions mentioned in the second-quoted paragraph were probably in the agreement under which GE acquired a stake in Baker Hughes.

From the article:

… emerging independence for Baker Hughes could be important considering its majority owner, Boston-based GE[,] is struggling financially and considering selling its stake in Baker Hughes in 2019, if not sooner. …

GE is restricted from pulling out of the company until mid-2019 unless given special permission from an independent committee designated by the Baker Hughes and GE boards.

(Emphasis added.)

4.3.8 Continue last week's rewriting exercise

We'll continue the rewriting exercise that we started last Wednesday, one step at a time.

4.3.9 In-class group reading: Ambiguity

4.3.9.1 Introduction

Ambiguity is one of the worst sins a contract drafter can commit. A contract term is ambiguous if it is susceptible to two or more plausible interpretations. An ambiguous term in a contract can result in enormous expense: In litigation, creative trial counsel, exercising 20-20 hindsight, can be quite skilled at proposing alternative meanings favoring their clients.

4.3.9.2 Two examples of ambiguous contract provisions

Here's a simple example of ambiguity from a hypothetical lease agreement: Tenant will completely vacate the Premises no later than 12 midnight on December 15; Tenant's failure to do so will be a material breach of this Agreement.

Now suppose that, at 10:00 a.m. on December 15, Tenant is still occupying the Premises.

QUESTION: Does Tenant still have 14 hours left in which to finish moving out? Or is Tenant already in material breach?

* * * 

And then: What if Landlord had re-leased the premises to a new tenant with December 15 as the agreed move-in date?

Now for a real-world example: In the Offshore Drilling v. Gulf Copper case, the owner of an off-shore drilling rig and a maintenance contractor disputed whether the contractor had had “control” of the rig at the time that the rig was damaged by fire and thus whether the contractor was contractually obligated to indemnify the owner. The term control is vague — vagueness can be thought of as a type of ambiguity, as discussed below — and so the parties had to litigate the meaning of the term. See Offshore Drilling Co. v. Gulf Copper & Mfg. Corp., 604 F.3d 221 (5th Cir. 2010) (affirming summary judgment in relevant part).

4.3.9.3 Benefits of unambiguous contract terms

Spotting and fixing ambiguities in a contract before signature should be a prime goal of all contract drafters and reviewers. Unambiguous provisions are generally a Good Thing because:

  • Unambiguous language tends not to lead to disputes between the parties in the first place — although that certainly isn't a universal rule.
  • If a dispute does arise over an unambiguous provision, the judge will often decide the case quickly, e.g., on a motion to dismiss on the pleadings or a motion for summary judgment. That's because (in the U.S.) interpretation of an unambiguous contract term is generally a question of law for the court.

Ambiguities aren't necessarily fatal, because the law has guidelines for resolving them, as discussed below. But to borrow a phrase from a former student (in a different context): "That's a conversation I don't want to have."

4.3.9.4 A brief review of contract interpretation

Here's a quick recap of some basic principles of contract interpretation:

  1. A contract provision is unambiguous if it can be given a certain or definite meaning. (A contract provision isn't necessarily ambiguous just because the parties disagree on how to interpret it.)
  2. In a lawsuit, the judge normally makes the first pass at determining the meaning of a disputed provision; if the provision is unambiguous, then the judge will declare the provision's meaning.
  3. The judge will try to figure out what the parties had in mind, as expressed in the contract language.
  4. Context matters: The judge will try to read contract provisions in a way that "harmonizes" them; at a minimum, the judge will try not to read Provision A in a way that would make Provision B meaningless.
  5. The judge will give contract terms their plain, common, or generally accepted meaning — unless, that is, the contract shows that the parties used particular terms in a technical or different sense.
  6. If all else fails — if the usual contract-interpretation principles don't produce a definitive answer for what a contract provision means — then the judge will rule that provision is ambiguous; in that situation, the case will have to be tried, and the trier of fact (usually, the jury) will decide what the parties seem to have had in mind — often by looking to extrinsic evidence under the parol evidence rule.

See, e.g., Plains Explor. & Prod. Co. v. Torch Energy Advisors Inc., 473 S.W.3d 296, 305 (Tex. 2015); Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983).

Courts often look to specific rules of interpretation such as:

  • Specific terms normally take precedence over the general.
  • A term stated earlier in a contract is given priority over later terms.
  • Under the principle of ejusdem generis, "if a law refers to automobiles, trucks, tractors, motorcycles, and other motor-powered vehicles, a court might use ejusdem generis to hold that such vehicles would not include airplanes, because the list included only land-based transportation." Nolo’s Plain-English Law Dictionary (law.cornell.edu).
  • The rule of the last antecedent: A federal criminal statute included a mandatory ten-year minimum sentence in cases where the defendant had previously been convicted of "aggravated sexual abuse, sexual abuse, or abusive sexual conduct involving a minor or ward.” The Supreme Court held that the minor-or-ward qualifier applied only to abusive sexual conduct, not to sexual abuse — as a result, a defendant was subject to the ten-year mandatory minimum sentence for sexual abuse against an adult. Lockhart v. United States, 577 U.S. xxx, No. 14–8358, slip op. at part II-A (U.S. March 1, 2016).
  • But see the series-qualifier principle: Dissenting in Lockhart, Justice Kagan argued: "Imagine a friend told you that she hoped to meet 'an actor, director, or producer involved with the new Star Wars movie.' You would know immediately that she wanted to meet an actor from the Star Wars cast—not an actor in, for example, the latest Zoolander." Id. (Kagan, J., dissenting).
  • Other things being equal, under contra proferentem, discussed below, ambiguous provisions will often be construed against the drafting party.

See generally, e.g., Vincent R. Martorana, A Guide to Contract Interpretation (ACC.com 2014); James J. Sienicki and Mike Yates, Contract interpretation: how courts resolve ambiguities in contract documents (Lexology.com 2012: https://goo.gl/ZGkwJu).

4.3.9.5 Vagueness is a type of ambiguity

As one type of ambiguity, a term is vague if its precise meaning is uncertain. Georgetown law professor Lawrence Solum notes that tall is vague, while cool is both vague (just how cold is cool?) and ambiguous (temperature? fashionable? calm under pressure?). He suggests that "A term is vague, we might say, if and only if it has borderline cases." See Lawrence B. Solum, Legal Theory Lexicon 051: Vagueness and Ambiguity, at https://goo.gl/SBY5zA (typepad.com).

As a silly example, consider this provision in a contract for a home caregiver: Nurse will visit Patient's house each day, check her vital signs, and give her cat food.

The italicized sentence above is ambiguous, in that conceivably it might take on any of three meanings:

  1. Nurse is to put a bowl of food down for Patient's cat each day. (This meaning might also be ambiguous in another way if Patient had more than one cat.)
  2. Nurse is to bring a gift of cat food with her when s/he visits Patient.
  3. Nurse is to feed cat food to Patient. (OK, this one is might not be plausible.) This meaning is itself ambiguous (because, e.g., the term cat food doesn't specify wet food or dry food) and also vague (because this meaning doesn't indicate how much cat food Nurse is to feed to Patient).
4.3.9.6 A.T.A.R.I.: Avoid the Argument: Rewrite It

What do you do if you spot an ambiguity in a draft contract draft? The answer might depend on the circumstances:

  • If your side drafted the ambiguous language, then you'll definitely want to fix the ambiguity: under the doctrine of contra proferentem, a court might resolve the ambiguity in favor of the other side.
  • On the other hand, if the other side drafted the ambiguous language, then you might not want to say anything about it, in the hope that contra proferentem will result in an interpretation favorable to your client.
  • BUT: If you notice but fail to point out an ambiguity created by the other side's drafter, the other side might argue that you waived application of contra proferentem by "laying behind the log."

The safest approach might be some combination of:

  • Ask the partner or the client — and document that you did so; and/or
  • A.T.A.R.I. - Avoid the Argument: Rewrite It.
4.3.9.7 Further reading about ambiguity

Some amusing examples of ambiguity can be read at the Wikipedia article on Syntactic ambiguity, at https://goo.gl/6zmrH5

See also numerous categorized case citations by KPMG in-house attorney Vince Martorana, at https://goo.gl/kQax4T.

4.3.10 Ambiguity exercise: Success

From a Facebook posting: "A man's success has a lot to do with the kind of woman he chooses to have in his life. (Pass this on to all great women.)"

QUESTION: What's a different interpretation of this quote?

4.3.11 Ambiguity exercise: An elephant takes a selfie?

From this tweet: "Man trampled to death by elephant trying to take a SELFIE"

EXERCISE: Rewrite.

4.3.12 Ambiguity and traffic signs

See this sign.

4.4 Class 4, Wed. Jan. 31

4.4.1 The Rigel wall of words: DCT's rewrite

Here's how I might rewrite the Rigel representations and warranties below, with selected revisions "redlined":

9.2.12 PATENTS AND TRADEMARKS.

(a)     To the best of its Rigel's knowledge (but without having conducted any special investigation), Rigel owns or otherwise possesses sufficient legal rights to all "Intellectual Property," defined in subdivision (b) below, that is necessary for its Rigel's business:

(1)     as now conducted, and

(2)     as proposed to be conducted,

without any conflict with, or infringement of the rights of, others.

[COMMENT: It's no sin to continue a sentence in a new grammatical paragraph in this way.]

[QUESTION: What is a "conflict with … others"?]

[QUESTION: What counts as Rigel's knowledge?]

[QUESTION: Does the no-special-investigation parenthetical create an implied representation by Rigel that its other representations were made after a reasonable investigation?]

[QUESTION: Who did not conduct any special investigation?]

NOTE: Rigel currently licenses certain technology from Stanford University (the "Licensed Technology") on an "as is" basis, with no representation or warranty from Stanford University that such technology does not infringe the proprietary rights of others. [Not every grammatical paragraph needs a paragraph number or -letter.]

(b)     For purposes of this section, "Intellectual Property" refers to patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, and proprietary rights and processes.

(c)     To Rigel's knowledge So far as Rigel is aware, Rigel has not , as of the date hereof, [redundant] received any claims communication from any third party alleging that any of the following the use of the Licensed Technology infringes the proprietary rights of such party:

(1)     the Rigel's use of the Licensed Technology;

(2)     Rigel's conduct of its business at present or as proposed.

(d)     Except as stated in subdivision (e):

(1)     There are no outstanding options, licenses, or agreements of any kind relating to the foregoing Rigel's Intellectual Property;

(2)     Rigel is not bound by or a party to any options, licenses, or agreements of any kind with respect to the Intellectual Property of any other person or entity individual or organization.

(e)     The exceptions to subdivision (d) are:

(1)     Rigel's agreements with its own employees or and/or consultants;

(2)     standard end-user license agreements;

(3)     the license agreements with Janssen Pharmaceutica N.V., Stanford University, SUNY, and BASF.

[DELETE THE FOLLOWING — IT"S BEEN FOLDED INTO (c)(1):] Rigel has not received any communications alleging that Rigel has violated or, by conducting its business as proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights, trade secrets, or other proprietary rights or processes of any other person or entity.

(f)     Rigel is not aware that any of its employees is obbligated under any contract (including licenses, covenants, or commitments of any nature) or other agreement, or subject to any judgment, decree, or order of any court or administrative agency, is subject to any obligation that would (i) interfere with the use of such employee's best efforts to promote the interests of Rigel or (ii) that would conflict with Rigel's business as proposed to be conducted (each such obligation, an "Employee Restriction").

(g)     [REVISED:] So far as Rigel is aware, none of the following will conflict with or result in a breach of the terms, conditions, or provisions of, or constitute a default under, any contract, covenant, or instrument under which any of such employees is now obligated any such Employee Restriction:

(1)     the execution nor and/or delivery of this Agreement;

(2)     the carrying on of Rigel's business; by the employees of Rigel,

(3)     nor the conduct of Rigel's business as proposed. , will, to the best of Rigel's knowledge

(h)     Rigel is not aware of any violation by a third party of any of Rigel's rights in its Intellectual Property. patents, licenses, trademarks, service marks, tradenames, copyrights, trade secrets or other proprietary rights.

Here it is again without the redlines:

9.2.12 PATENTS AND TRADEMARKS.

(a)     To the best of its knowledge (but without having conducted any special investigation), Rigel owns or otherwise possesses sufficient legal rights to all "Intellectual Property," defined in subdivision (b) below, that is necessary for Rigel's business:

(1)     as now conducted, and

(2)     as proposed to be conducted,

without any conflict with, or infringement of the rights of, others.

NOTE: Rigel currently licenses certain technology from Stanford University (the "Licensed Technology") on an "as is" basis, with no representation or warranty from Stanford University that such technology does not infringe the proprietary rights of others.

(b)     For purposes of this section, "Intellectual Property" refers to patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, and proprietary rights and processes.

(c)     So far as Rigel is aware, Rigel has not received any communication from any third party alleging that any of the following infringes the proprietary rights of such party:

(1)     Rigel's use of the Licensed Technology;

(2)     Rigel's conduct of its business at present or as proposed.

(d)     Except as stated in subdivision (e):

(1)     There are no outstanding options, licenses, or agreements of any kind relating to Rigel's Intellectual Property;

(2)     Rigel is not bound by any options, licenses, or agreements of any kind with respect to the Intellectual Property of any other individual or organization.

(e)     The exceptions to subdivision (d) are:

(1)     Rigel's agreements with its own employees and/or consultants;

(2)     standard end-user license agreements;

(3)     the license agreements with Janssen Pharmaceutica N.V., Stanford University, SUNY, and BASF.

(f)     Rigel is not aware that any of its employees is subject to any obligation that would (i) interfere with the use of such employee's best efforts to promote the interests of Rigel or (ii) conflict with Rigel's business as proposed to be conducted (each such obligation, an "Employee Restriction").

(g)     So far as Rigel is aware, none of the following will conflict with or result in a breach of any such Employee Restriction:

(1)     the execution and/or delivery of this Agreement;

(2)     the carrying on of Rigel's business;

(3)     the conduct of Rigel's business as proposed.

(h)     Rigel is not aware of any violation by a third party of any of Rigel's rights in its Intellectual Property.

4.4.2 News: A CarMax warranty limitation

TEXT: In California, an automobile sales contract disclaimed implied warranties beyond the remedies set forth in an express warranty, which stated: “The dealer will pay 100% of the labor and 100% of the parts for the covered systems that fail during the warranty period." The contract also limited the customer's remedies to those stated in the contract. Gutierrez v. CarMax Auto Superstores California LLC, No. F073215, slip op. at 12 (Cal. App. Jan. 30, 2018).

FACTS: Gutierrez bought the car on May 5, 2013. The car started having transmission problems, including making a grinding noise and having trouble accelerating in traffic. Gutierrez took the car to the dealer for warranty work on June 7. See id., slip op. at 5.

QUESTION 1: Was the transmission trouble covered by the warranty?

QUESTION 2: If CarMax engaged you to review the warranty provision, what if any advice might you give about its wording? (Hint: Consider the problems of proof.)

4.4.3 Exercise: Preamble questions (Rick's Cabaret)

The provision below, at https://goo.gl/DRbLRw (edgar.sec.gov), is from a 2008 real-estate purchase agreement involving the parent company of "gentleman's club" Rick's Cabaret:

THIS REAL ESTATE PURCHASE AND SALE AGREEMENT (this "Agreement") is made and entered into by and between WIRE WAY, LLC, a Texas limited liability company ("Seller"), and RCI HOLDINGS, INC., a Texas corporation ("Purchaser"), pursuant to the terms and conditions set forth herein.

QUESTION: What if any other information might you want to include in this preamble?

4.4.4 Discussion: Title and preamble (Stanford-Tesla lease)

COMMERCIAL LEASE

THIS LEASE is entered into as of July 25, 2007 (the “Effective Date”), by and between THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY, a body having corporate powers under the laws of the State of California (“Landlord”), and TESLA MOTORS, INC., a Delaware corporation (“Tenant”).

1.  BASIC LEASE INFORMATION. The following is a summary of basic lease information. Each item in this Article 1 incorporates all of the terms set forth in this Lease pertaining to such item and to the extent there is any conflict between the provisions of this Article 1 and any other provisions of this Lease, the other provisions shall control. Any capitalized term not defined in this Lease shall have the meaning set forth in the Glossary that appears at the end of this Lease.

Address of Premises: 300 El Camino Real, Menlo Park, California

Term: Five (5) years

Scheduled Date for Delivery of Premises: August 1, 2007

Commencement Date: August 1, 2007

Expiration Date: July 31, 2012

Base Rent:

Year One: $60,000 ($5,000 per month)
Year Two: $90,000 ($7,500 per month)
Year Three: $120,000 ($10,000 per month)
Year Four: $165,000 ($13,750 per month)
Year Five: $165,000 ($13,750 per month

QUESTIONS FOR CLASS DISCUSSION:

  1. Is "Commercial Lease" the proper term, or should it be "Commercial Lease Agreement"? [5]
  2. Why state that the Lease is entered into "as of July 25, 2007"? [6]
  3. Why do you think the names of the parties are capitalized? [7]
  4. What might be some of the pros and cons of including this kind of "Basic Lease Information" at the beginning of the agreement document, instead of including it "in-line" in the appropriate section(s) of the agreement? [8]
  5. To what extent is the "Each item in this Article 1 incorporates …" worth including? [9]
  6. What could go wrong with the italicized portion, "to the extent there is any conflict …"? [10]
  7. Note the mention of the Glossary in the last sentence of the first paragraph — where are some other places to include definitions for defined terms? [11]
  8. Any comments about the way the "Term: Five (5) years" portion is stated? How about the way that the Base Rent amounts are stated? [12]

4.4.5 News: AAA accused of wage shorting

Source: L.M. Sixel, Tow driver says AAA shorts him and others on wages (HoustonChronicle.com Jan. 29, 2018)

Relevance: Just because a contract says, The parties are independent contractors, that doesn't mean a court will rule that way — especially if one of the parties claims to be an employee of the other.

Additional reading (optional for now): Here.

4.4.6 Exercise: Streamlining sentences (5)

How could the following be streamlined?

Before:   There is the possibility of prior Board approval of these investments.

After:

4.4.7 Grammar fail: Homosexuality and the Texas GOP's platform (2016)

From the Texas GOP platform of 2016: "Homosexuality is a chosen behavior that is contrary to the fundamental unchanging truths that has been ordained by God in the Bible, recognized by our nations founders, and shared by the majority of Texans." See, e.g., the NPR story.

4.4.8 Exercise: Title and preamble (consulting agreement)

Read:

The provision below comes from an agreement form used by a company in the oil and gas business:

Consulting Services Agreement

This Consulting Services Contract (the "Agreement") dated [omitted] is entered into by and between [omitted], a Delaware corporation, and its affiliate companies (collectively "Company") and [omitted], a Texas corporation ("Consultant"), sometimes referred to herein individually as a "Party" or collectively as "Parties". This Agreement shall be effective on the earlier of the date that the services commence or the date that both Parties have executed the Agreement (the "Effective Date"). This agreement is entered into solely between the Company and Consultant, and no third party beneficiaries are created, except as expressly otherwise provided herein

QUESTIONS FOR CLASS DISCUSSION:

  1. What if any other information might you want to include in the preamble?
  2. Any thoughts about "and its affiliate companies"?
  3. At the end of the first sentence, is the period where it should be for U.S. usage?

4.4.9 Preview: Recitals (Rick's Cabaret)

[We will do this exercise the week of Feb. 5.]

The provision below, at https://goo.gl/DRbLRw (edgar.sec.gov), is from a 2008 real-estate purchase agreement involving the parent company of "gentleman's club" Rick's Cabaret:

You're to redraft the "Whereas" clauses below (from an actual contract). First, some background about the transaction and the contract:

  • Wire Way LLC owned land and a building, in Dallas, that was home to an "adult entertainment club" (that is to say, a strip club) known as "Platinum Club II."
  • The club was apparently operated by another company, North by East Entertainment, Ltd.; it's not clear what relationship existed between North by East and Wire Way LLC, the owner of the land and building.
  • Rick's Cabaret wanted to buy out the club; under the agreement, it would do so with a semi-complicated transaction:
    • In a related transaction, North by East (the operator of the club) would sell the assets of the club business to RCI Entertainment (Northwest Highway) Inc. ("RCI Entertainment"), which was [and is] a subsidiary of Rick's Cabaret International ("Rick's") [now named RCI Hospitality Holdings Inc.];
    • In another related transaction, Wire Way LLC would lease the land and building to RCI Entertainment; and
    • In the agreement we're studying now, Wire Way LLC would sell the land and building to RCI Holdings, Inc., which also was [and is] a subsidiary of Rick's.

ASSIGNMENT: Rewrite the "Whereas" provisions below as a "Background" section in plain English. Tell the story — not too informally, but not in a stilted, legalesey manner either.

WHEREAS, Seller is the owner of a certain real property consisting of approximately 4.637± acres of land, together with all rights, (excepting for mineral rights as set forth below), title and interests of Seller in and to any and all improvements and appurtenances exclusively belonging or pertaining thereto (the "Property") located at 10557 Wire Way, Dallas (the "City"), Dallas County, Texas, which Property is more particularly described on Exhibit A attached hereto and incorporated herein by reference; and

WHEREAS, contemporaneously with the execution of this Agreement, North by East Entertainment, Ltd., a Texas limited partnership ("North by East"), is entering into an agreement with RCI Entertainment (Northwest Highway), Inc., a Texas corporation ("RCI Entertainment"), a wholly owned subsidiary of Rick's Cabaret International, Inc., a Texas corporation ("Rick's") for the sale and purchase of the assets of the business more commonly known as "Platinum Club II" that operates from and at the Property ("Asset Purchase Agreement"); and

WHEREAS, subject to and simultaneously with the closing of the Asset Purchase Agreement, Seller will enter into a lease with RCI Entertainment, as Tenant, for the Property, dated to be effective as of the closing date, as defined in the Asset Purchase Agreement (the "Lease") attached hereto as Exhibit B and incorporated herein by reference; and

WHEREAS, subject to the closing of the Asset Purchase Agreement, the execution and acceptance by Seller of the Lease, and pursuant to the terms and provisions contained herein, Seller desires to sell and convey to Purchaser and Purchaser desires to purchase the Property.

NOW, THEREFORE, for and in consideration of the premises and mutual covenants and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

4.5 Class 5, Mon. Feb. 5

4.5.1 Real-world negotiation: Disputes over termination

This afternoon I spent time on the phone with The Other Side in negotiating a software license agreement.

  • I represent Service Provider, which wants to license complex computer software ("Software") from Developer, a small company in Silicon Valley.
  • Service Provider (my client) wants to use the software in providing on-line services ("Services") to Service Provider's customers.
  • Service Provider will pay Developer, as a royalty, a percentage of Service Provider's revenue from providing the Services.
  • Developer wants to be sure (among other things) that it gets paid, so it wants the right to terminate the license if Service Provider materially breaches the agreement (after notice and an opportunity to cure).
  • If Developer did terminate the license, then Service Provider would not be able to continue using the Software to provide services to Service Provider's customers — which might put Service Provider in breach of its contractual obligations to its customers.
  • I added the following (an edited version is below) to Developer's draft license agreement:

(f) Because of the significance of the Software License to the Service(s), a termination of the Software License for default by Service Provider will take effect only upon the entry of a final judgment or (if applicable) arbitration award, from which no further appeal is taken or possible, that termination is proper under subdivision (a).

  • Developer's attorney, from a name-brand law firm in Silicon Valley, said that my proposed addition was "unfair."

QUESTIONS: In your groups, discuss the following, then we'll discuss together:

  1. Why do you think Developer's attorney reacted the way he did?
  2. What do you think my response was?
  3. How do you think we compromised?

4.5.2 Ambiguity: Vladimir Putin

TEXT: "WASHINGTON (AP) – A Russian billionaire close to President Vladimir Putin said Tuesday he is willing to take part in U.S. congressional hearings to discuss his past business relationship with President Donald Trump's former campaign chairman, Paul Manafort." (AP.com)

QUESTIONS: 1) Who exactly is willing to take part in U.S. congressional hearings? 2) How could this be clarified?

4.5.3 Signatures: 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.

QUESTION: How should the contract signature block for Adams Investments, L.P., be written? INSTRUCTIONS: Develop a consensus, then post your version on the virtual whiteboard.

QUESTION: Why might the Widgets sales rep be so eager to get the contract signed on March 31? (Hint: It has to do with the fact that Widgets, Inc. is a newly-public company.)

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

QUESTION: Is it physically 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?

QUESTION: If Wednesday Addams asks you to sign it as the company's lawyer, how should you respond?

4.5.4 Rewrite: Warranties (consulting agreement)

The provision below comes from an agreement form used by a company in the oil and gas business:

5. Warranties and Inspections; Qualifications - Consultant warrants that all Services shall be performed in a good and workmanlike manner and shall comply with Company's specifications applicable to the Services, as outlined in each Service Order. Consultant has represented to the Company that the Consultant, its employees are skilled in the professional calling necessary to perform the services and duties agreed to be performed under this Agreement and the Service Order, and are knowledgeable and experienced and fully qualified to provide the services described in this Agreement and the Service Order. Consultant further understands that the Company is relying upon the skill and knowledge of Consultant to perform those services and duties and Consultant's representations to perform those services in accordance with the standards set forth in this Agreement and the Service Order and in a manner reasonably satisfactory to the Company. Consultant shall reperform any nonconforming Services at Consultant's sole expense and to the reasonable satisfaction of Company, or, at Company's option, refund to Company that portion of the consideration that is attributable to the nonconforming Service. If Company elects to have Consultant reperform the nonconforming Service and Consultant fails to promptly commence or complete such performance to the reasonable satisfaction of Company, then Company shall have the right to have the nonconforming Service performed by other means, and Consultant shall be responsible for all reasonable costs incurred in doing so.

Furthermore, Consultant represents and warrants that the use of any methods, processes or other items furnished in connection with the Services shall not infringe on any license, copyright, or patent (issued or applied for). Consultant covenants that it presently has no interest and shall not acquire any interest, director or indirect, which may be affected by the services to be performed by Consultant under this Agreement, or which would conflict in any manner with the performance of its services hereunder. Consultant further covenants that, in performance of this Agreement, no person having any such interest shall be employed by it. Consultant shall avoid the appearance of having any interest, which would conflict in any manner with the performance of its services pursuant to this Agreement.

EXERCISE: Break up this provision to make it more readable; consider whether any portions should be split out into separate provisions with their own subheadings.

[DCT TO SHOW HIS REWRITE IN EMACS]

4.6 Class 6, Wed. Feb. 7

4.6.1 Exercise: 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.

4.6.2 Exercise: Representations and warranties

[DCT TO SHOW ANSWERS IN EMACS AFTER DISCUSSION]

QUESTION 1: Does a representation normally relate to:
(A) a past fact?
(B) a present fact?
(C) a future fact?
(D) all of the above?
(E) none of the above? [13]

QUESTION 2: What are the basic elements that a plaintiff generally must establish to succeed in a claim for misrepresentation?

(Each small group should collaborate to answer this question in writing in its Google Doc.) [14]

QUESTION 3: Should factual representations normally be included in an agreement's recitals? Why or why not? [15]

4.6.3 Exercise: Warranties – who can sue?

FACTS:

  • You represent ABC Corporation, which is negotiating a master purchase agreement under which ABC and its various affiliates can issue purchase orders to buy widgets from XYZ Inc. You've been asked to review a draft of the master agreement, prepared by XYZ's lawyers.
  • One provision of the draft states that "XYZ warrants to ABC that the widgets, as delivered, will be free from defects in materials and workmanship."

HYPOTHETICAL: Suppose that one of ABC's affiliate corporations were to order widgets under this master agreement, and it turned out that those widgets did have defects.

[DCT TO SHOW ANSWERS ON SCREEN WHEN DONE]

QUESTION 1: Would the affiliated corporation be able to sue XYZ for breach of warranty? [16]

QUESTION 2: As ABC's lawyer, how could you improve the warranty provision on this point? [17]

4.6.4 Exercise: 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?

4.6.5 Rewriting exercise: Warranties (continued)

We'll pick up this rewriting exercise.

4.7 Class 7, Mon. Feb. 12

4.7.1 Quiz 1

The quiz is up on Blackboard and will be available to each section at the beginning of class.

4.7.2 Ambiguity and short-term trading

From a Hacker News discussion:

First commenter: "You should only short term trade with your 401k."

Responder: "You're saying, 'if you're going to short-term trade, you should use your 401k to do it in preference to any other funds source', [sic] right? Because there's a way to read this where you're saying 'the only way you should trade with your 401 is short-term'. [sic]"

First commenter: "Lol. The first."

QUESTION: How can the above sentence be clarified by simply moving words around? (As noted above, there are two possible meanings.)

QUESTION: Why did I write "[sic]" where I did?

4.7.3 Rewriting exercise: Warranties (wrap-up)

  1. Make any final changes to your rewrite of the warranty provision that we worked on last week.
  2. "Exchange papers" (swap computers, or email your revisions) with your group-mates.
  3. Compare notes.

4.7.4 Exercise: Indemnities (1)

1. What is the difference between an indemnity and a warranty? [18]

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.) [19]

3. IF FALSE, EXPLAIN WHY: An indemnity obligation allocates at least some of the financial risk of Event X. [20]

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. [21]

4.7.5 Clarity exercise: Pope Francis and Catholic doctrine

From Tara I. Burton, What a debate about Pope Francis’s supposed liberalism says about the future of Catholicism (Vox.com Feb. 8, 2018):

Francis’s papacy, while changing little in terms of Catholic doctrine, has nevertheless made welcoming those who fail to follow that doctrine (whether on abortion, LGBTQ issues, or divorce) into the Catholic community a priority.

EXERCISE: The "flow" of the above sentence could be improved by relocating some words — how?

[DCT to show his rewrites]

4.7.6 Rewriting exercise: Recitals (Rick's Cabaret)

The provision below, at https://goo.gl/DRbLRw (edgar.sec.gov), is from a 2008 real-estate purchase agreement involving the parent company of "gentleman's club" Rick's Cabaret:

You're to redraft the "Whereas" clauses below (from an actual contract). First, some background about the transaction and the contract:

  • Wire Way LLC owned land and a building, in Dallas, that was home to an "adult entertainment club" (that is to say, a strip club) known as "Platinum Club II."
  • The club was apparently operated by another company, North by East Entertainment, Ltd.; it's not clear what relationship existed between North by East and Wire Way LLC, the owner of the land and building.
  • Rick's Cabaret wanted to buy out the club; under the agreement, it would do so with a semi-complicated transaction:
    • In a related transaction, North by East (the operator of the club) would sell the assets of the club business to RCI Entertainment (Northwest Highway) Inc. ("RCI Entertainment"), which was [and is] a subsidiary of Rick's Cabaret International ("Rick's") [now named RCI Hospitality Holdings Inc.];
    • In another related transaction, Wire Way LLC would lease the land and building to RCI Entertainment; and
    • In the agreement we're studying now, Wire Way LLC would sell the land and building to RCI Holdings, Inc., which also was [and is] a subsidiary of Rick's.

ASSIGNMENT: Rewrite the "Whereas" provisions below as a "Background" section in plain English. Tell the story — not too informally, but not in a stilted, legalesey manner either.

WHEREAS, Seller is the owner of a certain real property consisting of approximately 4.637± acres of land, together with all rights, (excepting for mineral rights as set forth below), title and interests of Seller in and to any and all improvements and appurtenances exclusively belonging or pertaining thereto (the "Property") located at 10557 Wire Way, Dallas (the "City"), Dallas County, Texas, which Property is more particularly described on Exhibit A attached hereto and incorporated herein by reference; and

WHEREAS, contemporaneously with the execution of this Agreement, North by East Entertainment, Ltd., a Texas limited partnership ("North by East"), is entering into an agreement with RCI Entertainment (Northwest Highway), Inc., a Texas corporation ("RCI Entertainment"), a wholly owned subsidiary of Rick's Cabaret International, Inc., a Texas corporation ("Rick's") for the sale and purchase of the assets of the business more commonly known as "Platinum Club II" that operates from and at the Property ("Asset Purchase Agreement"); and

WHEREAS, subject to and simultaneously with the closing of the Asset Purchase Agreement, Seller will enter into a lease with RCI Entertainment, as Tenant, for the Property, dated to be effective as of the closing date, as defined in the Asset Purchase Agreement (the "Lease") attached hereto as Exhibit B and incorporated herein by reference; and

WHEREAS, subject to the closing of the Asset Purchase Agreement, the execution and acceptance by Seller of the Lease, and pursuant to the terms and provisions contained herein, Seller desires to sell and convey to Purchaser and Purchaser desires to purchase the Property.

NOW, THEREFORE, for and in consideration of the premises and mutual covenants and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

[DCT TO SHOW HIS REWRITE]

4.7.7 Ambiguity and the $10-million [missing] comma

TEXT: From O'Connor v. Oakhurst Dairy, 851 F.3d 69 (1st Cir. 2017) (reversing grant of partial summary judgment to Oakhurst):

  • "Specifically, Exemption F [of Maine's overtime law] states that the protection of the overtime law does not apply to: ¶ The canning, processing, preserving, freezing, drying, marketing, storing, packing for shipment or distribution of: ¶ (1) Agricultural produce; ¶ (2) Meat and fish products; and ¶ (3) Perishable foods." Id. at 71 (streamlined).
  • "We conclude, however, that Exemption F is ambiguous, even after we take account of the relevant interpretive aids and the law's purpose and legislative history. For that reason, we conclude that, under Maine law, we must construe the exemption in the narrow manner that the drivers favor, as doing so furthers the overtime law's remedial purposes." Id. at 72.

(The opinion goes on for 20 more pages elaborating on the reasoning that's summarized in the above excerpts.)

This reinforces the need for drafters to try to spot these issues—and write around them—on the front end, so as to avoid having these awkward and expensive conversations later.

UPDATE: The Maine legislature revised the statute to replace the commas with semicolons, thusly:

The canning; processing; preserving; freezing; drying; marketing; storing; packing for shipment; or distributing of:

(1) Agricultural produce;

(2) Meat and fish products; and

(3) Perishable foods.

That led to Oakhurst Dairy settling the overtime lawsuit with its drivers. See Daniel Victor, Oxford Comma Dispute Is Settled as Maine Drivers Get $5 Million (NYTimes.com Feb. 9, 2018)

4.8 Class 8: Wed. Feb. 14

4.8.1 Ambiguity exercise: North Korean weaponry

From Yochi Dreazen, Here’s what war with North Korea would look like (Vox.com Feb. 7, 2018):

Gregson thinks Kim [Jong Un] wouldn’t only use his chemical weapons against military targets in South Korea. The Pentagon has a sizable military presence in neighboring Japan, and the island of Guam is a US territory that is home to more than 163,000 American citizens. Both are well within range of Kim’s missiles and rockets — and Gregson expects both would be hit.

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

EXERCISE: Come up with two better ways to phrase the italicized portion — one for each possible meaning.

4.8.2 Exercise: Atari indemnification provision

From section 11 of an Atari consulting contract at https://goo.gl/TvfYKa (onecle.com via archive.org):

Consultant agrees to indemnify and hereby does indemnify, defend and hold harmless Atari, its affiliates, and their respective officers, directors, employees, distributors, agents, customers and licensees from and against any liability, damage or expenses (including without limitation attorneys' fees) based on the untruth or breach of any representation, warranty or covenant contained in this agreement.

QUESTIONS:

  1. Given the meaning of indemnify (see [BROKEN LINK: IndemnDefn][BROKEN LINK: IndemnDefn]), what does the phrase, "and hereby does indemnify" literally mean, and does that make business sense?
  2. The end of this provision refers to the "untruth" of any "covenant"; any thoughts about that?
  3. Does Atari gain anything by asking for this indemnity obligation, as opposed to relying on straightforward breach-of-contract remedies?
  4. If you were representing Consultant, what might you say about the list of beneficiaries of this indemnity obligation?
  5. If you were representing Consultant, how might you try to negotiate less-onerous terms for this provision?

4.8.3 Ambiguity and a suspected pedophile

From this tweet by ABC Channel 13 (Houston): "Suspected Houston-area pedophile accused of assaulting 16-year-old arrested in Canada"

QUESTION: How could this be clarified by adding two tiny characters?

4.8.4 wall of words: Verizon-Yahoo real-property warranty

In the Verizon-Yahoo stock purchase agreement, rewrite section 2.15 in the virtual whiteboard.

4.8.5 Planning exercise: Liquid natural gas export

Cheniere Energy announced last Friday that it had entered into a 25-year contract with China National Petroleum Corporation to supply liquid natural gas (LNG).

In your groups in the virtual whiteboard, brainstorm the "what ifs" of the 25-year contract, especially with an eye to what might change during that time. Use the "T.O.P.   S.P.I.N." mnemonic from section 1.8 of Getting a Workable Contract to Signature Sooner; that section lays out a methodical approach to scenario identification and planning.

4.9 Class 9, Mon. Feb. 19

4.9.1 In the news

4.9.1.1 M&A deals

Jordan Blum, Fieldwood Energy buys Noble Energy in bankruptcy "prepack" (Chron.com Feb. 15, 2018)

Katherine Blunt, LyondellBasell to buy specialty plastics maker (HoustonChronicle.com Feb. 16, 2018)

Paul Takahashi and Ileana Najarro, H-E-B acquires Favor Delivery (HoustonChronicle.com Feb. 15, 2018)

Quick review/overview of how acquisition agreements are structured:

  1. Seller will sell, buyer will buy
  2. Reps and warranties AND disclosure schedule with exceptions
  3. Closing details
  4. Seller' interim obligations
    • Keep the business going as-is, no major changes w/o buyer's approval
    • Cooperate in getting regulatory approvals
  5. Escape clause(s), especially:
    • "material adverse event" definition
    • "fiduciary out"
  6. Breakup fee
4.9.1.2 TOP SPIN: Threats that can arise from people; the supply chain; and interveners

Steve Wynn Will Lose Hundreds of Millions in Severance Amid Sexual-Misconduct Claims (wsj.com)

U.S. Bank accused of neglecting anti-money laundering rules [and even facilitating illegal activity]

The Justice Department accused U.S. Bank, which is based in Minneapolis, of severely neglecting anti-money laundering rules, helping a payday lender operate an illegal business and lying to a regulator about its plans for tracking potential criminal activity by bank customers.

Federal prosecutors in Manhattan reached an agreement with U.S. Bank to defer prosecution as long as the bank could show it had improved its monitoring of customer transactions. To settle the Justice Department charges and cases brought by other regulators, the bank agreed to pay various fines and penalties totaling $613 million.

J.M. Smucker recalling some dog food for pentobarbital (euthenasia drug): "'The Company has identified the root cause to be a single supplier and a single, minor ingredient, used at one manufacturing facility,'" it said in a statement."

McDonald's moves cheeseburgers off Happy Meal menu

4.9.2 Planning exercise: Liquid natural gas export (continued)

Cheniere Energy announced last Friday that it had entered into a 25-year contract with China National Petroleum Corporation to supply liquid natural gas (LNG).

In your groups in the virtual whiteboard, brainstorm the "what ifs" of the 25-year contract, especially with an eye to what might change during that time. Use the "T.O.P.   S.P.I.N." mnemonic from section 1.8 of Getting a Workable Contract to Signature Sooner; that section lays out a methodical approach to scenario identification and planning.

4.9.3 Ambiguity exercise: Prime rate plus 2%

TEXT (from a dispute that I arbitrated): A contract states that payments remaining past due more than 30 days after the due date will bear interest at “a rate per annum equal to the prime rate published by the Wall Street Journal on the business day before the date on which such interest begins to accrue, changing with each change in such published rate, plus two percent (2%)."

FACTS: On the relevant date, the Journal's published U.S. prime rate was 4.00%.

QUESTION: On its face, from a drafting style perspective, what's wrong with this interest-rate provision?

QUESTION: What interest rate should be applied to the late payment — 6%, or 4.08%?

QUESTON: How could the interest-rate language be clarified?

4.9.4 Exercise: 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.)

4.9.5 wall of words: Indemnification (Duke Energy)

Working with your group, brainstorm in the virtual whiteboard how you might rewrite from scratch the provision below, from a services agreement form used by Duke Energy Ohio/Kentucky, lnc./LLC ("Duke Energy"), at https://goo.gl/imaf3v (archive.org).

(I say "rewrite from scratch" because the original language is so bad, it's irreedemable.)

Do it in the following steps:

  1. Look over DCT's version below.
  2. Figure out what the drafter was trying to protect against — that's the purpose of this exercise — then write that, as simply as you can, in the virtual whiteboard — for now, don't worry about covering every possible contingency.

VIII.   INDEMNIFICATION

To the maximum extent permitted by applicable law, Contractor will indemnify, defend and hold harmless Duke Energy (including its parent, subsidiary and affiliate companies), its officers, employees, agents, and any other party with an ownership interest in the premises from and against all liability, loss, costs, claims, damages, expenses, judgments, and awards, whether or not covered by insurance, arising or claimed to have arisen in whole or in part: (a) from acts or omissions of, or as a result of Services performed or omitted from being provided or performed, or as a result of negligence by Contractor, its subcontractors, materialmen, or assignees and their agents or employees, which resulted in: (i) injury (including mental or emotional) to or death of any person, including employees of Duke Energy (including its parent, subsidiary and affiliate companies) or (ii) damage to or destruction of any property, real or personal, including without limitation property of Duke Energy (including its parent, subsidiary and affiliate companies) and lits other cont~actors, Duke Energy's (including its parent, subsidiary and affiliate companies') employees and fellow employees; (b) out of injuries sustained and/or occupational diseases contracted by Contractor, its employees, Contractor's subcontractors or Contractor's assignee's employees, if any, of such a nature and arising under such circumstances as to create liability by Duke Energy (or its parent, subsidiary or affiliate companies) or Contractor under the Workers' Compensation Act, and all amendments thereto, of the state having jurisdiction, including all claims and causes of action of any character against Duke Energy (and its parent, subsidiary and affiliate companies) by any employee of Contractor, its subcontractors or assignees, or the employer of such employees, or any person or concern claiming by, under or through them resulting from or in any manner growing out of such injuries or occupational diseases; (c) from demands, actions or disputes asserted by any subcontractors, employees or suppliers of Contractor; (d) from any claim that the Services or Duke Energy's use of the Services infringes any patent, copyright, trademark, trade name, service mark or other property right; (e) from any breach of warranty by Contractor; and (f) from any claim that the Services are defective. Indemnification will include all costs, including attorneys' fees reasonably incurred in pursuing indemnity claims under or enforcement of this Agreement. In the case of a claim that the Services are infringing, Contractor shall have the right, at its sole expense, to obtain for Duke Energy the right to continue using the Services without interference or to modify or replace the Services in a manner acceptable to Duke Energy in its sole discretion. Duke Energy will give Contractor reasonable notice of any claim Duke Energy contends falls within this indemnification. Contractor waives all rights of recovery, including for contribution, against Duke Energy and its directors, officers, employees, affiliates and subcontractors, and joint owners of any facilities for any matters to which this Section may apply. Contractor's indemnification obligation will not be limited in any way by any limit on the amount or type of damages, compensation, or benefits payable by or for Contractor or any third party under worker's damages, compensation, disability or other employee benefits acts, nor by the provisions of any required insurance. The foregoing notwithstanding, Duke Energy agrees to hold harmless, defend and indemnify Contractor against any claim or liability arising from the presence or release of mercury, or any damage or expense caused by such mercury, at the time of the Services or any subsequent time thereafter, at customer premises in connections with its operations in removing gas meters and regulators, except for claims and/or liabilities that arise from Contractor's negligence or any third party working under the direction of Contractor.

Here's my first pass at rewriting this — after spending ten minutes, I gave up in despair:

VIII.   INDEMNIFICATION [DCT FIRST-PASS REWRITE]

(a)     This section applies to the maximum extent permitted by applicable law.

(b)     Contractor will Protect all Protected Persons from all Protected Events, all as defined below.

(c)     The term "Protected Persons" refers to:

(1)     Duke Energy;

(2)     Any individual or organization that (directly or indirectly) controls; is controlled by; or is under common control with, Duke Energy — for this purpose, control refers to possession of the power, by voting right or otherwise, to direct the business of the controlled individual or organization;

(3)     any other party with an ownership interest in the [Duke Energy] premises; and

(4)     the employees; officers and directors (and others having comparable positions in non-corporate organizations); and agents of each organization referred to in subdivision (1) through (3).

(d)     In respect of a Protected Event, defined below, to "Protect" means:

(1)     to defend against claims of third parties (each, a "Claim"); and

(2)     to reimburse [or "indemnify"] for all liability, loss, costs, damages, expenses, judgments, and awards (each, a "Loss"),

where the Claim or Loss arises, or is claimed to have arisen, in whole or in part, from a Protected Event, as defined below.

(e)     The term "Contractor Group" refers collectively to:

(1)     Contractor;

(2)     Contractor's subcontractors and materialmen;

(3)     each assignee of any individual or organization listed in subdivisions (1) and (2); and

(4)     each agent and employee of each individual or organization listed in subdivisions (1) through (3).

(e)     The term "Protected Event" refers to a Claim or Loss arising, in whole or in part:

(A) from any of the following:

(1)     acts or omissions of any member of the Contractor Group;

(2)     Services performed, or omitted from being provided or performed, by any member of the Contractor Group;

(3)     negligence by any member of the Contractor Group,

which and that resulted in:

          (i) injury (including mental or emotional) to or death of any person, including without limitation employees of Duke Energy (including its parent, subsidiary and affiliate companies) or

          (ii) damage to or destruction of any property, real or personal, including without limitation property of Duke Energy (including its parent, subsidiary and affiliate companies) and its other contractors, Duke Energy's (including its parent, subsidiary and affiliate companies') employees and fellow employees;

(B) out of injuries sustained and/or occupational diseases contracted by Contractor, its employees, Contractor's subcontractors or Contractor's assignee's employees, if any, of such a nature and arising under such circumstances as to create liability by Duke Energy (or its parent, subsidiary or affiliate companies) or Contractor under the Workers' Compensation Act, and all amendments thereto, of the state having jurisdiction,

including all claims and causes of action of any character AGAINST Duke Energy (and its parent, subsidiary and affiliate companies) BY any employee of Contractor, its subcontractors or assignees, or the employer of such employees, or any person or concern claiming by, under or through them resulting from or in any manner growing out of such injuries or occupational diseases;

(C) from demands, actions or disputes asserted by any subcontractors, employees or suppliers of Contractor;

(D) from any claim that the Services or Duke Energy's use of the Services infringes any patent, copyright, trademark, trade name, service mark or other property right;

(E) from any breach of warranty by Contractor; and

(F) from any claim that the Services are defective.

(f)     Indemnification will include all costs, including attorneys' fees reasonably incurred in pursuing indemnity claims under or enforcement of this Agreement.

(g)     In the case of a claim that the Services are infringing, Contractor shall have the right, at its sole expense, to obtain for Duke Energy the right to continue using the Services without interference or to modify or replace the Services in a manner acceptable to Duke Energy in its sole discretion.

(h)     Duke Energy will give Contractor reasonable notice of any claim Duke Energy contends falls within this indemnification.

(i)     Contractor waives all rights of recovery, including for contribution, against Duke Energy and its directors, officers, employees, affiliates and subcontractors, and joint owners of any facilities for any matters to which this Section may apply.

(j)     Contractor's indemnification obligation will not be limited in any way by any limit on the amount or type of damages, compensation, or benefits payable by or for Contractor or any third party under worker's damages, compensation, disability or other employee benefits acts, nor by the provisions of any required insurance.

(k)     The foregoing notwithstanding, Duke Energy agrees to hold harmless, defend and indemnify Contractor against any claim or liability arising from the presence or release of mercury, or any damage or expense caused by such mercury, at the time of the Services or any subsequent time thereafter, at customer premises in connections with its operations in removing gas meters and regulators, except for claims and/or liabilities that arise from Contractor's negligence or any third party working under the direction of Contractor.

(l) ("ell")     Contractor's obligations under this section apply regardless whether the Protected Event is covered by insurance maintained by any Protected Person.

4.10 Class 10, Wed. Feb. 21

4.10.1 Housekeeping

Next Monday we will switch to new group assignments.

4.10.2 In the news

DCT to report on "Indemnnities" HBA CLE lunch today.

4.10.3 Stanford-Tesla lease agreement: Landlord consent terms

From the Stanford-Tesla lease agreement:

6.1 Permitted Use. Tenant may use and occupy the Premises during the Term solely for the uses specified and permitted in Article 1 and for no other purpose without the prior written consent of Landlord, such consent to be granted or withheld in Landlord’s sole and unfettered discretion. …

6.2 Prohibited Uses. … No loudspeaker or other device, system or apparatus shall be used at the Premises without the prior written consent of Landlord. No explosives or firearms shall be brought onto the Premises without the prior written consent of Landlord, which Landlord may withhold in its sole and absolute discretion.

QUESTION: What difference is there — if any — between the consents in 6.1 and at the end of 6.2, versus the first one in 6.2?

QUESTION: How might a court interpret the "No loudspeaker or other device, system or apparatus" language? What did the parties likely intend? EXERCISE: In your groups, discuss how to rewrite this sentence.

4.10.4 Rewriting experiment: Stanford-Tesla lease agreement triple-net lease

See the detailed, step-by-step instructions below for rewriting the following provision from the Stanford-Tesla lease agreement:

7.2 Real Property Taxes. Without limiting the foregoing, Additional Rent shall include, and Tenant agrees to bear, discharge and pay as the same become due, and before delinquency, all taxes, assessments, rates, charges, license fees, municipal liens, levies, excises or imposts, whether general or special, or ordinary or extraordinary, of every name, nature and kind whatsoever, including all governmental charges of every name, nature or kind that may be levied, assessed, charged or imposed or maybe or become a lien or charge upon the Premises or any part thereof; or upon the rent or income of Tenant; Or upon the use or occupancy of the Premises; or any document creating or transferring an estate or interest in the Premises; upon any of the buildings or improvements existing at any time during the Term upon the Premises; or upon the leasehold of Tenant; or upon Landlord by reason of its ownership of the Premises (but not including any franchise, transfer, inheritance, or capital stock taxes or income taxes measured by the net income of Landlord unless, due to a change in the method of taxation, any of such taxes is levied or assessed against Landlord as a substitute for, in whole or in part, any other tax that would otherwise be the responsibility of Tenant). If at any time during the Term, under any Applicable Laws, any tax is levied or assessed against Landlord directly, in substitution in whole or in part for real property taxes, Tenant covenants and agrees to pay and discharge such tax. All of the foregoing taxes, assessments and other charges which are the responsibility of Tenant are herein referred to as “Property Taxes.” Notwithstanding the foregoing, Tenant shall have no obligation to pay (a) any portion of an increase in Property Taxes, if any, attributable to a reassessment for assessment year 2007-2008 as a result of Landlord’s recent acquisition of the ground lease interest in the Premises; or (b) any environmental assessment, charges or liens arising in connection with the remediation of Hazardous Materials from the Premises, the causation of which arose prior to the delivery of the Premises to Tenant, or to the extent caused by Landlord or any of Landlord’s agents, (c) costs or fees (other than general real property taxes) payable in connection with Landlord’s right to further develop the Premises, and (d) property transfer taxes, stamp or recording taxes attributable to Landlord’s transfer of ownership of the Premises or any interest of Landlord therein.

  1. Change the existing (a), (b), etc., into (1), (2), etc.
  2. Break up the paragraph into one-sentence paragraphs — don't give them "numbers" (a), (b), etc., just yet.
  3. In (what is currently) the first sentence/paragraph, start a new paragraph beginning with the words "all taxes, assessments, rates, charges," etc.
  4. In the first sentence/paragreaph, choose a defined term, then change the term "before delinquency" (which now marks the end of the paragraph) to "before delinquency, all [insert your defined term], as defined below."
  5. In (what is now) the second paragraph:
    • At the beginning of the paragraph, change "all taxes, assessments," etc., to "[Your defined term]" refers to all taxes, assessments," etc.
    • Put a period after "every name, nature and kind whatsoever."
    • Start a new paragraph beginning with "including all governmental charges …."
  6. In (what is now) the third paragraph:
    • At the beginning of the paragraph, change "including all governmental charges …" to "[Your defined term] includes, without limitation, all governmental charges …."
    • Change "maybe or become a lien or charge upon the Premises" to "may be or become a lien or charge upon: " (note the colon).
    • Separate each "upon …" into its own separate, indented paragraph (1), (2), etc. — for example, "upon the Premises or any part thereof; or upon the rent or income of Tenant …" becomes "upon: [¶] (1) the Premises or any part thereor; or [¶] (2) the rent or income of Tenant," etc.
  7. In the phrase that begins, "or upon Landlord by reason of its ownership of the Premises (but not including any franchise, transfer …)":
    • Change "ownership of the Premises" to "ownership of the Premises except as provided below."
    • Break the parenthetical "(but not including …" into a new paragraph.
    • Draft an introductory phrase to signal that the "parent" paragraph (the one you just broke up) is subject to the exceptions listed in the "(but not including …" language.
  8. Fix "Tenant covenants and agrees to pay and discharge such tax." Hint 1: What's a simpler way to say "Tenant covenants and agrees"? Hint 2: What's a simpler way to say "pay and discharge such tax"?
  9. In the last sentence, make separate, indented paragraphs of the (1), (2), etc. (which you changed from the original (a), (b), etc.).
  10. "Number" the main paragraphs with (a), (b), etc., so that (1), (2), etc., are subdivisions.
  11. Step back and admire your work!

4.10.5 Ambiguity exercise: Making babies

TEXT (forwarded by 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."

EXERCISE: Discuss how this could be clarified with one tiny character.

4.10.6 Rewriting exercise: Stanford-Tesla project costs

In the Stanford-Tesla lease agreement, rewrite the following paragraph using the same basic steps as you applied in rewriting the triple-net-lease exercise:

7.3 Project Costs. In addition to Minimum Rent, Tenant shall pay or fund when due all Property Taxes, insurance premiums and deductibles, debt service, permit and license fees, costs of utilities and services, maintenance, repair, replacement, rebuilding, restoration, management, marketing and leasing services, operations and other costs of any type whatsoever accruing at any time during the Term in connection with the ownership, marketing, leasing, operation, management, maintenance, repair, replacement, restoration, use, occupancy or enjoyment of the Premises (collectively, “Project Costs”). Tenant shall pay all Project Costs directly, and shall contract directly for all required services, utilities (including without limitation water, gas, electricity, sewer service, waste pick-up, telephone and other electronic telecommunication services) and other items described herein; provided, however, that Landlord shall have the right to contract for any such services, utilities or other items if Tenant has failed to do so, or has failed to make any payment of Project Costs which is due and owing. Tenant shall provide Landlord, upon written request, with copies of invoices, receipts, canceled checks and/or other documentation reasonably substantiating Tenant’s payment of all Project Costs.

4.10.7 Clarity exercise: Donald Trump and Nigel Farange

From a tweet: "You can’t have observed Nigel Farage in recent years and not think Trump may win in November, writes @NYTimesCohen nyti.ms/2bMhUUj" (emphasis added)

QUESTION: How could this be improved? [22]

4.10.8 Ambiguity exercise: A gift to siblings

TEXT: I will give you and your brother $1 million.

QUESTION: How much total will the siblings get — $1 million, or $2 million?

EXERCISE: Rewrite to clarify.

QUESTION: What if the text were: You will give me and my brother $1 million?

QUESTION: What if the text were: I will give you and your husband $1 million.

4.10.9 Homework

For Monday Feb. 26 by 12:00 midnight (at the end of the day): Post your work above (both exercises) to Blackboard as Homework #2.

4.11 Class 11, Mon. Feb. 26

4.11.1 Homework 1: DCT comments

  1. "Consultant warrants …" vs. "Consultant represents to Company …."
  2. Questions?

4.11.2 Ambiguity: Separate interviews

From an arbitration award I was writing (and caught myself): "Ms. Doe and her coworker Jane Roe were separately interviewed by Human Resources manager John Doe and Becky Bow."

QUESTION: How many people were interviewed by how many people?

4.11.3 Flashcard prep

In the virtual whiteboard, work in your groups to come up with at least five good flashcard questions and answers, per group, concerning the material we've covered in the past two weeks. The questions can be:

  • true-false
  • multiple choice
  • fill-in-the-blank

I will use your work in drafting additional flashcards for the collection.

4.11.4 Statutory subject-verb proximity example (not!)

Retweeted by Bryan Garner: This.

The statute: "A person who engages in conduct proscribed under section 530 and who in the course of engaging in that conduct, possesses a dangerous weapon or an article used or fashioned in a manner to lead any person present to reasonably believe the article is a dangerous weapon, or who represents orally or otherwise that he or she is in possession of a dangerous weapon, is guilty of a felony punishable by imprisonment for life or for any term of years. If an aggravated assault or serious injury is inflicted by any person while violating this section, the person shall be sentenced to a minimum term of imprisonment of not less than 2 years."

With bold-facing and pilcrows: "A person who engages in conduct proscribed under section 530 and who in the course of engaging in that conduct, possesses a dangerous weapon or an article used or fashioned in a manner to lead any person present to reasonably believe the article is a dangerous weapon, or who represents orally or otherwise that he or she is in possession of a dangerous weapon, is guilty of a felony punishable by imprisonment for life or for any term of years. ¶¶ If an aggravated assault or serious injury is inflicted by any person while violating this section, the person shall be sentenced to a minimum term of imprisonment of not less than 2 years."

Rewritten by Prof. Cooney: "A person is guilty of a felony if, while committing a crime under section 530, he or she: ¶ (1) possesses a dangerous weapon; (2) possesses an article used as a dangerous weapon; …"

4.11.5 Reps and warranties review: Differences (1)

QUESTION: What's the difference in the proof path for misrepresentation between:

  1. Consultant represents that, so far as Consultant is aware, Consultant's employees are skilled.
  2. Consultant represents that Consultant's employees are skilled.

4.11.6 Reps and warranties review: Differences (2)

QUESTION: If Consultant were to make one of these representations, what might the other side argue about the elements of proof for misrepresentation?

  1. Consultant represents that, so far as Consultant is aware, Consultant's employees are skilled.
  2. Consultant represents that, to the best of Consultant's knowledge, Consultant's employees are skilled.
  3. Consultant represents that, to Consultant's knowledge, Consultant's employees are skilled.

4.11.7 Rewriting exercises

By request, we'll continue with the rewriting exercises we started last Wednesday.

4.11.8 Ambiguity: Ivanka Trump in South Korea

From the president: "My daughter, Ivanka, just arrived in South Korea. We cannot have a better, or smarter, person representing our country." From Jonathan Chait: "That second sentence can really be read a couple ways." [DCT comment: It'd be better to say "a couple of ways."] From Gary Schroeder: "Also, the use of commas implies that she is his only daughter."

4.12 Class 12, Wed. Feb. 28

4.12.1 Quiz next Monday

Fair game:

  • All flashcard questions — including those posted by the class on Monday
  • Anything we've discussed in class

4.12.2 Lecture: Lessons from 2017 Academy Awards "Best Picture"

  1. R.O.O.F.: "Simply put the name of the category in large letters on each envelope: Best Movie, Best Actress, Best Cinematography, etc." (WSJ.com commenter Felix Kapron)
  2. You get what you inspect, not what you expect; having someone else second-check things — even tiny details — can pay off.
  3. Warren Beatty could have put the brakes on, if he hadn't been a deer in the headlights.
  4. It took two full minutes for the CPAs and telecast producers to step in to fix the problem. (Did they train for that problem?)
  5. Note the energetic, classy response by La La Land's executive producer Jordan Horowitz: Acknowledge, accept, enjoy, act.

4.12.3 The fired basketball coach and the misplaced closing parenthesis

The head basketball coach of the University of Arizona, Sean Miller, was fired after being accused of arranging for a recruited student to be paid $100,000 (slang: $100K). According to ESPN, the coach's employment contract states that if he is terminated for cause, the school's "sole obligation to Coach shall be payment of his base salary [which would have been for an additional four years] as provided in Section III (and where applicable, any accrued Additional Compensation eared under Section IV prior to the date of such termination)" (emphasis added).

QUESTION: Is the closing parenthesis in the right place? Where should it have been?

(Hat tip: UHLC student Sean Santarelli)

4.12.4 Discussion: Services provisions

In your groups, discuss the following:

  1. In a master services agreement, which should take precedence: a statement of work, or the master agreement? Why?
  2. In a master services agreement, should each new statement of work: (A) be considered an addition to the master agreement, or (B) be a separate contract that incorporates the master agreement by reference? Why?
  3. When might it make sense for a customer to "pull the permits" for services work, instead of the service provider?
  4. What exactly does "workmanlike performance" mean?
  5. What are the "classic three" remedies for defects in services?
  6. Why do customers typically want a services agreement to state that the provider will control the means and manner of the work? Wouldn't customers want to keep that flexibility?
  7. Extra: When drafting a services agreement for a customer, what sorts of things should you plan for if the customer wants to "pull the plug" before the job is done?

4.12.5 Ambiguity: Meow

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

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

4.12.6 Rewriting exercise: Verizon-Yahoo officer indemnities

Rewrite the following:

4.08 Indemnification and Insurance

(a) Following the Closing, Purchaser shall cause the Business Subsidiaries not to make any changes to their respective organizational documents that would adversely affect the rights of persons who are currently or who were officers or directors of, or in a comparable role with, any of the Business Subsidiaries (but not in the capacity of any roles of such persons with Seller) to claim indemnification from such entity under the terms of their respective organizational documents as in effect on the date hereof unless such changes are required by Law and then only to the minimum extent required by Law. Prior to the Closing, the Company shall or, if the Company is unable to, Purchaser shall cause the Company as of the Closing to, obtain and fully pay the premium for the non-cancellable extension of the directors' and officers' liability coverage of Seller's existing directors' and officers' insurance policies and fiduciary liability insurance policies (collectively, the “D&O Insurance”), covering persons who are currently or who were officers or directors of, or in a comparable role with, any of the Business Subsidiaries (but not in the capacity of any roles of such persons with Seller), for a claims reporting or discovery period of six years from and after the Closing with respect to any claim related to any period of time at or prior to the Closing from an insurance carrier with the same or better credit rating as Seller's current insurance carrier with respect to D&O Insurance with terms, conditions, retentions and limits of liability that are no less favorable than the coverage provided under Seller's existing policies; provided, that the premium for such “tail” insurance shall not exceed 300% of the annual premium currently paid by Seller.

(b) Following the Closing, Purchaser shall, and shall cause the Company to, as the primary source of indemnification, indemnify, defend and hold harmless the current and former directors and officers of, or persons in a comparable role with, the Business Subsidiaries (but not in the capacity of any roles of such persons with Seller) for any damages, Taxes, Liabilities, costs and expenses (including reasonable attorneys' fees) in connection with any actual or threatened Action or investigation (whether civil, criminal, administrative or investigative) arising from any acts or omissions by such persons, in their respective capacities as directors or officers of, or in a comparable role with, the Business Subsidiaries (but not Seller) prior to the Closing Date, other than acts or omissions arising out of the Excluded Assets or the Retained Liabilities.

(c) If Purchaser or any of its successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers all or substantially all of its properties and assets to any Person, then, in each case, Purchaser shall make proper provision so that the successors and assigns of Purchaser shall assume all of the obligations of Purchaser set forth in this Section 4.08.

(d) The provisions of this Section 4.08 are intended for the benefit of the current and former officers and directors of, or persons in a comparable role with, the Business Subsidiaries (but not in the capacity of any roles of such persons with Seller), and shall be enforceable by such individuals (in such capacities) and their heirs and representatives.

4.13 Class 13, Mon. Mar. 5

4.13.1 Quiz 2

Do it on Blackboard. You'll have seven minutes, after which your work will be automatically saved and you'll be locked out.

4.13.2 R.O.O.F. at the Oscars

See the gigantic lettering on "The Envelope" in this photo.

(After last year's screw-up, the PWC partners were booted off the account.)

4.13.3 Review: 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 1. 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"?

QUESTION 2: What personal motives might the VP of sales have for backdating the contract signatures? Consider, for example:

  • financial motivations
  • non-financial motivations

4.13.4 Ambiguity: Mortgage-backed securities

TEXT: From David Dayen, Trump’s Regulators Want to Kill a Key Financial Rule That Even Republicans Support, (newrepublic.com Jan. 23, 2018):

… the [banks' financial] assets are counted differently according to the risk they hold. This can prove disastrous if the “low-risk” assets are actually dangerous—as mortgage-backed securities were considered to be during the housing bubble.

QUESTION: What exactly were mortgage-backed securities considered to be during the housing bubble — were they considered dangerous, or were they considered low-risk?

QUESTION: How could this problem be fixed?

4.13.5 Assignment of port operating agreement

FACTS:

(A) You represent Port Operations, Inc., which operates the Port of Bayou City under a contract with Harris County.

(B) The contract states that the contract may not be assigned without the County's prior written consent.

(C) Port Operations receives a buy-out offer from a Saudi shipping magnate who wants to do a "roll-up" of port-operating companies throughout the world.

(D) The County demands a $10 million fee in return for its consent to assignment of the contract.

QUESTION 1. If the contract didn't have an assignment-consent requirement, would the County's consent be required? [23]

QUESTION 2. How much does it matter whether the "roll-up" would take the form of (i) an asset purchase, or (ii) a merger? [24]

QUESTION 3. Name at least two ways in which, during the contract negotiation with the County, Port Operations could have protected its ability to agree, in the future, to the Saudi buy-out. [25]

QUESTION 4. In the virtual whiteboard, draft a provision that would protect Port Operations's ability to agree to the Saudi buy-out.

4.13.6 Grammar fail: Professor Goodenough's prospects

From the Houston Chronicle:

Feeling behind in school wasn't new for Goodenough when he started his physics Ph.D. at the University of Chicago. As a child, his dyslexia went undiagnosed. But it still stung when, after serving in World War II, an administrator told him he wouldn't make it as a physicist because he had started too late. He was in his 20s.

QUESTION (discuss in your groups): What's wrong with the italicized portion?

4.13.7 Ambiguity in deadlines

EXERCISE: Rewrite the following to eliminate the ambiguities:

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

4.13.8 Rewriting exercise: Verizon-Yahoo officer indemnities

Continue rewriting the following:

4.08 Indemnification and Insurance

(a) Following the Closing, Purchaser shall cause the Business Subsidiaries not to make any changes to their respective organizational documents that would adversely affect the rights of persons who are currently or who were officers or directors of, or in a comparable role with, any of the Business Subsidiaries (but not in the capacity of any roles of such persons with Seller) to claim indemnification from such entity under the terms of their respective organizational documents as in effect on the date hereof unless such changes are required by Law and then only to the minimum extent required by Law. Prior to the Closing, the Company shall or, if the Company is unable to, Purchaser shall cause the Company as of the Closing to, obtain and fully pay the premium for the non-cancellable extension of the directors' and officers' liability coverage of Seller's existing directors' and officers' insurance policies and fiduciary liability insurance policies (collectively, the “D&O Insurance”), covering persons who are currently or who were officers or directors of, or in a comparable role with, any of the Business Subsidiaries (but not in the capacity of any roles of such persons with Seller), for a claims reporting or discovery period of six years from and after the Closing with respect to any claim related to any period of time at or prior to the Closing from an insurance carrier with the same or better credit rating as Seller's current insurance carrier with respect to D&O Insurance with terms, conditions, retentions and limits of liability that are no less favorable than the coverage provided under Seller's existing policies; provided, that the premium for such “tail” insurance shall not exceed 300% of the annual premium currently paid by Seller.

(b) Following the Closing, Purchaser shall, and shall cause the Company to, as the primary source of indemnification, indemnify, defend and hold harmless the current and former directors and officers of, or persons in a comparable role with, the Business Subsidiaries (but not in the capacity of any roles of such persons with Seller) for any damages, Taxes, Liabilities, costs and expenses (including reasonable attorneys' fees) in connection with any actual or threatened Action or investigation (whether civil, criminal, administrative or investigative) arising from any acts or omissions by such persons, in their respective capacities as directors or officers of, or in a comparable role with, the Business Subsidiaries (but not Seller) prior to the Closing Date, other than acts or omissions arising out of the Excluded Assets or the Retained Liabilities.

(c) If Purchaser or any of its successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers all or substantially all of its properties and assets to any Person, then, in each case, Purchaser shall make proper provision so that the successors and assigns of Purchaser shall assume all of the obligations of Purchaser set forth in this Section 4.08.

(d) The provisions of this Section 4.08 are intended for the benefit of the current and former officers and directors of, or persons in a comparable role with, the Business Subsidiaries (but not in the capacity of any roles of such persons with Seller), and shall be enforceable by such individuals (in such capacities) and their heirs and representatives.

4.14 Class 14, Wed. Mar. 7

4.14.1 Quiz 2: Any questions?

I'll be happy to entertain questions about the quiz.

4.14.2 Ambiguity: Coach D'Antoni and OKC

From Jonathan Feigen, Rockets coach Mike D'Antoni has high praise for Betes Bros (Chron.com Mar. 7, 2018).

OKLAHOMA CITY - Before Rockets coach Mike D'Antoni could begin his media availability on Tuesday he wanted to praise an Oklahoma City-based group, Betes Bros, an organization that helps people with diabetes that contributed after Hurricane Harvey.

QUESTION: Who exactly contributed after Harvey — Betes Bros, or people with diabetes?

DISCUSS: How could this be rewritten to clarify?

4.14.3 Drafting exercise: Widget warranties

FACTS:

  1. You represent Alice, who 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. Alice wants you to draft a contract for her to enter into with Bob; under that contract, Bob will buy electronic widgets from Alice.
  4. Bob has told Alice that he wants the contract to include, among other provisions:
    • a warranty that the widgets do not contain any defects in design or manufacture; and
    • a provision requiring Alice to indemnify Bob against any harm Bob suffers from defects in the widgets.

EXERCISE:

A. In your groups, discuss what "fences" Alice might want in the two provisions.

B. In the virtual whiteboard, draft the two provisions referred to above. Feel free to use whatever language you come across.

4.15 Class 15, Mon. Mar. 19

4.15.1 New flashcards

I've reworked the "technology" of the flashcards to make it easier for me to install new questions and answers.

There's also a link at the top of the page that lets you show all answers on the page for easier use in straight reading/review.

The flashcards include a number of new questions, starting with #114. They're fair game for Quiz #3 next week. I'll be adding more questions and answers and announcing them as I do.

4.15.2 Lessons from Homework #2 – Stanford-Tesla § 7.2

4.15.2.1 BLUF: Bottom Line Up Front

"Property Taxes" is already used as a defined term — that's an argument for putting that term up front, as in:

BEFORE:

7.2 Real Property Taxes. Without limiting the foregoing, Additional Rent shall include, and Tenant agrees to bear, discharge and pay as the same become due, and before delinquency, all taxes, assessments, rates, charges, license fees, municipal liens, levies, excises or imposts, whether general or special, or ordinary or extraordinary, of every name, nature and kind whatsoever, including all governmental charges of every name, nature or kind that may be levied, assessed, charged or imposed or maybe or become a lien or charge upon the Premises or any part thereof; or upon the rent or income of Tenant; Or upon the use or occupancy of the Premises; or any document creating or transferring an estate or interest in the Premises; upon any of the buildings or improvements existing at any time during the Term upon the Premises; or upon the leasehold of Tenant; or upon Landlord by reason of its ownership of the Premises (but not including any franchise, transfer, inheritance, or capital stock taxes or income taxes measured by the net income of Landlord unless, due to a change in the method of taxation, any of such taxes is levied or assessed against Landlord as a substitute for, in whole or in part, any other tax that would otherwise be the responsibility of Tenant). If at any time during the Term, under any Applicable Laws, any tax is levied or assessed against Landlord directly, in substitution in whole or in part for real property taxes, Tenant covenants and agrees to pay and discharge such tax. All of the foregoing taxes, assessments and other charges which are the responsibility of Tenant are herein referred to as “Property Taxes.”

AFTER:

7.2 Real Property Taxes

(a)     As Additional Rent, Tenant will pay, when due, all Property Taxes, as defined below.

(b)     The term "Property Taxes" includes, without limitation:

(1)     all taxes, assessments, rates, charges, license fees, municipal liens, levies, excises or imposts, whether general or special, or ordinary or extraordinary, of every name, nature and kind whatsoever ….

4.15.2.2 "Without limiting the foregoing …"

"The foregoing" can be dangerously vague.

4.15.2.3 Other edits

BEFORE:

7.2 Real Property Taxes. Without limiting the foregoing, Additional Rent includes, and Tenant will pay as the same become due, and before delinquency, all “Tenant Taxes” as defined below.

AFTER:

7.2 Real Property Taxes. Tenant will pay, as Additional Rent, all “Tenant Taxes,” as defined below, on or before the due date.

BEFORE:

Notwithstanding the foregoing, Tenant shall have no obligation to pay: …

AFTER:

Tenant need not pay: …

BEFORE:

If at any time during the Term, under any Applicable Laws, any tax is levied or assessed against Landlord directly, in substitution in whole or in part for real property taxes, then Tenant will and agrees to pay such tax.

AFTER (with BLUF):

Tenant will also pay any tax levied or assessed against Landlord directly, in substitution in whole or in part for real property taxes, at any time during the Term.

4.15.3 "Each male grandson …."

From this article:

… when I was 13 I was bequeathed a shotgun after my grandfather died. Each male grandson was given one.

QUESTION: What are two ways of improving this passage?

4.15.4 Job-hunting in Japan

From this article:

… This is most likely a result of the Japanese university system, whereby your major and your future job often have little correlation. Typically one year before graduation, you apply for jobs and run around the city in a suit trying to convince a company that does virtually anything to hire you. If you’re lucky, you get in, and in the best of cases, you get training before starting whatever job you now find yourself in.

QUESTION 1: What are two possible meanings of the italicized portion?

QUESTION 2: How could the italicized portion be improved?

4.15.5 Flashcards: This week's reading

FACTS:

1.  Alice and Bob sign a contract for Alice to deliver 100,000 widgets to Bob at a price of $1.00 each plus ground shipping. The contract requires all amendments and waivers to be in writing.

2.  Bob calls up Alice on the phone and says "I need the widgets right away — ship them by overnight air." Alice does so.

3.  Alice bills Bob for $100,000 plus the extra cost of overnight-air shipping. Bob refuses to pay, pointing out that he didn't agree in writing to modify the contract terms.

QUESTION: Can Alice recover her extra cost for overnight-air shipping, or must she "eat" that cost? (LOOK-UP: UCC § 2-104; UCC § 2-209.)

Answer: It depends in part on whether Alice is a "merchant" in widgets, i.e., someone who deals regularly in widgets. If so, then under UCC § 2-209, the amendments-in-writing provision is enforceable against her — UNLESS Bob orally waived the amendments-in-writing requirement with his phone call.

QUESTION: What if anything could Alice have done to make sure she could recover the extra cost?

Answer: Alice could have sent Bob a quick confirmation email, or text message, confirming their oral agreement that it was OK for Alice to ship by overnight air and bill Bob for the cost.

MORE FACTS:

4.  The contract states that amendments must be in writing and signed by the party sought to be bound.

QUESTION: What if anything could Alice have done to make sure she could recover the extra cost?

Answer: Alice could have sent Bob a quick confirmation email, or text message, confirming their oral agreement that it was OK for Alice to ship by overnight air and bill Bob for the cost, and asking Bob to confirm his agreement by return email or text message.

MORE FACTS:

6. The contract between Alice and Bob is on Bob's standard purchase-order form. It states that Bob has the right to amend the terms unilaterally whenever he wants.

7.  The contract includes a forum-selection provision requiring any litigation to take place in Bob's home county.

QUESTION: If Alice were to sue Bob for the additional cost of air shipment of the widgets, must she sue in Bob's home county?

Answer: Very likely not — the unilateral-amendment provision might well make the entire contract illusory.

4.15.6 Continuation of Widget Warranties exercise

MORE FACTS to continue this exercise:

  1. The negotiated contract between Alice and Bob includes an exclusion of incidental- and consequential damages.
  2. Bob takes delivery of a large quantity of Alice's widgets and stores them in an appropriate storage room.
  3. 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.)
  4. 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.

4.15.7 Rewriting exercises

From this license agreement:

12. TERMINATION

If the royalties due hereunder have not been paid within the time allowed by this Licence Agreement or if either party shall breach of any of the representations, warranties, covenants, promises or undertakings herein contained and on its part to be performed or observed and shall not have remedied such breach within thirty (30) days after notice is given to the breaching party by the non-breaching party requiring such remedy or if either party shall have an Examiner appointed over the whole or any part of its assets or an order is made or a resolution passed for winding up of such party unless such order is part of a scheme for reconstruction or amalgamation of such party then the other party may forthwith terminate this Licence Agreement without being required to give any or any further notice in advance of such termination but such termination shall be without prejudice to the remedy of such party to sue for and recover any royalties then due and to pursue any remedy in respect of any previous breach of any of the covenants or agreements contained in this Licence Agreement.

4.16 Class 16, Wed. Mar. 21

We'll see how much we can actually get through tonight — the Stormy Daniels and Karen McDougal contracts that have been in the news are just too good to pass up as teaching opportunities.

But first:

4.16.1 Illusory contract follow-up

The following is from Henderson v. A & D Interests, Inc., No. 3:17-CV-096 (S.D. Tex. Mar. 9, 2018) (granting defendant's motion to dismiss in favor of mandatory arbitration):

[Defendant] Heartbreakers operate [sic] an adult entertainment club in Dickinson, Texas. Plaintiffs Frankie Henderson (“Henderson”) and Kaitlyn Jersey (“Jersey”) worked as exotic dancers at Heartbreakers. They signed and executed the Independent Contractor/License Agreement Between A&D Interests, Inc. d/b/a Heartbreakers and Independent Contractor (“License Agreement”). The License Agreement contains an arbitration provision. …

Henderson and Jersey argue the License Agreement is unenforceable because it is illusory. The Court disagrees. The Fifth Circuit has held that an arbitration agreement is illusory “[w]here one party has the unrestrained unilateral authority to terminate its obligation to arbitrate.” Nelson v. Watch House Int’l, L.L.C., 815 F.3d 190, 193 (5th Cir. 2016) (quoting Lizalde v. Vista Quality Markets, 746 F.3d 222, 225 (5th Cir. 2014)).

Here, the License Agreement does not give such unilateral authority to either party. Section 8 of the License Agreement gives both the Licensor and Licensee the power to “terminate the agreement at any time with or without notice.” As both parties were provided termination rights, the Court finds that the License Agreement is not illusory.

Id., slip op. at 1, 3 (emphasis and extra paragraphing added).

QUESTION: If either party had "terminated" the Agreement, would the arbitration provision have died with the Agreement?

[DCT to discuss New England case]

QUESTION: If a drafter didn't want arbitration to die upon termination, what could that drafter do during drafting / negotiation?

Answer: The drafter could state that the arbitration provision would survive any termination or expiration of the Agreement.

QUESTION: Which of these drafting approaches is better In Professor Toedt's view?

A.    Allow for termination of the Agreement but state that specified provisions survive.

B.    Allow for termination of specific rights and obligations but not of the Agreement.

C.    Neither is better; either will work OK.

D.    Do what your supervising partner prefers.

Answer: D: In Professor Toedt's view, B is the better choice, but when you're starting out, do it the way your supervising partner wants.

4.16.2 Rewriting exercise: Simplify Stormy Daniels language

Simplify the following (from this contract) using the basic steps we've practiced — pay special attention to the second sentence (the one beginning with, "The Parties agree that the claims released …."):

          2.5           The Parties wish to avoid the time, expense, and inconvenience of potential litigation, and to resolve any and all disputes and potential legal claims which exist or may exist between them, as of the date of this Agreement including but not limited to the PP Claims and/or the DD Claims. The Parties agree that the claims released include but are not limited to DD' s Claims against PP as relates to PP having allowed, whether intentionally, unintentionally or negligently, anyone else other than those listed in section 4.2 herein below to become aware of the existence of and content of the Property, to have gained possession of the Property, and to PP's having allegedly engaged in efforts to disclose, disseminate and/or commercially exploit the Images and/or Property and/or Confidential Information, and any harm suffered by DD therefrom. The Parties agree that the claims released include but are not limited to PP's Claims against DD as relates to DD having allowed, whether intentionally, unintentionally or negligently, anyone else to have interfered with PP's right to privacy or any other right that PP may possess.

4.16.3 Flashback: Ambiguity in deadlines

EXERCISE: Rewrite the following to eliminate the ambiguities:

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

4.16.4 "And/or" parties: Stormy Daniels

From this contract:

    1.1       This Settlement Agreement and Mutual Release (hereinafter, this "Agreement") is made and deemed effective as of the [28th] day of October, 2016, by and between "EC, LLC" and/or DAVID DENNISON, on the one part, and PEGGY PETERSON, (PP), on the other part. ("EC, LLC," "DD" and "PP" are pseudonyms whose true identity will be acknowledged in a Side Letter Agreement attached hereto as "EXHIBIT A") This Agreement is entered into with reference to the facts and circumstances contained in the following recitals.

QUESTION: Suppose that "Peggy Peterson" wants to sue the other party (parties?) for breach — whom does she sue? (To find out what she actually did, see the Complaint.)

4.16.5 Flashback: CPI increases in pricing

FACTS:

  1. You represent Buyer in negotiating a long-term master purchase agreement with Seller.
  2. 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 one price increase per year as well).
  3. 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.
  4. 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.

QUESTION: In this fact situation, to what does "CPI" refer?

Answer: The Consumer Price Index.

QUESTION: In the U.S., where does CPI data usually come from ?

Answer: The U.S. Bureau of Labor Statistics — see https://www.bls.gov/cpi/

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?

Answer: Chances are that the court would rule against your client Buyer, because you drafted the price-increase limitation.

4.16.6 Entire agreement clause: Stormy Daniels

From this contract:

2.0     RECITALS

      2.1       Prior to entering into this Agreement, PP came into possession of certain "Confidential Information" pertaining to DD, as more fully defined below, only some of which is in tangible form, which includes, but is not limited to information, certain still images and/or text messages which were authored by or relate to DD (collectively the "Property", each as more fully defined below but which all are included and attached hereto as Exhibit "1" to the Side Letter Agreement). [Exhibit 1 to the Side Letter Agreement was not included with the filed complaint.]

* * * 

      [3.1]   (c)       PP shall deliver to DD every existing copy of all tangible Property. PP sha!I completely divest herself of any and all artistic media, impressions, paintings, video images, still images, e-mail messages, text messages, Instagram message, facebook posting or any other type of creation by DD . PP shall transfer all physical, ownership and intellectual property rights to DD;

                ( 1) PP shall deliver to DD any and all non-privileged correspondence concerning or related to DD between PP and any 3rd party.

     (d)         PP shall not, at any time from the date of this Agreement forward, directly or indirectly disclose or disseminate any of the Property or any Confidential Information (including confirmation of the fact that it exists or ever existed, and/or confirming any rumors as to any such existence) to any third party, as more fully provided herein.

* * * 

          8.1           Entire Agreement. This Agreement constitutes the entire agreement and understanding concerning the Released Matters hereof between the Parties hereto and supersedes any and all prior negotiations and proposed agreement and/or agreements, written and/or oral, between the Parties. Each of the Parties hereto acknowledges that neither they, nor any other party, nor any agent or attorney of any other party has made any promise, representation, or warranty whatsoever, expressed or implied, written or oral, which is not contained herein, concerning the subject matter hereof, to induce it to execute this Agreement, and each of the Parties hereto acknowledges that she/he has not executed this Agreement in reliance on any promise, representation, and/or warranty not contained herein. This Agreement shall be binding on and inure to the benefit of the Parties, the Releasees, and each of their respective successors and assigns and designees.

QUESTION: Stylewise, what do you think of subdivision "(1)," located between 3.1(c) and (d)?

HYPOTHETICAL:

A.      Suppose that that DD or EC countersued PP for punitive damages for fraud, for allegedly implicitly asserting — e.g., by going on Jimmy Kimmel, and indeed by filing her lawsuit in the first place — that Donald Trump had an affair with her.

B.      "Stormy Daniels" moves to dismiss for failure to state a claim.

C.      Assume Texas law applies.

QUESTION: What action should the trial court take on the motion to dismiss?

4.17 Class 17, Mon. Mar. 26

4.17.1 Quiz #3

You know the drill.

4.17.2 Homework due Wed. April 18 (20 points, not pass-fail)

To quote a student's (anonymous) course evaluation from a past semester, "… I was learning the fundamental building blocks individually. By the end of the course, all that was left was to put it together and step back."

FACTS:

  1. Alice, an individual who lives in Montrose, is looking for someone to build a simple Web site to advertise a cookie store that she will be starting.
  2. A friend of Alice's refers her to Bob, an independent Web developer who does business as Bob LLC, organized in Texas and operating in Sugar Land. Alice checks out Bob's references and decides that he's very likely to be honest and reasonably competent.
  3. Another friend refers Alice to you; she asks you to draft a contract between Alice and Bob, and you agree to do it (after entering into a written engagement agreement).
  4. Alice is hoping to get the contract with Bob done quickly and inexpensively; she asks that you make the draft agreement as short, simple, and balanced as possible, both to keep her own costs down and in the hope that Bob won't feel the need to get his own lawyer involved.

ASSIGNMENT:

  1. In whatever groups you want, or none, brainstorm the business issues that you think should be covered in the contract. (Don't worry about technical-type issues.)
  2. In Microsoft Word, prepare a complete draft of the contract — feel free to consult each other and whatever sources you like, but each student is to do his or her own work.
  3. In the draft, include any questions and/or explanations for Alice that you think are appropriate; use footnotes or Word comments or [bracketed in-line comments] as convenient.
  4. Upload your draft to Blackboard.
  5. Print out a hard copy without your name on it and bring it to class to turn in — I want to read all of the drafts before grading them on Blackboard.

DUE DATE: This assignment is due (uploaded to Blackboard) no later than the start of class on the stated date. I will need enough time to mark up your work (in Blackboard) before the last day of class. Accordingly, any late homework submission will be docked two points per 24 hours or portion thereof that it's overdue — for example, an assignment uploaded to Blackboard by a 6:00 p.m. student at 6:01 p.m. on the stated date will be docked two points; if uploaded at 6:01 p.m. the following day, the assignment will be docked four points; etc.

4.17.3 In the news: Flat-out lies by car dealer negates as-is warranty disclaimer

Last week the Minnesota supreme court upheld a judgment that a used-car dealer's flat-out lies about the condition of a pick-up truck killed the "as is" disclaimer in the purchase agreement. Sorchaga v. Ride Auto, LLC, No. A16-085 (Minn. Mar. 21, 2018).

4.17.4 Writing style: A Jose Altuve statue

From the Houston Chronicle, Sat. March 24, at A17:

TEXT: "Someday we're sure [note the mismatch of tenses] we'll see kids playing around [Altuve's] statue in front of Minute Maid Park."

QUESTION: How could this be improved to eliminate the mismatch of tenses?

4.17.5 Review: Preamble of McDougal agreement

FACTS:

  1. You have gone back in time to the negotiation of Karen McDougal's agreement, which has not yet been signed. McDougal has fired her attorney and has asked your firm to represent her; one of the partners in the firm has enlisted your help.
  2. The draft agreement does not have a forum-selection provision, but it does have an arbitration provision.
  3. The draft agreement begins with the following preamble:

This agreement (the "Agreement") is entered into as of August 5, 2016 (the "Effective Date") by and between American Media, Inc. ("AMI") and Karen McDougall [sic] ("McDougal").

QUESTIONS:

  1. What if any changes might you make to the above preamble?
  2. Given the facts, can you think of any reason that AMI's lawyers didn't draft the preamble that way in the first place?

4.17.6 Drafting exercise: Forum selection for the McDougal agreement

FACTS: Same as the previous exercise, plus you have determined that McDougal splits her time residing in Los Angeles and Phoenix.

EXERCISE: In Microsoft Word, draft a very simple forum-selection provision that specifies Phoenix as the exclusive forum for litigation. Hint: How broad a set of disputes do you want the forum-selection provision to cover?

QUESTION: On what grounds would you expect AMI to push back against your forum-selection provision?

4.17.7 Exercise: Karen McDougal's agreement – employee status?

From Karen McDougal's agreement that's been in the news:

11.      It is expressly understood, agreed and covenanted that the parties do not by this Agreement intend to form an employment relationship or a partnership or joint venture between them and in no event shall this Agreement be construed to constitute such an employment relationship, partnership or joint venture.

TRUE OR FALSE: The "It is expressly understood, agreed and covenanted" will help to make the independent-contractor provision enforceable.

ANSWER: Not really. Independent-contractor status depends on a panoply of factors, with the parties' intent being at best a minor factor.

LOOK-UP: IRS Web page (scan down to Common Law Rules). The IRS takes the position, followed by most courts, that:

Although a contract may state that the worker is an employee or an independent contractor, this is not sufficient to determine the worker’s status. The IRS is not required to follow a contract stating that the worker is an independent contractor, responsible for paying his or her own self employment tax. How the parties work together determines whether the worker is an employee or an independent contractor.

(Emphasis added.)

TRUE OR FALSE: The "It is expressly understood, agreed and covenanted" should be left in place.

Answer: No --- it adds essentially nothing of value to "the parties do not by this Agreement …."

4.17.8 McDougal agreement: Drafting style (1)

QUESTION: In the following provision:

  • find as many drafting-style issues as you can; and
  • identify any business issues that might concern McDougal's lawyer.

4.      In connection with all the rights granted herein to AMI by McDougal, AMI shall pay McDougal the sum of $150,000 (One Hundred and Fifty thousand dollars), payable within two business days following the execution of this Agreement.

Answer:

  1. "… all the rights granted herein" is sort of legalese-y.
  2. The $150,000 should be in just numbers, not numbers and words.
  3. Even if you're going to spell out the numbers, it's strange to capitalize "One Hundred and Fifty" but not "thousand."
  4. How will the money be paid?
  5. What if McDougal signs but the other party never does?

4.17.9 McDougal agreement: Drafting style (2)

Look at these two versions:

Version 1:

The parties do not by this Agreement intend to form an employment relationship or a partnership or joint venture between them and in no event shall this Agreement be construed to constitute such an employment relationship, partnership or joint venture.

Version 2:

The parties do not by this Agreement intend to form an employment relationship or a partnership or joint venture between them.

QUESTION: The italicized portion of Version 1 means that Version 2 is the better choice. Why?

ANSWER: Version 2 is better because:

  • in the italicized part of Version 1, the opening phrase, "in no event shall this Agreement be construed …." is presumptuous in purporting to direct a judge how s/he is to interpret the agreement; and
  • the italicized part can be safely deleted because the preceding language covers things adequately.

(Also: "… in no event shall this Agreement be construed" would be better phrased as "this Agreement is not to be construed ….")

4.17.10 McDougal grant of Limited Life Story Rights

From Karen McDougal's agreement that's been in the news:

3.      In addition, McDougal grants, assigns, and transfers to AMI, and AMI hereby acquires, McDougal's Limited Life Story Rights (as defined herein). The "Limited Life Story Rights" granted by McDougal are limited to any romantic, personal and/or physical relationship McDougal has ever had with any then-married man. The "Limited Life Story Rights" means all rights in and to the life story of McDougal regarding, (in the broadest possible way), any relationship she has ever had with a then-married man, and all themes, characters, events and incidents relating thereto, and all other material (whether written or oral) created, owned or controlled by McDougal in connection therewith. The grant of Limited Life Story Rights made hereby shall include all rights, title, interest and permission to use such rights in any and all media now known or hereafter known throughout the universe in perpetuity (the "Productions"). The grant of Limited Life Story Rights shall be complete, exclusive and without exception and McDougal reserves none of the Limited Life Story Rights hereby granted.

QUESTION: What do you think of the McDougal approach (she sells all rights to part of her life story) by comparison to the Stormy Daniels approach (she won't disclose certain things and she has turned over all emails, texts, photos, recordings, etc.)?

REWRITING EXERCISE: Break up and simplify the above provision, using the step-by-step approach that we've been practicing.

MORE FACTS: See the following provision:

5.      Nothing herein shall obligate AMI to use the Life Rights in connection with any media. AMI's obligations to McDougal shall be the payment to McDougal of the sum set forth in paragraph 4 and the obligations set forth in paragraphs 1; 2.1; and 2.2.

The term "Life Rights" is not defined, nor is it used anywhere else in the agreement.

QUESTION: How do you think the term "Life Rights" found its way into the agreement? Discuss.

4.17.11 Ambiguity and Memorial Day

TEXT: 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.

Answer: (For example:) "In many ways do we honor the sacrifice of those who died for our country — by living our values, [etc.]."

4.18 Class 18, Wed. Mar. 27

4.18.1 Ambiguity and Hillary Clinton's blue collar

81LDLRjD7eL.jpg

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.)

4.18.2 Choice of law (Rick's)

The provision below, at https://goo.gl/DRbLRw (edgar.sec.gov), is from a 2008 real-estate purchase agreement involving the parent company of "gentleman's club" Rick's Cabaret:

Section 10.15. Choice of Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas, without regard to principles of conflict of laws. In any action between or among any of the parties, whether arising out of this Agreement or otherwise, each of the parties irrevocably consents to the exclusive jurisdiction and venue of the federal and state courts located in Dallas County, Texas.

HYPOTHETICAL FACTS: Suppose (i) that one of the parties is a New York corporation; (ii) the agreement is negotiated and signed in New York City; and (iii) that party sues one of the other parties for fraud in the inducement but not for breach of contract.

QUESTION: On the hypothetical facts above, what effect, if any, would this provision have on the choice of law?

QUESTION: If you were reviewing this provision, what might your reaction be about the location of the last sentence of this provision?

4.18.3 Governing law (Duke Energy)

The provision below is from a services agreement form used by Duke Energy, at https://goo.gl/imaf3v (archive.org):

L.  Governing Law. This Agreement will be governed by, and construed in accordance with, the laws of the State Contractor and Duke Energy agree to relinquish and waive their rights to a trial by jury in any action brought hereunder.

QUESTION: Any comment about the last portion?

4.18.4 Giving up and starting over: Termination clause (Verizon-Yahoo)

Break up the provision below, at https://goo.gl/xVJKU9 (edgar.sec.gov), which is from the 2016 Stock Purchase Agreement in which Verizon acquired many of the assets of Yahoo:

6.01 Termination. This Agreement may be terminated at any time prior to the Closing, whether before or after the Seller Stockholder Approval is obtained, as follows:

(a) by mutual written agreement of Seller and Purchaser.

(b) by either Seller or Purchaser, if:

(i) the Closing shall not have occurred by April 24, 2017 (the “Outside Date”); provided, that (A) if the SEC shall not have cleared the Proxy Statement by March 10, 2017, then either party (provided that it has complied in all material respects with its obligations under Section 4.02(a)) may, by written notice delivered to the other party, extend the Outside Date by three (3) months; and (B) if on the fifth (5th) Business Day prior to the Outside Date (including as extended one time pursuant to Section 6.01(b)(i)(A) or this Section 6.01(b)(i)(B)) the conditions set forth in Section 5.01(b) and Section 5.01(c) (solely on account of a temporary or preliminary Governmental Order) are not satisfied, but all other conditions set forth in Article V shall have been satisfied or waived (excluding conditions that, by their terms, cannot be satisfied until the Closing, which conditions would be capable of being satisfied at such time), then either Seller or Purchaser (provided that it has complied in all material respects with its obligations under Section 4.05) may, by written notice delivered to the other party hereto, extend the Outside Date by three (3) months; provided, further, that the right to terminate this Agreement under this Section 6.01(b)(i) shall not be available to a party, if any failure by such party to fulfill its obligations under this Agreement shall have been the primary cause of, or shall have resulted in, the failure of the Closing to occur on or prior to the Outside Date (as extended pursuant to clause (A) or clause (B) of this Section 6.01(b)(i)).

[Remainder of clause omitted]

6.01 Termination.

(a)     The parties may terminate this Agreement at any time before the Closing by mutual written agreement.

(b)     Either party may unilaterally terminate this Agreement at any time before the Closing if the Closing has not occurred by the Outside Date, as follows:

(1)     "Outside Date" refers to April 24, 2017 unless extended as provided in subdivisions (2) and (3) below.

(2)     Either party may unilaterally extend the Outside Date, one time, by three months if (i) the SEC has not cleared the Proxy Statement by March 10, 2017, and (ii) that party has complied in all material respects with its obligations under Section 4.02(a).

(3)     Either party may unilaterally extend the Outside Date, one time, by three months if, on the fifth Business Day before the Outside Date, (i) the conditions set forth in Section 5.01(b) and Section 5.01(c) (solely on account of a temporary or preliminary Governmental Order) are not satisfied, but (ii) all other conditions set forth in Article V have been satisfied or waived — other than conditions that (x) by their terms cannot be satisfied until the Closing, and (y) would be capable of being satisfied at such time.

(4)     A party may not unilaterally terminate this Agreement if one or more failures by that party to fulfill its obligations under this Agreement was (or were) the primary cause of, or resulted in, the failure of the Closing to occur on or before the Outside Date (as extended).

(5)     Any unilateral termination of this Agreement, and any unilateral extension of the Outside Date, must be by written notice to the other party that is effective before the Closing Date.

4.19 Class 19, Mon. Apr. 2

4.19.1 Ambiguity and the family of persecutors

This is adapted from my church's Easter Sunday service booklet of a few years ago (with the family's name changed):

Easter flowers and decorations are given
to the glory of God
and in memory of their grandmother Jane Doe
In honor of all Christians,
Especially those persecuted
By the Doe family

EXERCISE: Rewrite. (Hint: How could this be fixed with just one additional character?)

4.19.2 Audit clause (for in-class exercise)

This is a provision from an actual contract form provided by Customer. ASSIGNMENT: As the attorney for Provider, build a list of issues to discuss with Provider and/or with Customer, as follows:

  • substantive issues; and
  • "necessary" stylistic changes, e.g., for enhanced client readability and/or to R.O.O.F. (and/or R.O.O.F.O.).

x.x Audits. Upon request, Provider and Provider Agents will provide Customer and internal and external auditors, inspectors, governmental authorities and other representatives that Customer may designate (collectively, “Customer Auditors”), with timely and unrestricted access to the Project Staff, the locations at which the Services are performed at or from, systems, records documenting the performance of the Services and the invoicing of the fees hereunder, and other pertinent data and information for the purpose of inspecting, examining and auditing the Services and the operations of Customer relating to the Services, including to verify (a) the fees invoiced and paid hereunder, (b) performance of the Services, (c) compliance with the Agreement, (d) the use of Customer property and (e) the integrity of those elements of Customer’s corporate control processes that are performed by Provider. If any such audit reveals an overcharge to Customer, then within thirty (30) days following the completion date of such audit, Provider will pay to Customer the amount of such overcharge, plus interest at JPMorgan Chase & Co.’s then current prime commercial lending rate, calculated from the date of receipt by Provider of the overcharged amount until the date of payment to Customer. In addition, if any such audit reveals an overcharge to Customer by an amount greater than five percent (5%) of the audited invoices, then Provider will reimburse Customer for the costs and expenses of such audit.

QUESTION 1: To what extent will Provider even have the power to cause "Provider Agents" to comply with the first sentence? How could that be addressed?

QUESTION 2: What if any "fences" are there around the right of Customer Auditors to come in and poke around? To what extent might that be a concern for Provider?

QUESTION 3: What other concerns might Provider have about this clause?

4.19.3 Ambiguity and Jewish grandmothers

In honor of Passover, here's this from Joshua Rothman in The New Yorker: "My grandmother is ninety-three and, to my knowledge, has never kept kosher."

QUESTION: If we take the last part of the sentence in isolation, what are two plausible intepretations of the bold-faced phrase?

EXERCISE: Rewrite to clarify.

4.19.4 Rewriting exercise: Background checks (to do in class)

This is a provision from an actual contract form provided by the customer.

IN-CLASS ASSIGNMENT: In addition to breaking up this provision, as the attorney for Provider, build a list of possible substantive issues to discuss with Provider and/or with Customer.

Provider warrants that it has with respect to all Provider’s Personnel who are expected to perform Services under this Agreement: (i) conducted background checks; (ii) conducted checks against relevant persons-wanted lists published by national or international law enforcement bodies, the Consolidated Screenings List compiled by the United States Departments of Commerce, State, and Treasury, and any comparable lists maintained by non-U.S. authorities that are applicable to the activities engaged in under this Agreement (collectively “Government Sanctions or Watch List”); (iii) verified all qualifications used as a condition of employment (e.g., education, licensing, certifications, references, previous employers, etc.); and (iv) conducted a credit history review if the position pertains to a position of substantial trust such as involving large sums of money or substantial assets of value where theft or similar financial improprieties could reasonably occur.  At a minimum, background checks required in (i) above shall include the checking of criminal convictions for any offenses other than minor traffic violations for all geographic areas wherein such individual have resided during the past five (5) years. Should any member of Provider’s Personnel appear on a Government Sanctions or Watch List, or the background checks or verifications disclose inaccurate or false information, a criminal conviction record, credit history or factors that could bear upon the desirability of a particular individual performing Services under this Agreement, Provider will advise Customer of the result of the check.  Customer shall have the right to request that Provider remove from the Services or Customer’s or its Affiliate Companies’ premises, any such individual.  Provider shall be responsible for complying with any notice requirements associated with such disqualification as may be established by Applicable Law. Provider warrants that it has, by operation of law or valid agreements with Provider’s Personnel, the right to obtain this information and to disclose it to Customer as required herein, to the extent reasonably practicable.  Additionally, Customer shall have the right to conduct additional background checks on Provider’s Personnel who will be performing Services for Customer. Provider shall take all actions and execute all documents and shall cause Provider’s Personnel to take all actions and execute all documents as are necessary to assist Customer in this process.

QUESTION: What's the significance of "Provider warrants …"?

4.19.5 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.

4.19.6 Rewriting exercise: Confidential information (Atari agreement)

Rewrite the following to make it more readable; it's from an Atari consulting agreement, at https://goo.gl/ukMKTr (onecle.com via archive.org), between an individual and Atari:

7.    Confidentiality and Security.

Consultant recognizes and agrees that in the course of performing services hereunder Consultant will generate or otherwise become privy to written or orally conveyed information that is proprietary or confidential to Atari, its affiliates, or their customers and/or to other parties to whom they may have confidentiality obligations. This information may include, without limitation, plans to introduce new products or services (including in this regard the existence of the Project), methods of doing business, planned transactions, market information, pricing information, supply sources, license and contract terms, information pertaining to customers' businesses, non-public financial data and operating results, system and component designs, specifications, computer software and technical information. Consultant understands that Atari and/or such affiliates, customers and other parties regard such information as trade secrets, and Consultant will employ Consultant's best efforts to assure the continued confidentiality thereof. Consultant will not disclose such information to anyone or use it for any purpose other than the performance of Consultant's services hereunder. Consultant will take all reasonable measures to prevent any unauthorized person from gaining access to such information and to prevent such information from being accessed, disclosed or used in any unauthorized manner, including complying strictly at all times with all applicable physical and computer system security procedures. Consultant will not break or attempt to break any of Atari's (or such affiliates’, customers' or other persons’) security systems, or obtain, or attempt to obtain access to any program or data other than those to which Consultant has been given access in writing. Upon any termination, cancellation or expiration of this agreement or at Atari's request at any other time, Consultant will deliver to Atari all materials in tangible form containing any of the information referred to in this Section 7, shall purge any and all copies thereof from all files and storage media retained by Consultant, and shall retain no archival or other copies thereof whatsoever. Further in such event, Consultant shall return any keys, security passes, equipment or other items or property supplied to Consultant by Atari or by any such affiliate, customer or other person.

QUESTION 1: If you're representing Consultant, why should the phrases "best efforts" and "all reasonable measures" cause you some concern?

QUESTION 2: How is Consultant supposed to know just what Atari information is subject to the confidentiality restriction?

QUESTION 3: Why should the penultimate sentence be of concern to Consultant?

4.19.7 Ambiguity and a trademark license termination clause

From General Nutrition Investment Co. v. Holland & Barrett Int'l Ltd (Rev 1) [2017] EWHC 746 (Ch), ¶ 15:

5.2 The Licensor may terminate this Agreement [sic] immediately by notice in writing if:

     (a) The Licensee [i] materially breaches this Agreement or any other member with the H&B Group commits an act which would amount to a material breach of this Agreement or [ii] (without prejudice to the Licensor’s other rights to terminate under this Agreement) otherwise infringes the Licensor’s rights under the Trade Marks [iii] to an extent likely to cause material lost to the Licensor; or …

(Bracketed romanettes added; hat tip: IP Draughts.)

QUESTION 1: Does the materiality qualifier in clause iii apply to both clause i and clause ii or just to clause ii? EXERCISE: Rewrite to clarify.

QUESTION 2: Why does this quotation include "[sic]" after "terminate this Agreement"?

4.20 Class 20, Wed. Apr. 4

4.20.1 Ambiguity: Early retirement

TEXT: From a 2016 headline: "Houston Technology Center CEO To Retire Early Next Year" (He retired Feb. 1, 2017 after serving for ten years.)

QUESTION: Was the CEO going to retire, and the retirement was to take place in early 2017? Or was he to retire in 2017, which was earlier than had been expected?

EXERCISE: Rewrite to clarify

4.20.2 Streamlining sentences: Stock ownership

How could this be rewritten to make it plainer?

Before:   We will have no stock ownership of the company.

After:

4.20.3 Insurance questions

4.20.3.1 Facts (for class discussion)
  • 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.
4.20.3.2 Questions (for class discussion)
  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).]
4.20.3.3 Negotiation strategies (for class discussion)

If you represent a seller, should your "standard" T&Cs include an insurance provision? Why or why not? (Discuss; hint: think about how the customer's contract reviewer might react when seeing your insurance provision.)

4.20.3.4 Certificates (for class discussion)

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?

4.20.4 Payments based on net revenue

From a contract drafted by The Other Side of a deal (sanitized):

Subject to the terms and conditions of this Agreement, ABC shall pay, on a quarterly basis, to XYZ twenty percent (20%) of Data Revenue (net of all associated costs and expenses) for Licensed Transactions for the Term of this Agreement ….

QUESTION: Should XYZ have any business concerns about the "net of all associated costs and expenses" term?

COMMENT: Consider "Hollywood accounting."

4.20.5 Tenant audit rights (for in-class exercise)

In your small groups:

  1. Rewrite the following, from this real-estate lease agreement, to make it as user-friendly as possible. (Don't worry about fixing the substance of the provision.) Pay special attention to the last sentence.
  2. Consider what changes you might want to make if you were representing Landlord.

6.5 Tenant’s Audit Rights. Landlord shall keep reasonably detailed records of all Operating Expenses and Real Estate Taxes for a period of at least two (2) years. Not more frequently than once in every 12-month period and after at least twenty (20) days’ prior written notice to Landlord, Tenant together with any representative of Tenant shall be permitted to audit the records of the Operating Expenses and Real Estate Taxes. If Tenant exercises its audit rights as provided above, Tenant shall conduct any inspection at a reasonable time and in a manner so as not to unduly disrupt the conduct of Landlord’s business. Any such inspection by Tenant shall be for the sole purpose of verifying the Operating Expenses and/or Real Estate Taxes. Tenant shall hold any information obtained during any such inspection in confidence, except that Tenant shall be permitted to disclose such information to its attorneys and advisors, provided Tenant informs such parties of the confidential nature of such information and uses good faith and diligent efforts to cause such parties to maintain such information as confidential. Any shortfall or excess revealed and verified by Tenant’s audit shall be paid to the applicable party within thirty (30) days after that party is notified of the shortfall or excess to the extent such overage or shortfall has not previously been adjusted pursuant to this Lease. If Tenant’s inspection of the records for any given year or partial year reveals that Tenant was overcharged for Operating Expenses or Real Estate Taxes by an amount of greater than six percent (6%), Tenant paid such overage and such overage was not otherwise adjusted pursuant to the terms of this Lease, Landlord shall reimburse Tenant for its reasonable, third party costs of the audit, up to an amount not to exceed $5,000.

4.20.5.1 Rewriting exercise: Earn-out computations

(c)     Within sixty (60) days after the end of an applicable Earn-Out Year, Purchaser shall (i) prepare or cause to be prepared a statement setting forth: (A) following Year One, the calculation of the Annual Earn-Out Payment applicable to Year One; (B) following Year Two, the calculation of the Annual Earn-Out Payment applicable to Year Two; (C) following Year Three, the calculation of the Annual Earn-Out Payment applicable to Year Three; (D) following Year Four, the calculation of the Annual Earn-Out Payment applicable to Year Four and (E) following Year Five, the calculation of the Annual Earn-Out Payment applicable to Year Five (with respect to each Earn-Out Year, an “Earn-Out Calculation”) and (ii) deliver the applicable Earn-Out Calculation to Seller, together with (A) reasonable supporting documents and (B) payment to Seller, by wire transfer of immediately available funds to an account designated in writing by Seller, of the Annual Earn-Out Payment, if any, calculated by Purchaser to be payable based on such Earn-Out Calculation. Seller shall have a period of thirty (30) days after receipt of the applicable Earn-Out Calculation with respect to the applicable Earn-Out Year to notify Purchaser in writing of Seller’s election to accept or reject such Earn-Out Calculation as prepared by Purchaser. In the event Seller rejects in writing such Earn-Out Calculation as prepared by Purchaser, such rejection notice (the “Rejection Notice”) shall contain the reasons for such rejection in reasonable detail and set forth the amount of the requested adjustment. In the event no Rejection Notice is received by Purchaser during such thirty (30)-day period, the Annual Earn-Out Payment for such Earn-Out Year (as set forth in Purchaser’s Earn-Out Calculation) shall be deemed to have been accepted and shall be final, conclusive and binding on the Parties hereto. In the event that Seller shall timely reject an Earn-Out Calculation, Purchaser and Seller shall promptly (and in any event within thirty (30) days following the date upon which Purchaser received the applicable Rejection Notice from Seller rejecting such Earn-Out Calculation) attempt in good faith to make a joint determination of the Annual Earn-Out Payment for the applicable Earn-Out Year, and such determination and any required adjustments resulting therefrom shall be final, conclusive and binding on the Parties hereto. In the event Seller and Purchaser are unable to agree upon the Annual Earn-Out Payment for the applicable Earn-Out Year within such thirty (30)-day period, then Purchaser and Seller shall jointly engage the Accounting Firm to resolve such dispute and promptly submit such dispute for resolution to the Accounting Firm. The Parties shall jointly instruct the Accounting Firm to make a determination within thirty (30) days after its engagement or as soon as practicable thereafter. The Accounting Firm’s determination shall be limited to resolving the disagreement set forth in the Rejection Notice. The determination of the Accounting Firm and any required adjustments resulting therefrom shall be final, conclusive and binding on all the Parties hereto. The fees and expenses of the Accounting Firm shall be allocated between and paid by Purchaser and/or Seller, respectively, based upon the percentage that the portion of the contested amount not awarded to each Party bears to the amount actually contested by such Party, as determined by the Accounting Firm.

4.20.6 Ambiguity and a trademark license termination clause

From General Nutrition Investment Co. v. Holland & Barrett Int'l Ltd (Rev 1) [2017] EWHC 746 (Ch), ¶ 15:

5.2 The Licensor may terminate this Agreement [sic] immediately by notice in writing if:

     (a) The Licensee [i] materially breaches this Agreement or any other member with the H&B Group commits an act which would amount to a material breach of this Agreement or [ii] (without prejudice to the Licensor’s other rights to terminate under this Agreement) otherwise infringes the Licensor’s rights under the Trade Marks [iii] to an extent likely to cause material lost to the Licensor; or …

(Bracketed romanettes added; hat tip: IP Draughts.)

QUESTION 1: Does the materiality qualifier in clause iii apply to both clause i and clause ii or just to clause ii? EXERCISE: Rewrite to clarify.

QUESTION 2: Why does this quotation include "[sic]" after "terminate this Agreement"?

4.20.7 Rewriting exercise: Earn-out computations

(c)     Within sixty (60) days after the end of an applicable Earn-Out Year, Purchaser shall (i) prepare or cause to be prepared a statement setting forth: (A) following Year One, the calculation of the Annual Earn-Out Payment applicable to Year One; (B) following Year Two, the calculation of the Annual Earn-Out Payment applicable to Year Two; (C) following Year Three, the calculation of the Annual Earn-Out Payment applicable to Year Three; (D) following Year Four, the calculation of the Annual Earn-Out Payment applicable to Year Four and (E) following Year Five, the calculation of the Annual Earn-Out Payment applicable to Year Five (with respect to each Earn-Out Year, an “Earn-Out Calculation”) and (ii) deliver the applicable Earn-Out Calculation to Seller, together with (A) reasonable supporting documents and (B) payment to Seller, by wire transfer of immediately available funds to an account designated in writing by Seller, of the Annual Earn-Out Payment, if any, calculated by Purchaser to be payable based on such Earn-Out Calculation. Seller shall have a period of thirty (30) days after receipt of the applicable Earn-Out Calculation with respect to the applicable Earn-Out Year to notify Purchaser in writing of Seller’s election to accept or reject such Earn-Out Calculation as prepared by Purchaser. In the event Seller rejects in writing such Earn-Out Calculation as prepared by Purchaser, such rejection notice (the “Rejection Notice”) shall contain the reasons for such rejection in reasonable detail and set forth the amount of the requested adjustment. In the event no Rejection Notice is received by Purchaser during such thirty (30)-day period, the Annual Earn-Out Payment for such Earn-Out Year (as set forth in Purchaser’s Earn-Out Calculation) shall be deemed to have been accepted and shall be final, conclusive and binding on the Parties hereto. In the event that Seller shall timely reject an Earn-Out Calculation, Purchaser and Seller shall promptly (and in any event within thirty (30) days following the date upon which Purchaser received the applicable Rejection Notice from Seller rejecting such Earn-Out Calculation) attempt in good faith to make a joint determination of the Annual Earn-Out Payment for the applicable Earn-Out Year, and such determination and any required adjustments resulting therefrom shall be final, conclusive and binding on the Parties hereto. In the event Seller and Purchaser are unable to agree upon the Annual Earn-Out Payment for the applicable Earn-Out Year within such thirty (30)-day period, then Purchaser and Seller shall jointly engage the Accounting Firm to resolve such dispute and promptly submit such dispute for resolution to the Accounting Firm. The Parties shall jointly instruct the Accounting Firm to make a determination within thirty (30) days after its engagement or as soon as practicable thereafter. The Accounting Firm’s determination shall be limited to resolving the disagreement set forth in the Rejection Notice. The determination of the Accounting Firm and any required adjustments resulting therefrom shall be final, conclusive and binding on all the Parties hereto. The fees and expenses of the Accounting Firm shall be allocated between and paid by Purchaser and/or Seller, respectively, based upon the percentage that the portion of the contested amount not awarded to each Party bears to the amount actually contested by such Party, as determined by the Accounting Firm.

4.21 Class 21, Mon. Apr. 9

4.21.1 In the news: Screwing up the attachment

DCT to talk about this UK case.

4.21.2 Lecture: Confidential information

4.21.3 In-class exercise: Confidential information

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

4.21.4 Rewriting: Confidential information (Atari; for in-class exercise)

Rewrite the following to make it more readable; it's from an Atari consulting agreement, at https://goo.gl/ukMKTr (onecle.com via archive.org), between an individual and Atari:

7.    Confidentiality and Security.

Consultant recognizes and agrees that in the course of performing services hereunder Consultant will generate or otherwise become privy to written or orally conveyed information that is proprietary or confidential to Atari, its affiliates, or their customers and/or to other parties to whom they may have confidentiality obligations. This information may include, without limitation, plans to introduce new products or services (including in this regard the existence of the Project), methods of doing business, planned transactions, market information, pricing information, supply sources, license and contract terms, information pertaining to customers' businesses, non-public financial data and operating results, system and component designs, specifications, computer software and technical information. Consultant understands that Atari and/or such affiliates, customers and other parties regard such information as trade secrets, and Consultant will employ Consultant's best efforts to assure the continued confidentiality thereof. Consultant will not disclose such information to anyone or use it for any purpose other than the performance of Consultant's services hereunder. Consultant will take all reasonable measures to prevent any unauthorized person from gaining access to such information and to prevent such information from being accessed, disclosed or used in any unauthorized manner, including complying strictly at all times with all applicable physical and computer system security procedures. Consultant will not break or attempt to break any of Atari's (or such affiliates’, customers' or other persons’) security systems, or obtain, or attempt to obtain access to any program or data other than those to which Consultant has been given access in writing. Upon any termination, cancellation or expiration of this agreement or at Atari's request at any other time, Consultant will deliver to Atari all materials in tangible form containing any of the information referred to in this Section 7, shall purge any and all copies thereof from all files and storage media retained by Consultant, and shall retain no archival or other copies thereof whatsoever. Further in such event, Consultant shall return any keys, security passes, equipment or other items or property supplied to Consultant by Atari or by any such affiliate, customer or other person.

QUESTION 1: If you're representing Consultant, why should the phrases "best efforts" and "all reasonable measures" cause you some concern?

QUESTION 2: How is Consultant supposed to know just what Atari information is subject to the confidentiality restriction?

QUESTION 3: Why should the penultimate sentence be of concern to Consultant?

4.22 Class 22, Wed. Apr. 11

4.22.1 Arbitration

  1. DISCUSS: A party can be compelled to arbitrate a dispute even if the party did not sign an arbitration agreement.
  2. DISCUSS: Arbitration provisions typically cover just about any kind of dispute that might arise between the parties.
  3. EXERCISE: Draft the beginning of an arbitration provision with a narrow scope.
  4. EXERCISE: Draft the beginning of an arbitration provision with the broadest scope you can think of.
  5. DISCUSS: Arbitration is not always binding.
  6. DISCUSS: Arbitration and mediation are basically the same thing. IF FALSE: What if any material difference(s) exist between them?
  7. DISCUSS: If the parties disagree whether a particular dispute must be arbitrated, who decides — a court, or an arbitrator? EXPLAIN.
  8. DISCUSS: What are the pros and cons of having three arbitrators, versus one arbitrator?
  9. DISCUSS: In an arbitration, what are the losing party's options for appealing an unfavorable award?
  10. DISCUSS: What are the pros and cons of limiting arbitration to claims "arising out of" the contract?

4.22.2 Exercise: Arbitration provision

From a contract that I'm negotiating:

Any dispute under this Agreement in which the aggrieved Party seeks money damages for no more than $10,000 must be submitted as a small claims case to Justice Court in Harris County, Texas (“Small Claims Court”). Any dispute under this Agreement that cannot be submitted to Small Claims Court must be submitted to the American Arbitration Association, and the resolution will be final and binding upon the Parties. Any arbitrable dispute may be submitted to those procedures upon the written request of the Party seeking resolution.

HYPOTHETICAL FACTS:

  1. Alice and Bob enter into a contract containing the above arbitration provision; under the contract, Bob is to develop a Web site for Alice.
  2. The development project does not go well; Alice sues Bob for $15K for breach of contract and for fraudulent inducement — the alleged fraud being Bob's representation that he was capable of performing the services.
  3. Bob moves to compel arbitration.

QUESTION: Is this dispute arbitrable?

4.23 Class 23, Mon. Apr. 16

4.23.1 Letters of intent

QUESTIONS:

  1. What are some pros and cons of signing a letter of intent, versus just going straight to the formal agreement?
  2. Under what circumstances might a letter of intent be binding even though the parties intended to negotiate and sign a more-extensive contract?
  3. What are some things to worry about in drafting (or reviewing) a letter of intent?
  4. Could a party find itself bound by the terms stated in a letter of intent even though the final agreement was never signed?

FACTS: A letter of intent contains the following language:

Unless this Letter of Intent expressly states otherwise, a party that wishes to terminate or withdraw from negotiations may do so:

(1)     in its sole discretion, with a view toward none but its own interests and desires; and

(2)     without obligation or liability of any kind, under any legal- or equitable theory, to any other party.

QUESTIONS:

  1. In subdivision (1) above, why state "with a view toward none …."?
  2. Under the above language, might a court impose an implied obligation of good faith and fair dealing? (Hint: Consider what law might apply.)

MORE FACTS: The letter of intent also states as follows:

Each party is to be considered to have satisfied any applicable standard of good faith, fair dealing, or similar duty, in the negotiation of the final agreement..

QUESTIONS

  1. Why not just say that any implied duty of good faith and fair dealing does not apply?

4.23.2 Assignment of Agreement (Duke Energy)

The provision below is from a services agreement form used by Duke Energy, at https://goo.gl/imaf3v (archive.org):

J. Assignment. Contractor may not assign this Agreement or delegate any of its rights, duties and/or obligations hereunder without the prior written consent of Duke Energy, and any such attempted assignment or delegation without such consent will be null and void. Any such consent may be withheld at Duke Energy's sole discretion and any such consent to assignment or delegation, if granted, will not relieve Contractor of any of its liabilities and responsibilities hereunder unless otherwise expressly provided in such consent. The terms and conditions of this Agreement will be binding upon and inure to the benefit of any and all successors and/or assigns of Duke Energy and Contractor. Notwithstanding any provision herein, this Agreement will not confer or be construed in any manner to confer, directly or indirectly, any rights, privileges, benefits, and/or remedies, upon any parties other than the parties hereto and their respective successors and/or permitted assigns.

EXERCISE: Break up this provision to make it more understandable; follow the step-by-step simplification rules.

QUESTION: Any comment about the last sentence?

QUESTION: What changes might Contractor want to make?

4.24 Class 24, Wed. Apr. 18

4.24.1 RIP Barbara Bush

At the risk of being tasteless in chasing after teachable moments:

From the Chronicle, quoting George H.W. Bush's chief of staff:

"It will not surprise all of you who know and love him that he [Bush 41] also is being stoic and strong, and is being lifted up by his large and supportive family," Becker said. "He is determined to be for them as well."

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

From a statement by Houston Astros president Reid Ryan:

"As Houstonians and frequent visitors to Minute Maid Park to watch their beloved Astros, we had the great privilege of getting to know Mrs. Bush and President Bush personally," Ryan said.

QUESTION: The first part of this sentence is known as a "dangling participial phrase"; why is it considered bad form?

4.24.2 Evergreen extensions

DISCUSS:

  1. What might be the difference between extension and renewal?
  2. Under what circumstances might a party want an "evergreen" extension — and of what kinds of things?
  3. What might be an advantage of an evergreen-extension provision?
  4. What might be a danger of an evergreen-extension provision?
  5. How long should the required advance notice of non-extension be?
  6. What if any legal restrictions might exist on evergreen extensions?
  7. FACTS: A supply contract provides that a pricing lock-in will expire on December 31 unless the customer gives the supplier notice of extension by that date. QUESTION: Is that an "evergreen" extension provision?
  8. MORE FACTS: The supply contract provides for automatic extension of the pricing lock-in unless the customer opts out, but it does not allow seller to opt out of the extension. QUESTION: Is that provision enforceable?
  9. What are some considerations that might determine a) how many evergreen extensions to permit, and b) how long each extension should be?

4.24.3 Survival clauses

DISCUSS: Which type of survival clause is better:

  • one that enumerates (lists) all surviving provisions; or
  • one that states simply, "all provisions that by the nature should survive, do survive …."

DISCUSS: Would a survival clause preserve particular provisions after expiration of the agreement, as opposed to after termination?

4.24.4 Savings clauses

DISCUSS: What are some possible dangers of an overly-broad savings clause? How could a drafter try to address those dangers?

4.24.5 Review: Seller warranties

FACTS: You represent Seller. Discuss the following contract text.

1. CONTRACT TEXT: "Seller warrants and represents to Buyer, Contractor (as defined in the Order Form) and the Lenders (as defined in Section 20.16) that the Equipment … shall be designed and fit for the specific purpose of Buyer when operated (i) in accordance with Seller’s specific operation instructions or, in the absence thereof, (ii) in accordance with generally accepted operation practices of the applicable industry; shall be of merchantable quality and free from defects in material and workmanship." DISCUSS. [26]

2. CONTRACT TEXT: "Seller warrants and represents to Buyer, Contractor (as defined in the Order Form) and the Lenders (as defined in Section 20.16) that the Equipment … can be operated in accordance with all applicable laws and permits in effect as of the date of this Agreement." DISCUSS. [27]

3. CONTRACT TEXT: "Seller warrants and represents to Buyer, Contractor (as defined in the Order Form) and the Lenders (as defined in Section 20.16) that the Equipment … is fit for its intended purpose." DISCUSS. [28]

4.25 Class 25, Mon. Apr. 23

4.25.1 General comments on Homework 4

  • The purpose of the exercise was simply to draft a complete, reasonably-workable contract that could be signed quickly. I'm fine with the fact that different students took different approaches.
  • Grading is still in progress; it's unavoidably impressionistic and gestalt to a certain extent, because it's not possible to have a firm grading rubric for an assignment that gives students considerable flexibility.
  • Some students seem not to have read the instructions very well; their submissions:–
    • were a bit long;
    • were too biased in favor of Alice; and/or
    • included provisions that would hurt Alice, e.g., restricting Alice's ability to assign the agreement.
  • Some submissions included mistakes that should not have happened because "the right way" has been covered repeatedly in the course.

4.25.2 DCT's quickie version of Website development agreement

This "Agreement" is made, effective the last date written on the signature page, between Alice LName, an individual who resides and has an initial address for notice at 9999 Fairview, Houston, Texas 77006 ("Alice"); and Bob LLC, a Texas limited liability company with a principal place of business and an initial address for notice at 0000 Main Street, Sugar Land, Texas 77478 ("BobCo").

  1. Alice was given the name of BobCo's principal, Bob Baker ("Bob") by friends. Alice had a preliminary discussion with Bob, who represented that he has experience and expertise in developing Web sites for small businesses. Alice wants to engage BobCo to develop a Web site for a cookie store that Alice plans to open.
  2. Bob will work with Alice to come up with a detailed design for the Web site, subject to Alice's reasonable written approval.
  3. Bob will build the Web site in a professional manner in compliance with the approved design.
  4. Bob will comply with Alice's reasonable requests concerning the appearance and functionality of the Web site, subject to the time- and price limitations below.
  5. BobCo may invoice Alice weekly at [RATE] for the time spent on this project, but with a not-to-exceed price of [DOLLARS] for the entire project; Alice will pay BobCo's invoices within 10 days of receipt.
  6. To reduce the chances of accusations of infringement or misappropriation, BobCo will not knowingly include any third-party content in the Web site without first getting Alice's written approval. BobCo's providing of materials for the Web site to Alice will constitute Bob's and BobCo's representation that those materials do not infringe or misappropriate any third party's rights.
  7. BobCo will complete the Web site and "turn the keys over" to Alice by [DATE].
  8. Except as stated in paragraph 9, Alice will own all rights in what BobCo creates for the Web site; BobCo will make sure that it has the power to convey ownership to Alice, and it will take any actions reasonably requested by Alice to deliver the materials created and to record or confirm Alice's rights.
  9. BobCo, however, will retain ownership of (A) any preexisting materials that BobCo developed before the project began, and (B) any materials that BobCo developed for the project that are not unique to a cookie-store business.
  10. The parties may terminate the project: (a) by mutual agreement, or (b) if either party breaches this Agreement and does not cure the breach within 10 days after written notice of breach.
  11. In addition, Alice may terminate the project at any time she wishes, but she must comply with her obligations under paragraph 12.
  12. If either party terminates the project, then: (a) BobCo will promptly turn over to Alice all completed work and work-in-progress; and (b) Alice will pay BobCo any amounts due for work completed up through the effective date of termination.
  13. This is the complete, final, and exclusive agreement between Alice and BobCo concerning the project.

[SIGNATURE BLOCKS]

4.25.3 Exercise: Buying a horse

FACTS: You work as in-house counsel for a company owned by Lauren Muffett, a legendary business executive and one of the world's richest people. Ms. Muffett's admin calls you to say that Ms. Muffett wants to buy a horse and would like for you to draft a contract. The admin says that this is all he knows about the horse purchase; he also says that Ms. Muffett has just left for the airport to fly to Ulaanbaatar (the capital of Mongolia) to embark on a meditation retreat and that she will be unreachable for two weeks.

EXERCISE: To start out with, in your groups, brainstorm a list of provisions that the draft contract should probably include.

(Additional facts will be revealed progressively.)

4.25.4 Eventbrite Wall-of-Words ("WOW")

Break up this provision from the Eventbrite terms of service — and see what you think of the provision itself, substantively.

(Don't bother trying to rephrase the provision to make it more understandable — I started to do so and concluded that such an effort would take far too much time for the likely pedagogical value.)

7. Permissions You Grant us to Film and Record Your Events.

You grant permission to Eventbrite and its agents to enter onto and remain on the premises (including real property, fixtures, equipment, or other personal property) where your event is hosted (and any other premises you and Eventbrite mutually approve) (collectively, the "Premises") with personnel and equipment for the purpose of photographing and recording the Premises, both internally and externally in connection with the production of digital content on the date of your event(s) and any other dates reasonably requested by Eventbrite (for example, during setup and breakdown for the event) (the "Shoot"). You, on behalf of yourself, your employees, independent contractors, invitees, licensees, performers, exhibitors, attendees, and all other individuals present at the Shoot (collectively, the "Subjects"), grant permission to Eventbrite and its agents, successors and assigns to record and use the image, likeness, appearance, movements, performances, and statements of the Subjects in any live or recorded audio, video, or photographic display or other transmission, exhibition, publication or reproduction made of, or at, the event (regardless of whether before, during or after the event) for any purpose (including, without limitation, the advertising, promotion and other exploitation of Eventbrite's brand, Trademarks, Services, or events hosted on the Sites), in any manner, in any medium or context now known or hereafter developed, without further authorization from, or compensation to, the Subjects or anyone acting on a Subject's behalf. You, on behalf of yourself and the Subjects, agree that Eventbrite, its successors and assigns will own all rights of every nature whatsoever in and to all films and photographs taken and recordings made hereunder (the "Recordings"), including without limitation of all copyrights therein and renewals and extensions thereof, and the exclusive right to use and exploit the Recordings in any manner, in any medium or context now known or hereafter developed, including the right to freely edit the Recordings for use or create new works from the Recordings. You, on behalf of yourself and the Subjects, grant Eventbrite and its licensees the nonexclusive right to use the names and trademarks of you, the Premises, the Events documented in the Shoot, and the Subjects in connection with Eventbrite's and its licensees' use of the Recordings. You are responsible for obtaining, at your own cost, all third party permissions, clearances, and licenses necessary to secure Eventbrite the permissions and rights described above, and you represent that you have done so. Eventbrite is not required to use the Recordings, and you, on behalf of yourself and the Subjects, irrevocably waive any right to inspect or approve the Recordings or any manner in which they are used. Eventbrite may provide credit using your and/or any Subject's names or may refrain from doing so, in its discretion. Further, you, on behalf of yourself and the Subjects, release Eventbrite and Eventbrite's assigns, licensees and successors from any claims that may arise regarding use of the Recordings, including, without limitation, any claims of defamation, invasion of privacy, or infringement of rights of likeness, publicity or copyright.

(You might also be interested in the Hacker News discussion of this language.)

(Update: EventBrite has removed the provision in question.)

4.26 Class 26, Wed. Apr. 25

4.26.1 Pizza

I might be a couple of minutes late, picking up the pizza at Pink's.

4.26.2 Ambiguity exercise: Redistricting court fight

From the Houston Chronicle:

Throughout the litigation, [MALC chairman and State Rep. Rafael] Anchia noted that the lower courts have made 10 findings of intentional discrimination against the State of Texas by both Republican and Democratic-appointed judges.

QUESTION: Where are the two ambiguities in this sentence? How can they be fixed?

4.26.3 Collaborative outline

In the virtual whiteboard, collaborate with your groups to outline what you think are some of the key takeaways from the course.

4.26.4 DCT's survey

Also in the virtual whiteboard, let me know (anonymously) what you liked about the course and what you think could use improvement.

4.26.5 Course evals

We'll take a few minutes to do the school's course evaluation.

4.26.6 Jeopardy!

5 Previous weekly reading assignments

5.1 Reading for week of Jan. 29

5.2 Reading for week of Feb. 5

In the Supplement: "A Somewhat-Barebones Contract"

In On Contract Drafting:

  • Read sections 7.1 (key takeaways) and 7.2 (differences between reps and warranties).
  • Look through the rest of Chapter 7 (reps and warranties).

Look over, in the Verizon-Yahoo stock purchase agreement, just the following: Articles II and III (representations and warranties); section 8.16 (disclosure schedules). Note in particular how disclosure schedules tie in with reps and warranties.

Also in the Verizon-Yahoo stock purchase agreement, look over section 2.15, which we will rewrite in class next week.

5.3 Reading for week of Feb. 12

Indemnities: Read section 8.1 (indemnities).

Sheryl Sandberg employment agreement: Look through it in the Supplement, especially the annotations.

Stanford-Tesla lease agreement: Look through it in the Supplement, especially the annotations.

Section 1.8 of Getting a Workable Contract to Signature Sooner, which lays out a methodical approach to scenario identification and planning.

Don't forget to study for the quiz!

5.4 Reading for week of Feb. 26

Standards: Reasonable efforts, etc.: Read Chapter 9. Think about what might constitute "unreasonable" withholding of consent (e.g., consent to assignment) and how a drafter, representing a party that might seek consent, might try to negotiate a workable arrangement.

Services: Read Common Draft §§ 14.1 through 14.4.4; look through §§ 14.4.5 through 14.4.11 as well as §§ 14.8 and 14.9.

5.5 Reading for week of Mar. 5

Assignment of agreement: Read chapter 13.

Conspicuousness: Read section 14.22.

Discretion: Read section 14.27.

5.6 Reading for week of Mar. 19

Writing, Briefly, by Paul Graham, noted essayist and multi-millionnaire co-founder of famed tech startup accelerator Y Combinator in Silicon Valley. His short essay breaks several rules but is worth close study.

Amendments / waivers must be in writing: Read Common Draft § 24.1.1 (amendments) and § 24.17 (waivers). What do you think is the most-important takeaway? What if anything can a drafter do about it?

Amendments by one party: Read Common Draft § 24.16 (unilateral amendments).

Entire agreement: Read Common Draft § 24.1.4 (entire agreement) and § 24.13 (reliance disclaimer).

Termination of agreement: Read:

And look through:

Walkaway rights (i.e., conditions to closing): Read Section 5.02(a) of the Verizon-Yahoo stock purchase agreement (conditions to Purchaser's obligation to close). We will use that as a vehicle for discussing some typical issues that can come up in M&A work.

5.7 Reading for week of Mar. 26

Ross Guberman, Five Ways to Write Like Justice Kagan (LegalWritingPro.com Mar. 20, 2018)

Forum selection: Read Common Draft § 24.1.5.

Governing law: Read Common Draft § 24.1.6.

Independent contractors: Look over Common Draft § 24.1.6: What do you think is the most-important takeaway?

5.9 Week of April 9

5.9.1 Confidential information

Read this (all of § 6.1).

5.9.2 Arbitration

Read this (all of § 22.2).

6 Future agenda items (in development)

Contents (click on a title)

6.1 Read-along lecture: Serve the reader

6.1.1 Three crucial questions asked by judges and juries

Most contracts stay buried in the (electronic) file drawer. The contracting parties either don't get into disputes in the first place, or they successfully resolve any disputes on their own.

But woe betide the drafter (or reviewer) who forgets that ultimately a contract might have to serve as Exhibit A in a lawsuit or arbitration. For such a contract, the most important reader is the judge or arbitrator — who almost certainly is very busy; who might have little or no knowledge of the parties' business; and who would appreciate it if the contract quickly conveyed the answers to three crucial questions:

  1. Exactly what — if anything — did the defendant commit to do or not do in the contract?
  2. What event or events could trigger the defendant's commitment, and did the necessary triggering event or -events actually occur?
  3. Was the defendant's commitment subject to any relevant exceptions or other limitations?

Clumsy drafting can sometimes make these three contract questions very difficult for the judge, arbitrator, or other reader to puzzle out. During negotiation, this can slow up the non-drafting party's legal review and delay getting the contract to signature, and in litigation or arbitration, it can increase the chances of an unforeseen result.

The drafters and reviewers of a contract can serve all future readers  — not least, the business people who must read the contract — by being as clear as possible about these questions. Clarity thus helps to reduce the odds of a dispute arising in the first place.

6.1.2 The contract drafter's job: Educate and persuade

The author of a contract-drafting style manual once opined that, apart from the opening recitals, “in a contract you don’t reason or explain. You just state rules.” Ken Adams, More Words Not to Include in a Contract— “Therefore” and Its Relatives, at http://www.adamsdrafting.com/therefore/ (2008).

That view would be fine if people were computers, which do exactly as they're told: nothing more, nothing less. But people aren't computers. Memories are often short and can sometimes be "creative." Moreover, a contracting party's circumstances can change after the contract is signed — by the time a dispute arises, key employees and executives of a party could have different views of what's important, and they might have forgotten (perhaps conveniently) what mattered during the con­tract negotiations.

Let's not forget another important group of people: Judges, jurors, and arbitrators who are asked to enforce a contract can be influenced by what they think is right and fair. Sometimes, the wording of the contract's terms can make a difference.

So: People sometimes need to be educated, and even persuaded, to do the things they’re theoretically supposed to do.

That is the contract drafter's mission: To educate the parties — and sometimes judges and jurors — and, if necessary, to persuade them, to do what your client now wants them to do.

6.1.3 Mnemonics (in progress)

6.1.3.1 In general
  • A.T.A.R.I. - Avoid the Argument: Rewrite It
  • S.T.R. - Serve the Reader
  • W.S.I.Y.F. - White Space Is Your Friend (for readability and faster review and -signature)
  • D.R.Y. — Don't Repeat Yourself (with some exceptions)
  • R.O.O.F. - Root Out Opportunities for F[oul]-ups (D.R.Y. is an example of this)
  • W.I.D.D. - When In Doubt, Define
  • W.I.D.A.P. — When In Doubt, Ask the Partner
  • W.I.D.A.C. — When In Doubt, Ask the Client
  • W.T.C. - Whose Throat to Choke? (Or, be careful about possible false imperatives—whom do I sue if X doesn't get done?)
  • O.T.C. - One Throat to Choke! (Remember: Two baseball outfielders letting a fly ball drop to the ground between them because neither one "calls it.")
  • G.F. - Graceful Failure - it's better to have a Plan B than to go right to litigation for breach of contract.
6.1.3.2 Specific drafting points
  • F.O.L.D. — Foreseeability as a Limitation (of liability) is Dangerous
  • "Any of A, B, and C" vs. "one or more of A, B, and C" – the former arguably means exactly one, so if that's what's meant, consider saying "any one of A, B, or C."
  • To avoid confusion, use may to indicate permission and might to indicate possibility. Example: Consider the two possible meanings of the statement, Consultant may not send the invoice before December 31.
6.1.3.3 Other
  • Right of first refusal / right of first offer
    • F.O.F.L. - First Offer = First Look
    • F.R.I.L.L. - First Refusal Is Last Look

6.1.4 Potential test questions

  1. QUESTION: Which of the following does the author think is not a good choice:
    A. Bob will pay Alice $1,000 no later than December 24.
    B. Bob shall pay Alice $1,000 no later than December 24.
    C. Bob must pay Alice $1,000 no later than December 24.
    D. Bob is to pay Alice $1,000 no later than December 24.
  2. TRUE OR FALSE: In a contract to remodel a kitchen in a house, the following would be an acceptable drafting style: All building permits are to be timely obtained.

6.2 Ambiguity exercise: A gift to siblings

TEXT: I will give you and your brother $1 million.

QUESTION: How much total will the siblings get — $1 million, or $2 million?

EXERCISE: Rewrite to clarify.

QUESTION: What if the text were: You will give me and my brother $1 million?

QUESTION: What if the text were: I will give you and your husband $1 million.

6.3 In-class group reading: The bare necessities

INSTRUCTIONS:

In American law schools, students learn very early that under the Statute of Frauds, many and even most business contracts must take the form of a signed writing — but also that such a writing can be enforceable in court even if it's not terribly detailed.

6.3.1 To close more business, a GE unit streamlined its contract forms

Contract forms tend to grow by accretion, as lawyers think of issues that could arise. As a result, what a commenter said about politicians fearful of voter backlash might apply equally to contract drafters fearful of client finger-pointing: “As with mass incarceration, efforts to reform airport security are hamstrung by politicians and administrators [read: lawyers] who would prefer to inflict hassle on millions than be caught making one mistake.” Henry Grabar, Terminal: How the Airport Came to Embody Our National Psychosis (Slate.com 2017).

Not surprisingly, the legal department of one General Electric business unit found that its "comprehensive" contract documents were sabotaging its ability to close sales deals:

When GE Aviation combined its three digital businesses into a single Digital Solutions unit nearly four years ago, their salespeople were eager to speed up the growth they had seen in the years before the move. They found plenty of enthusiastic customers, but they struggled to close their deals.

The reason: Customers often needed to review and sign contracts more than 100 pages long before they could start doing business.

The new business inherited seven different contracts from the three units. The clunky documents were loaded with legalese, redundancies, archaic words and wordy attempts to cover every imaginable legal [sic]. No wonder they languished unread for months.

"We would call, and customers would say, 'I can’t get through this,'" says Karen Thompson, Digital Solutions contracts leader at GE Aviation. “And that was before they even sent it to their legal team!

"Who is going to pick up a 100-plus-page document and sort through it to find language they disagree with? We were having trouble moving past that part to what we needed to do, which was sell our services.”

For those customers who did read the contract, negotiations would drag on and on.

Kristin Kloberdanz, Honey, I Shrunk The Contract: How Plain English Is Helping GE Keep Its Business Humming, (GE.com 2017) (extra paragraphing added).

What was a surprise was that the legal department actually did something about i. The general counsel of that GE business unit described his team's motivations in a Harvard Business Review article:

… For the most part, the contracts used in business are long, poorly structured, and full of unnecessary and incomprehensible language. …

A contract should not take countless hours to negotiate. Business leaders should not have to call an attorney to interpret an agreement that they are expected to administer.

We should live in a world where contracts are written in accessible language—where potential business partners can sit down over a short lunch without their lawyers and read, truly understand, and feel comfortable signing a contract. A world where disputes caused by ambiguity disappear.

Shawn Burton, The Case for Plain-Language Contracts, Harv. Bus. Rev., Jan.-Feb. 2018, at 134 (extra paragraphing added). Burton provides several examples of streamlined provisions, such as the following revision:

Before:

Customer shall indemnify, defend, and hold Company harmless from any and all claims, suits, actions, liabilities, damages and costs, including reasonable attorneys’ fees and court costs, incurred by Company arising from or based upon (a) any actual or alleged infringement of any United States patents, copyright, or other intellectual property right of a third party, attributable to Customer’s use of the licensed System with other software, hardware or configuration not either provided by Company or specified in Exhibit D.3, (b) any data, information, technology, system or other Confidential Information disclosed or made available by Customer to Company under this Agreement, (c) the use, operation, maintenance, repair, safety, regulatory compliance or performance of any aircraft owned, leased, operated, or maintained by Customer of [sic; or] (d) any use, by Customer or by a third party to whom Customer has provided the information, of Customer’s Flight Data, the System, or information generated by the System.

After:

If an arbitrator finds that this contract was breached and losses were suffered because of that breach, the breaching party will compensate the non-breaching party for such losses or provide the remedies specified in Section 8 if Section 8 is breached.

(DCT comment: Substantively, the After version arguably has some minor problems, but what's of interest here is how the drafters were able to streamline the wall-of-words ("WOW") provision pretty significantly.)

6.3.2 A countersigned letter can be enough …

A personal story: Not long after I started work as an associate at Arnold, White & Durkee, the senior partner, Tom Arnold,* called me to his office. Tom asked me to draft a confidentiality agreement for a friend of his, “Bill,” who was going to be disclosing a business plan to his (Bill’s) friend, “Jim.”

* Tom founded Arnold, White & Durkee, which grew to become what we believed was the second-largest intellectual property boutique in the United States, based in Houston with a total of some 150 lawyers in six cities. Tom was a true gentleman; a mentor; a friend; and everything a lawyer should be.

Tom instructed me not to draft a conventional contract. Instead, the confidentiality agreement was to take the form of a short letter along approximately the following lines:

Dear Jim:

This confirms that I will be telling you about my plans to go into business [raising tribbles, let's say] so that you can evaluate whether you want to invest in the business with me.

You agree that unless I say it's OK in writing, (1) you won’t disclose what I tell you about my plans to anyone else, and (2) you won’t use that information yourself for any other purpose.

You won't be under this obligation, though, to the extent that (A) the information in question has become public, or (B) you get the information from another source that has legitimately acquired or developed the information itself.

If this is agreeable, please countersign the enclosed copy of this letter and return it to me. I look forward to working with you.

Sincerely,

Bill

When I’d prepared the draft, I asked Tom: Isn’t this pretty sparse?

Tom replied that yes, it was indeed sparse — but:

  • The countersigned letter would be a binding, enforceable, and workable contract, one that Bill could use to get his case in front of a jury (i.e., survive a motion to dismiss) in the unlikely event that his friend Jim double-crossed him; and
  • At least equally important: Bill's friend Jim would almost certainly countersign the letter immediately, without asking his lawyer to review the document, which would have delayed things.

That early experience was an eye-opener. It drove home the lesson that contracts aren’t magical written incantations: they’re just simple statements of simple things.

The experience was also my first real-world exposure to a fundamental truth: Business people — i.e., clients — are often far more interested in being able to sign an "OK" contract now than they are in signing a supposedly-better contract weeks or in the future.

As another example, see the 2006 letter agreement for consulting services between Ford Motor Company and British financial wizard Sir John Bond (for USD $25,000 per day), at https://goo.gl/cXMrX5 (archive.org):

[Letterhead for Secretary of Ford Motor Company]

September 13, 2006

Sir John Bond
[Address redacted]

Dear Sir John:

This letter will confirm our discussions on the terms of your consultancy to Ford Motor Company:

  • We have agreed that you will be a consultant to Ford Motor Company and William Clay Ford, Jr., generally spending the whole of the Tuesday and the morning of the Wednesday preceding each of our seven regular Board of Directors meetings in consultation with senior management of Ford Motor Credit Company and senior finance management of Ford.
  • We will compensate you at the rate of $25,000 per day, which amount would be pro-rated for each Wednesday that you consult with Company management. Accordingly, you would receive $37,500 for each Tuesday/Wednesday that you consult with Company management, or $262,500 per 12 month period. Any additional consulting and resulting compensation would have to be specifically agreed between you and Ford. We will pay you in arrears at the end of each calendar quarter. Of course, we will also reimburse you for normal and customary travel and business expenses incurred by you in providing the consulting services upon submission of appropriate documentation. As a member of the Board of Directors of Ford, you also will continue to receive the fees paid and other benefits provided to non-employee directors.
  • We will provide you with office, computer and other incidental support when in Dearborn, Michigan.
  • Either you or Ford can terminate the consulting arrangement at any time, in your or Ford's sole discretion, in which event Ford will pay you for consulting services previously rendered and reimburse you for travel and business expenses previously incurred.
  • The effective date of our agreement shall be the date of your concurrence, below; however, the Company shall pay you in accordance with this agreement for the time you spent consulting with Ford executives in connection with the July meeting of the Board of Directors.
  • Your signature, below, will also confirm your resignation from the Compensation Committee and the Nominating and Governance Committee of the Company.

If you concur in the consulting arrangement as described above, please so indicate by signing and dating this letter at the space below.

[Signature blocks]

(Optional reading:) For more on this consulting agreement, see Rob Cox, The $25,000 Bond (TheBreakingNews.com 2006).

6.3.3 … and even a text message might be sufficient

In a federal-court lawsuit in Florida (decided under Delaware law), a text-message exchange served as a binding agreement to modify an existing contract — and that agreed modification went on to cost one of the parties more than a million dollars. In that case:

  • An Internet advertising agency had a contract to supply online sales leads to its client, a manufacturer of electronic cigarettes.
  • The contract limited the client's payment obligation to 200 leads per day.
  • But a vice-president of marketing at the client had a text-message conversation with the account manager at the Internet ad agency; the operative part of the conversation was as follows:

[Account manager:] We can do 2000 orders/day by Friday if I have your blessing

[Client VP:] NO LIMIT

[Account manager:] awesome!

But then when ad agency billed the client for the higher number of sales orders, the client didn't pay, and so the ad agency sued and won a judgment for $1,240,655, because:

  • the account manager's text proposing 2,000 orders per day constituted an offer to modify the contract to modify the 200-per-day limit;
  • the manufacturer's vice president's "NO LIMIT" response constituted a counteroffer; and
  • the account manager accepted the counteroffer with the "awesome!" reply.

The court therefore held that the text-message exchange was a binding agreement to modify the existing contract. CX Digital Media, Inc. v. Smoking Everywhere, Inc., No. 09-62020-CIV, slip op. at 8, 17-18 (S.D. Fla. Mar. 23, 2011).

6.3.4 The Pathclearer approach uses letter agreements and business motivations

(Optional reading:) It's worth your time to read a coldly-realistic article about the drawbacks of long, detailed contracts in contrast to the benefits of the Pathclearer approach developed by in-house counsel at Scottish & Newcastle, a brewery in the UK. The Pathclearer approach involves using short letter agreements instead of long, complicated contracts, and relying on commercial motivations — i.e., each party's ability to walk away, coupled with the desire to retain a good business partner — and the general law to fill in any gaps that might be left. See Steve Weatherley, Pathclearer: A more commercial approach to drafting commercial contracts, Practical L. Co. L. Dept. Qtrly, Oct.-Dec. 2005, at 40 (emphasis added).

6.4 (S) The dangers of repeating yourself

Glance at this example of D.R.Y. (Don't Repeat Yourself) from Bryan Garner's Twitter feed. How would you fix this? [29]

6.5 Reality: Home Improvement "Hollywood accounting" lawsuit (2017)

  • Incontestability clause — shortened statute of limitations, waiver of discovery rule
  • Summary judgment for Walt Disney
  • Appeals court reverses: Fact issue re oral waiver of contractually-shortened limitation period (recall Cardozo opinion)
  • See the opinion and a law firm summary

6.6 Reality: Harvey Weinstein's employment agreement (2017)

According to TMZ.com, Weinstein's employment agreement supposedly:

  • requires Weinstein to reimburse the company for any settlements that the company pays to settle cases arising from Weinstein's violation of the company's code of conduct;
  • requires Weinstein to pay the company liquidated damages — in escalating amounts — for repeat offenses;
  • sets out specific "cause" for which the board of directors can fire Weinstein;
  • requires mediation, then arbitration, before the board can fire Weinstein.

According to Inc.com, this is the reverse of the usual "morals clause."

QUESTION: How would this have been handled under Sheryl Sandberg's employment agreement? See line 118 et seq. and lines 212-55. For discussion:

  • At-will employment
  • Different consequences of being fired "for Cause" as opposed to not for cause
  • Liquidated damages in Weinstein employment agreement

6.7 Contra proferentem

6.7.1 Overview

Drafters should keep firmly in mind the contra proferentem principle of contract interpretation. That principle holds that if an ambiguity in particular language cannot be resolved by other conventional means (such as those discussed above), then the ambiguity should be resolved against the party that drafted the ambiguous language and thus is "to blame" for the problem. (If a contract provision is not ambiguous, then contra proferentem won't come into play in the first place.)

The contra proferentem principle gives drafters a powerful incentive to draft clearly: As between the drafter of ambiguous language, on the one hand, and the "innocent" other party, it's the drafter that must bear the consequences of the ambiguity.

The (U.S.) Supreme Court explained the concept of contra proferentem: "Respondents drafted an ambiguous document, and they cannot now claim the benefit of the doubt. The reason for this rule is to protect the party who did not choose the language from an unintended or unfair result." Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62-63 (1995) (reversing 7th Circuit) (citations and footnotes omitted).

For additional information, see generally:

6.7.2 Typing a provision doesn't necessarily mean you drafted it

In Song v. Iatarola, No. 64A03-1609-PL-2094 (Ind. App. July 6, 2017), one party to a contract lost a case because of the way the court interpreted a particular provision in the contract. On appeal, the losing party claimed that the provision should have been interpreted against the winning party because the winning party supposedly "wrote" the provision. The record, though, contained evidence that, while the winning party had typed the provision into the Word document, the parties had jointly drafted the actual wording of the provision. That sank the losing party's argument; the appellate court held that:

During the summary judgment stage and in their appeal, the Iatarolas failed to establish that no genuine issue of material fact existed about whether Song independently drafted the addendum such that its interpretation should be construed against him. Rather, the evidence outlined above indicates that it was the Iatarolas who wanted the addendum drafted, and that both parties contributed to its preparation.

Id., slip op. at 3-4 (on rehearing; emphasis added).

6.7.3 Caution: Disclaiming contra proferentem could cause problems

Suppose that a court or arbitrator concluded (1) that there was no way to resolve an ambiguity in a contract, other than by applying the contra proferentem principle, but (2) the parties had agreed that contra proferentem was not to be applied. The results in that situation might be unpredictable:

  • The tribunal might disregard the contra proferentem prohibition and apply the principle to resolve the ambiguity; or
  • The tribunal might rule that the ambiguous provision could not be enforced — which in some circumstaces might jeopardize the enforceability of the entire contract.

(Hat tip: Jonathan Ely, in a comment in a LinkedIn group discussion (group membership required).)

6.8 (N) Roy Moore's lawyer's letter to press (2017)

DCT to pull up on his screen

6.9 (N) United Airlines: doctor dragged screaming off the plane (2017)

  • A comment: "United could and probably should have offered more, even if they wound up paying more than the federally mandated payment for involuntarily bumping, to avoid creating a PR nightmare."
  • United's new club seating plan
  • Lessons for contract drafters:
    • Perspective on the real business needs (e.g., dispute-escalation provision)
    • Make it about money

6.10 (N) Notetaking ideas

See this piece on notetaking ideas, such as:

  • You retain information far better if you handwrite your notes vs. typing them.
  • Drawing your notes improves retention (cf. mind-mapping).

6.11 (N) Kobe Steel quality problems (2017)

I added this article to my SPP file; it's apropos of "you get what you INspect, not what you EXpect": https://www.nytimes.com/2017/10/10/business/kobe-steel-japan.html

… Kobe Steel has acknowledged falsifying data about the quality of aluminum and copper it sold, setting off a scandal that is reverberating through the global supply chain and casting a new shadow over the country’s reputation for precision manufacturing.

The fallout has the potential to spread to hundreds of companies. Big multinationals, including automakers like Toyota Motor, General Motors and Ford, as well as aircraft manufacturers like Boeing and Mitsubishi Heavy Industries, are investigating.

Toshiaki Oguchi, director of Governance for Owners Japan, a corporate watchdog, said that Japanese companies were generally diligent about quality, but that when cheating occurred — because of competitive pressure or other factors — it could too easily go unchecked. Japanese companies, he said, tend to discourage thorough examination or criticism, either from employees or from independent outsiders.

Kobe Steel said on Sunday that employees at four of its factories had altered inspection certificates on aluminum and copper products from September 2016 to August this year. The changes, it said, made it look as if the products met manufacturing specifications required by custom­ers — including for vital qualities like tensile strength, a measure of material’s ability to withstand a load without breaking when being stretched — when they did not.

(Emphasis added.)

To be sure, contract drafters normally can't do that much to change corporate cultures. But building "nudges" into agreements can sometimes be useful; see generally the book Nudge, by Nobel economics laureate Richard Thaler and Harvard law professor Cass Sunstein.

6.12 (N) Bitcoin for ransomeware payoffs

Many stockpile bitcoin to make payoffs (phys.org) – this is relevant to thinking about what-if scenarios and preparing for them.

6.13 (N) Yahoo and Verizon renegotiate after breaches

Verizon and Yahoo renegotiate their deal at a price of $4.48 billion ($350 million lower). DISCUSSION: MAC clauses.

6.14 (N) Fraud: Gates Foundation sues software development co.

DCT to talk about this lawsuit.

6.15 (N) Oscars "Best Picture" snafu (2017)

  1. R.O.O.F.: "Simply put the name of the category in large letters on each envelope: Best Movie, Best Actress, Best Cinematography, etc." (WSJ.com commenter Felix Kapron)
  2. You get what you inspect, not what you expect; having someone else second-check things — even tiny details — can pay off.
  3. Warren Beatty could have put the brakes on, if he hadn't been a deer in the headlights.
  4. It took two full minutes for the CPAs and telecast producers to step in to fix the problem. (Did they train for that problem?)
  5. Note the energetic, classy response by La La Land's executive producer Jordan Horowitz: Acknowledge, accept, enjoy, act.

6.16 (S) Streamlining sentences (6)

How could the following be written to make it plainer?

Before:   The settlement of travel claims involves the examination of orders.

After:

6.17 (S) Streamlining sentences (7)

How could the following be written to make it plainer?

Before:   Use 1.5 line spacing for the preparation of your contract draft.

After:  

6.18 (S) Drafting problems with a contract (1)

From a contract drafted by The Other Side of a deal (sanitized):

Within thirty (60) days of the close of previous quarter term, ABC shall provide XYZ with a revenue report that provides a total amount of Data Revenue and Software Revenue obtained by ABC during the referenced quarter term, minus any associated costs or expenses and customer returns or refunds ("Revenue Report").

QUESTION: Any drafting problem with this? (This should be really obvious.)

QUESTION: Ignoring the substance, how might this be otherwise improved to make it more readable?

6.19 (S) Reps and warranties: IP

From a contract drafted by The Other Side of a deal (sanitized):

"XYZ represents and warrants that XYZ's software and its use will not infringe any patent, copyright, or trade secret of any third party.

QUESTION: Which of "patent, copyright, or trade secret" might XYZ want to represent and not warrant? (Students with no IP background probably can't answer this one; it requires some basic substantive knowledge but is still a useful exercise.)

6.20 (S) Legal language usage "quiz" (not for grade)

DCT to pull up on the screen

6.21 (S) Minor drafting fail: Phonograph needles

Look at the italicized portion of this passage from Ian Bogost, Why Computers Should Be Hidden (TheAtlantic.com Oct. 25, 2017):

A vinyl record, for example, records a continuous stream of sound as grooves on the surface of a disk. The vibrations that produced those grooves are later traced by the turntable’s needle, which amplifies them for playback.

QUESTION 1: Is it really the vibrations that produced the groove — singular, not plural — that are traced by the turntable's needle? A: No — as the record is rotated under the needle, the needle traces the groove itself and thereby creates new vibrations, which are detected and amplified by other means.

QUESTION 2 (for discussion): Under what circumstances might it have been worth the author's time to get this right?

6.22 (S) Ambiguity: How much did Grandpa leave in his will?

A student from fall 2017 forwarded a (redacted) codicil to a will with the following drafting fail (slightly edited):

4.1(b) I give $ AMOUNT A each to STEP-GRANDSON and STEP-GRANDDAUGHTER …

4.1(c) I give to GRANDSON #1 and GRANDSON #2 a cash bequest of $ AMOUNT B ….

The student summarized the drafting fail as follows:

The drafting law firm was careless and left out the word “each” in §4.1(c), despite using it in §4.1(b). [DCT COMMENT: Remember the interpretation principle of 'inclusio unius est exclusio alterius.'] It has the effect of halving the specific bequest to each of the grandsons when the stated (verbal) intent of the testator was that it should be “each.”

The good news is that this is being remedied by a family settlement agreement. Regardless of what the testator meant (be it “each” or “split in two”) there was a better way to draft this.

Thought I’d pass it along since it was a real life example… and unfortunately may not be uncommon either.

(Emphasis added.)

6.23 Grammar: The sheer amount of internet domains

From the Washington Monthly:

But, legislative proposals for increasing the diversity of ideological points of view aren’t without their own limitations. “Must-carry” policies, for example, which were originally designed to ensure that television broadcasters would promote education and attention to public issues, would never work online. The sheer amount of internet domains would not only make it impossible to regulate speech, but attempting to do so would also be unconstitutional.

QUESTION (discuss in your groups): What's wrong with the italicized portion?

1.  Ambiguity and the $10-million [missing] comma

2.  Grammar fail: Steve Bannon's ex-wife

3.  Grammar fail: Afghan "ghost troops"

6.24 (S) Flow: A progressive bent

See the italicized sentence in this piece in The Atlantic:

The first sign that this new system had some kinks came with “Upworthy-style” headlines. (And you’ll never guess what happened next!) Things didn’t just go kind of viral, they went ViralNova, a site which, like Upworthy itself, Facebook eventually smacked down. Many of the new sites had, like Upworthy, which was cofounded by Pariser, a progressive bent.

(Emphasis added.) QUESTION: How could the last, italicized sentence be rewritten so that it "flows" better and thus is more readable?

6.25 (S) What if you spot an ambiguity?

This question comes from a discussion in the LinkedIn group "Drafting Contracts" — there's no need to read the discussion, but you should consider joining the group.

The question that kicked off the discussion was this (edited):

When you review a contract and discover that a certain clause is poorly drafted, do you —

  • leave it as it is with the confidence that it probably will be construed against the other side, or
  • amend it, trying to make it mutual, but with the risk of bringing attention to the clause which could then be discovered by the other side.

What would you do?

6.26 (S) Ambiguity and lawyer ethics rules

TEXT: This was the title of an article in the April 2017 ABA Journal: "Lawyers should tread carefully before quitting a troublesome client to comply with ethics rules"

QUESTION: What exactly are lawyers being encouraged to do to comply with ethics rules — (A) quit a troublesome client, or (B) tread carefully?

EXERCISE: Rewrite.

6.27 (S) Language: Shall, will, must, etc.

QUESTION: The author regards one of the following as not a good choice — which one, and why?
A. Bob will pay Alice $1,000 no later than December 24.
B. Bob shall pay Alice $1,000 no later than December 24.
C. Bob must pay Alice $1,000 no later than December 24.
D. Bob is to pay Alice $1,000 no later than December 24.

6.28 (S) Flow: The dockside cranes at Churchill's funeral

At the end of Sir Winston Churchill's funeral in 1965, his coffin was taken by boat, up the River Thames, to his final resting place in Oxfordshire. As the boat passed by the great wharves of the London Docklands, the operators of the giant cranes spontaneously lowered the cranes' arms in salute.

TEXT (from a Telegraph account by a witness): "I heard that was never planned, but was a spontaneous gesture by crane drivers of respect."

QUESTION: Does the phrase "of respect" refer to: (A) a spontaneous gesture, or (B) crane drivers?

EXERCISE: Rewrite the italicized portion to make it clear that the answer to the question is (A). [30]

6.29 (S) Ambiguity: From the "B.C." comic strip

See the strip of July 17, 2017.

EXERCISE: Rewrite.

6.30 (S) Ambiguity: From the "Mutts" comic strip

See the strip of July 13, 2017.

EXERCISE: Rewrite.

6.31 (S) Ambiguity from President Trump

From a presidential tweet of April 3, 2017: "Such amazing reporting on unmasking and the crooked scheme against us by @foxandfriends. …" (Hat tip: Chris Richardson.)

6.32 (S) Ambiguity: Progressive resistance to President Trump

TEXT: "The temptation for progressives to resist pushing their own concrete policy agenda is compelling, especially since doing so gives the other side ammunition for criticism …." (From Joel Berg, It's Policy, Stupid — Why progressives need real solutions to real problems, Washington Monthly, Apr. 10, 2017.)

QUESTION: In the quotation, the italicized "doing so" refers to what, exactly — pushing a policy agenda, or resisting pushing an agenda?

EXERCISE: Rewrite to clarify.

6.33 (S) Language: Donald Trump and Nigel Farange

From a tweet: "You can’t have observed Nigel Farage in recent years and not think Trump may win in November, writes @NYTimesCohen nyti.ms/2bMhUUj" (emphasis added)

QUESTION: How could this be improved?

6.34 (S) Grammar: Email attachments

TEXT (from an email to DCT): "Attached are three files, the event surveys, the CLE sheet for DC and the mailing list sign up form."

QUESTION: What's wrong with this sentence? (Hint: It's the internal punctuation and spelling.) [31]

6.35 (S) Terms: Payment (1)

1. PROVISION: "Alice represents that she will pay Bob net 30 days." In your small groups, prepare to discuss the following:

QUESTION: What does "net 30 days" mean? [32]

QUESTION: Is anything wrong with the "net 30 days" part? [33]

QUESTION: Is anything else wrong with this provision? [34]

2. ASSIGNMENT: On the facts of #1 above, and in your small group's Google Doc, each student is to draft a replacement for the quoted provision. Feel free to consult your classmates, but do your own writing.

3. 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? [35]

QUESTION: Should Bob read anything into the fact that Alice's lawyer objected to this provision? [36]

3. FACTS: A contract payment provision states that past-due payments will bear interest at 8% per month beginning on the due date. Texas law applies.

QUESTION: Any problem with this provision? [37]

QUESTION: How should you respond if you see this while reviewing a contract drafted by another party — that is, if it were your client that putatively would have to pay interest on past-due amounts? [38]

6.36 (S) Ambiguity: The daughter of Poseidon

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: "Poseidon was my father … I control the waves."

EXERCISE: Rewrite to eliminate the ambiguity.

6.37 (S) Ambiguity: Fukushima

TEXT – from the New York Times: "… Carl Pillitteri, who was working as a field engineer on the Fukushima Daiichi nuclear generating station in Japan when a devastating earthquake and tsunami hit the island in 2011, resulting in the worst nuclear disaster since Chernobyl; it left some 18,490 people dead or missing …."

QUESTION: What is the "it" that left some 18,490 people dead or missing — the earthquake, the tsunami, or the nuclear disaster? EXERCISE: Rewrite to clarify.

6.38 (S) Ambiguity: If applicable

TEXT: Except as provided in sections 5 and 6 (if applicable) …

QUESTION: Suppose that section 6 is applicable but section 5 is not applicable — would that trigger the exception of this phrase?

EXERCISE: Rewrite so that it's clear that the exception is triggered only if section 6 is not applicable.

6.39 (S) Ambiguity: 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: Rewrite thes second sentence to clarify the intended meaning.

6.40 (S) Ambiguity: 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.

6.41 (S) Ambiguity: Homeopathic decongestant

TEXT: From a friend's Facebook post about taking his wife out for dinner in Portugal: "She took a homeopathic decongestant bought in a Portuguese pharmacy in the taxi …."

QUESTION: How exactly is this ambiguous?

EXERCISE: Suggest one or more ways of eliminating the ambiguity.

6.42 (S) Ambiguity: Electric chair

TEXT: The judge sentenced the killer to die in the electric chair for the second time.

EXERCISE: Rewrite to clarify.

6.43 (S) Ambiguity: Wormhole

From an AT&T U-Verse blurb about the sci-fi movie Interstellar: "“Facing extinction, a wormhole gives hope of a habitable planet for future humans ….”

EXERCISE: Clarify.

6.44 (S) Ambiguity: Meeting your husband

TEXT: I can't tell you how much I enjoyed meeting your husband.

EXERCISE: Clarify.

6.45 (S) Ambiguity: 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 — drought? wells? water?

EXERCISE: Rewrite to clarify.

6.46 (S) Ambiguity: Litigation threats

TEXT: No litigation against Borrower is pending or threatened to Borrower's knowledge.

QUESTION 1: What are two possible meanings?

QUESTION 2: How might a court resolve the ambiguity? (Hint: Think about who likely drafted this provision and then consider the contra proferentem principle.)

EXERCISE: Rewrite to clarify.

6.47 (S) Ambiguity: 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.

6.48 (S) Ambiguity: Trust funds

TEXT: The Trust may donate funds only to charitable and educational institutions.

QUESTION: May the Trust donate funds to an institution that is charitable but not educational? How about vice versa?

EXERCISE: Rewrite to clarify.

6.49 (S) Ambiguity: NFL idiots?

From a comment about Tom Brady: "NFL teams passed on Brady 198 times in the 2000 draft. … They didn’t overlook him because every NFL team is run by idiots. There was no readily available reason to want him. He was scrawny, he couldn’t throw much of a deep ball and he ran like a gawky teenager." (From Adam Kilgore at WashingtonPost.com; emphasis added.)

PART 1: Each student is to rewrite the italicized part to clarify it.

PART 2: Try clarifying by changing the punctuation between the italicized sentence and the immediately-following one (if you didn't do it that way the first time).

6.50 (S) News: K-Mart store lease termination

tl;dr: Contract says Landlord's exclusive remedy for Tenant breach is to terminate the lease; Landlord sues for money damages anyway — and gets poured out. Davenport Chester, LLC v. Abrams Properties, Inc., No. 16-3228 (8th Cir. Sept. 5, 2017) (affirming summary judgment in favor of Tenant).

6.51 (S) Grammar: Safes

From this Web page about "safes," an increasingly-used legal instrument for early-stage investment: "At the company’s discretion, you will either receive $5,000 in cash or stock." (Emphasis added.)

QUESTION: What's wrong with this? (Hint: To get an idea, try breaking up the sentence by adding romanettes.)

EXERCISE: In your group's Google Doc, each student is to draft a revised sentence.

6.52 (S) Ambiguituy: Gerrymandering and the wrong choice of words

TEXT: 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 the gerrymandering that does so?

EXERCISE: Rewrite.

6.53 (S) Ambiguity: Trademark license termination

From General Nutrition Investment Co. v. Holland & Barrett Int'l Ltd (Rev 1) [2017] EWHC 746 (Ch), ¶ 15:

5.2 The Licensor may terminate this Agreement [sic] immediately by notice in writing if:

     (a) The Licensee [i] materially breaches this Agreement or any other member with the H&B Group commits an act which would amount to a material breach of this Agreement or [ii] (without prejudice to the Licensor’s other rights to terminate under this Agreement) otherwise infringes the Licensor’s rights under the Trade Marks [iii] to an extent likely to cause material lost to the Licensor; or …

(Bracketed romanettes added; hat tip: IP Draughts.)

QUESTION 1: Does the materiality qualifier in clause iii apply to both clause i and clause ii or just to clause ii? EXERCISE: Rewrite to clarify.

QUESTION 2: At the beginning of section 5.2, why does this quotation include "[sic]" after "terminate this Agreement"?

6.54 (S) Flow: Tom Brady and the Tennessee Titans

TEXT: "Maybe the Tennessee Titans are coming up for Tom Brady and the new England patriots at the perfect time." Kyle Hightower, Brady bullish on Titans after drama-filled week, Washington Post, Jan. 13, 2018.

EXERCISE: Rewrite this sentence to make it "flow" better. Hint: Notice how far apart the phrases "coming up" and "at the perfect time" are. (You might, but need not, try breaking this into two sentences.)

* * * 

TEXT: "Notice how far apart the phrases 'coming up' and 'at the perfect time' are." (From the immediately-preceding paragraph.)

EXERCISE: Rewrite this sentence to make it flow better.

6.55 (S) Clarity: The bored monk

TEXT: "An acedic [bored] monk might be reluctant to rise from bed in the mornings, or fall asleep in church, but have plenty of energy for gossiping and hurrying to the refectory." From Julia Bourke, How to think like a medieval monk (Lapham's Quarterly Dec. 18, 2017).

EXERCISE: Rewrite to make it clear that an acedic monk would not be reluctant to fall asleep in church.

6.56 (S) Language exercise: LaGuardia airport

TEXT: From this NY Times article: "Under any circumstances, turning the La Guardia that Mr. Biden derided in 2014 into the 'globally renowned, 21st-century airport' that Gov. Andrew M. Cuomo of New York has promised would be an impressive feat."

EXERCISE: Rewrite to make this more clear. (Hint: Consider rearranging its components.)

6.57 (S) 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."

QUESTION: Is it clear when the trips to China and the Netherlands took place?

EXERCISE: Rephrase to be clear that only the trip to Italy was in the previous year.

EXERCISE: Rephrase to be clear that all the trips were taken in the previous year.

6.58 (S) Ambiguity: Rubio's concession speech

TEXT: A tweet by Vox.com's Ezra Klein: "I'll support the guy who did all these terrible things I'm talking about in the general [election]"

QUESTION: There are three possibilities for what happened, or was supposed to happen, or will happen, in the general election; what are they?

EXERCISE: Rewrite to clarify.

6.59 (S) Ambiguity: 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?

EXERCISE: Clarify.

6.60 (S) 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.

6.61 (S) Ambiguity: Book of Common Prayer

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.)

6.62 (S) 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).

EXERCISE: Clarify.

6.63 (S) Ambiguity: 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).

EXERCISE: Clarify.

6.64 (S) Ambiguity: Deadlines

EXERCISE: Rewrite the following to eliminate the ambiguities:

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

6.65 (S) Ambiguity: NCAA Finals

TEXT: "[The team] reached the tournament finals for the seventh time this year."

QUESTION: How many years did it take this team to reach the tournament finals — are you sure?

6.66 (S) Ambiguity: Merle Haggard

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)

6.67 (S) Ambiguity: Bid deadline

TEXT: Bids may be submitted until March 1.

EXERCISE: Rewrite to clarify

6.68 (S) Ambiguity: The job recommendation

TEXT: "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).

6.69 (S) 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)

6.70 (S) Ambiguity: What to bring?

State the two 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)

6.71 (S) Ambiguity: Quack quack?

Rephrase to eliminate the ambiguity:

I saw her duck.

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

6.72 (S) Ambiguity: Dog bite

Use one character to eliminate the ambiguity:

Passerby helps dog bite victim.

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

6.73 (S) Ambiguity: Umbrella strikes

Rewrite this headline to eliminate the ambiguity:

She hit the man with an umbrella.

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

6.74 (S) Ambiguity: Going to Oregon

Consider the following sentence:

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

Use punctuation (consider semi-colons, parentheses, and dashes) 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)

6.75 (S) Ambiguity: Arenas awash in pleasure

TEXT: 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.)

DISCUSSION: 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.

6.76 (S) 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?

6.77 (S) Ambiguities: Beeeeer ….

TEXT: St. Arnold's will ship 1,000 cases of beer to Labatt's in Ontario for $5 per case.

QUESTION: Is the italicized portion ambiguous, or vague?

6.78 (S) Ambiguity: Inept phonies in politics

TEXT: 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.)

COMMENT: The italicized part of this quotation arguably has two meanings; what are they?

EXERCISE: Rewrite the italicized portion of the Dowd quote to clarify it. See if you can keep something of the same rhythm or structure to the sentence.

6.79 (S) 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.)

6.80 (S) 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.

6.81 (S) 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).

6.82 (S) Ambiguity and Obama's veto

TEXT: 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."

QUESTION: Just what was expected — failing to get two-thirds, or getting two-thirds?

EXERCISE: Rewrite.

6.83 (S) 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."

QUESTION: In this sentence, what exactly is to be justified — the most favorable characterization of something, or the (some)thing itself?

EXERCISE: Rewrite.

6.84 (S) Ambiguity: Burglars and 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.

6.85 (S) Ambiguity: 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.

6.86 (S) Ambiguity: Early retirement

TEXT: From a 2016 headline: "Houston Technology Center CEO To Retire Early Next Year" (He retired Feb. 1, 2017 after serving for ten years.)

QUESTION: Was the CEO going to retire, and the retirement was to take place in early 2017? Or was he to retire in 2017, which was earlier than had been expected?

EXERCISE: Rewrite to clarify

6.87 (L) Warranty disclaimer (draft)

In your small group's Google Doc, brainstorm and draft a warranty disclaimer for the computer that Sarah Seller wants to sell. Each student should do his- or her own writing, but feel free to consult your classmates.

6.88 (L) Basics: A Somewhat-Barebones Contract (Part 1)

We will spend some time discussing "A Somewhat-Barebones Contract" in the Supplement to get an overview of some important issues that might confront a contract drafter or reviewer.

In your small groups, and without looking at the answers in the footnotes until you're ready to answer, discuss the following and be prepared to "report out" to the class as a whole.

1. Title: Why not just have the title be “Agreement”? [39]

2. First paragraph: What is a one-word name by which this first, unnumbered paragraph is typically called? [40]

3. First paragraph: The words “Agreement,” “Buyer,” and “Seller” are in bold-faced type and surrounded by quotation marks and parentheses. Why? [41]

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? [42]

5. First paragraph: Why does this paragraph state Buyer’s principal place of business? [43]

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)? [44]

7. First paragraph: Why state Sam’s place of residence (which is not necessarily the same as his initial address for notice)? [45]

6.89 (L) Preamble (Billy Buyer 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? [46]

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? [47]

EXERCISE: As Sarah's lawyer, in your small group's Google Doc, brainstorm and draft whatever provisions you think would be appropriate to address Sarah's financial concerns. Each student should do his- or her own writing, but feel free to consult your classmates.

6.89.1 In the news / SPP: SCA Promotions v. Yahoo!

SCA Promotions, Inc. v. Yahoo!, Inc., No. 15-11254 (5th Cir. Aug. 21, 2017):

  • Yahoo sponsors an NCAA perfect-bracket contest with a $1 billion prize [note how "billion" is spelled out] to any contestant who has a perfect bracket.
  • Yahoo contracts with SCA to pay the $1 billion if necessary and to obtain underwriting coverage for the fee (presumably from reinsurers).
  • Under the contract, Yahoo is to pay SCA a fee of $11 million.
  • The policy establishes target dates for Yahoo to cancel the contract, with stated penalty amounts:

Cancellation fees: Upon notice to SCA to be provided no later than fifteen (15) minutes to Tip-Off of the initial game, Yahoo may cancel the contract. In the event the contract is cancelled, Yahoo will be entitled to a refund of all amounts paid to SCA subject to the cancellation fees set forth in this paragraph. The parties hereto stipulate that the contract shall be signed on or before December 31, 2013. Should the signed contract be cancelled after that time and before January 15, 2014 a cancellation penalty of 25% of the fee will be paid to SCA. Should the signed contract be cancelled between January 16, 2014 and February 15, 2014, a cancellation penalty of 50% of the fee will be paid to SCA by Sponsor. Should the signed contract be cancelled after February 16, 2014, a cancellation penalty of 75% of the fee will be paid to SCA by Sponsor. [Slip op. at 3, emphasis added.]

And rewritten for easier reading:

[a] Cancellation fees: Upon notice to SCA to be provided no later than fifteen (15) minutes to Tip-Off of the initial game, Yahoo may cancel the contract.

[b] In the event the contract is cancelled, Yahoo will be entitled to a refund of all amounts paid to SCA subject to the cancellation fees set forth in this paragraph.

[c] The parties hereto stipulate that the contract shall be signed on or before December 31, 2013.

[d] Should the signed contract be cancelled after that time and before January 15, 2014 a cancellation penalty of 25% of the fee will be paid to SCA.

[e] Should the signed contract be cancelled between January 16, 2014 and February 15, 2014, a cancellation penalty of 50% of the fee will be paid to SCA by Sponsor.

[f] Should the signed contract be cancelled after February 16, 2014, a cancellation penalty of 75% of the fee will be paid to SCA by Sponsor.

  • Yahoo paid an initial $1.1 million deposit (10% of the agreed $11 million fee) on January 13, 2014.
  • On January 21, 2014, Quicken Loans Inc. reveals that it is sponsoring a similar $1 billion perfect bracket contest with Warren Buffett and Berkshire Hathaway.
  • Yahoo ditches its own contest — Yahoo and Quicken agree that Yahoo would become another co-sponsor of the Quicken contest.
  • On January 27, 2014, Yahoo cancels the SCA contract and demands repayment of the entire $1.1 million initial deposit, with no cancellation penalty.
  • SCA sues for $4.4 million, i.e., $5.5 million (50% of the $11 million fee per paragraph [e] above) less the $1.1 million deposit already paid.
  • Yahoo claims that "the fee" in paragraphs [d] through [f] refer to the $1.1 million deposit and not the $11 million fee.

The district court granted summary judgment for Yahoo and ordered a refund of $550,000 (half the $1.1 million deposit).

The Fifth Circuit reversed and rendered in favor of SCA.

EXERCISE: In your small group's Google Doc, redraft paragraph [e] above to try to avoid the controversy in the last bullet point above about the meaning of "the fee."

QUESTION: Does paragraph [c] above make sense? What would be another way to approach the subject?

6.90 (L) Basics: A Somewhat-Barebones Contract (Part 2)

We will continue discussing "A Somewhat-Barebones Contract" in the Supplement to get an overview of some important issues that might confront a contract drafter or reviewer.

8. What's a romanette? [48]

9. Section 1: What advantages might there be in including so much information about "the deal” in this paragraph? [49]

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? [50]

11. Section 1: “Seller will sell” and “Buyer will buy”: Why includes both of these? [51]

12. Section 1: “Seller will sell”: Why not “Seller shall sell”? [52]

13. Section 1: In the term "USD $800," what does the prefix "USD" mean? [53]

14. 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? [54]

15. Section 1.4: What is a "safe harbor" clause in the context of a contract (as opposed to a statute or regulation)? [55]

16. Section 1.4: What’s the significance of “for the avoidance of doubt”? [56]

17. Section 1.4: Any danger in using “for example”? [57]

18. Section 2: What types of agreement are likely to include this kind of clause? [58]

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? [59]

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? [60]

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? [61]

22. Section 3: What type of covenant is this? [62]

23. Section 4: What term might traditional contract drafters use here instead of “prerequisite”? [63]

24. Section 4: Why include this section? [64]

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 ….”? [65]

6.91 (L) Basics: A Somewhat-Barebones Contract (Part 3)

This exercise relates (again) to "A Somewhat-Barebones Contract" in the Supplement (at page 1). The question numbering below continues the previous sequence.

26. Section 5: If Seller fails to remove the Grateful Dead decals: Would Seller be in breach? Would Buyer be able to walk away? [66]

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.] [67]

28. Section 7: What options does Buyer have if Seller doesn’t allow Buyer to inspect the Computer before Closing? [68]

29. Section 7: Why use the term “commercially reasonable” in this section? [69]

30. Section 8.1: Why not use active voice here? [70]

31. Section 8.1: This provision uses “must be paid” for emphasis — what are some other possibilities for phrasing this term? [71]

32. Section 8.1: Any dangers in payment by cashier’s check? What are some possible alternative forms of payment? [72]

33. Section 9: This section uses the term "notarized." Does that likely refer to an acknowledgement, or to a jurat? [73]

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? [74]

35. Signature blocks: Why does the date line say "Date signed" instead of just "Date"? [75]

6.92 (L) Agreements to agree or to negotiate in good faith

FACTS: Alice and Bob are negotiating a contract for Alice to provide services for Bob, but they can't agree on just what services Alice will be obligated to provide. QUESTION: What are some of the pros and cons of having the contract say simply that they'll agree to agree later on that issue? [76]

FACTS: Same facts as above. QUESTION: What are some of the pros and cons of having the contract state that Alice and Bob will negotiate the scope of Alice's services in good faith? [77]

6.93 (L) Amendments - unilateral

6.93.1 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.

6.93.2 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.

6.93.3 Suggested reading

6.94 (L) Amendments and waivers in writing

6.94.1 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."

6.94.2 Instructions

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

6.94.3 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.)

6.94.4 Suggested reading

6.95 (L) Assignment of employment agreement

6.95.1 Suggested reading

6.95.2 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.

6.95.3 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?

6.96 (L) Assignment of Mickey-Dee franchise agreement

6.96.2 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.

6.96.3 Questions

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

6.97 (L) 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."
    • QUESTION: Does this work? Why or why not?
    • EXERCISE: Redraft

6.97.1 Suggested reading

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

6.98 (L) Competitive statements

6.98.1 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.

6.98.2 Question

  • 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?

6.98.3 Suggested reading

6.99 (L) Confidential information

6.99.1 Two-way vs. one-way NDAs

FACTS:
(i) Your client Alice has been asked to sign a confidentiality agreement ("NDA") that was prepared by Bob ("The Other Side").
(ii) Neither Alice nor you have any past history with Bob.
(iii) The NDA's terms apply equally to the confidential information of both Alice and Bob, not just to the confidential information of only one party or the other.
(iv) Alice is in a hurry and asks if it's OK to just sign the NDA, given point (iii) above. DISCUSS.

6.99.2 NDA "sunset" provisions (1)

MORE FACTS for the situation in 6.99.1:
(iv) Alice is the party that would be disclosing her confidential information to Bob.
(v) Bob's draft NDA provides that Bob's confidentiality obligations will expire one year from the effective date of the NDA — EXCEPT THAT for any information that Alice can show is a "trade secret" (as defined in the applicable law), Bob's confidentiality obligations will not expire until the information comes within the scope of one or more of five exclusion categories listed in the NDA, e.g., information that has been published, information that the receiving party gets from another source, etc. DISCUSS.

6.99.3 NDA "sunset" provisions (2)

ALTERNATIVE FACTS for the situation in 6.99.2:
(v) Bob's draft states that Bob's confidentiality obligations will expire one year from the effective date of the NDA — period. Alice wants to know if she can agree to that. DISCUSS.

6.99.4 Injunctive relief (1)

MORE FACTS for the situation in 6.99.1:
(vi) Bob's draft NDA includes a injunctive-relief provision that states that, if Alice breaches the NDA, then Bob will be irreparably harmed and will be entitled to injunctive relief. DISCUSS.

6.99.5 Injunctive relief (2)

MORE FACTS for the situation in 6.99.4:
(vii) The injunctive-relief provision in Bob's draft NDA also states that Alice waives any requirement that Bob post a bond. DISCUSS.

6.100 (L) Confidentiality agreement

6.100.1 Facts

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

6.100.2 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?

6.100.3 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?

6.100.4 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?

6.100.5 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?

6.100.6 Remedies

The nondisclosure agreement 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?

6.101 (L) Contra proferentem rule

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.

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? [78]

6.102 (L) 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?

6.103 (L) Defense against indemnified claims

(Much of this should seem quite familiar.)

6.103.1 Facts

(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.

6.103.2 Questions

Work in your small groups to answer these questions, but each student is to handwrite answers on his or her own piece of paper. (We'll exchange papers among groups.)

1. Handwrite a list of what incentives might motivate Skadden to do things, or not do things, when it conducts Bob's defense.

2. Handwrite a list of 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.

6.103.3 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.

6.103.4 Another question

Handwrite a list of two ways that Alice, during negotiation of her contract with Bob, could have limited her exposure to Bob's screw-up.

6.103.5 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.

6.103.6 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?

6.103.7 More alternative facts

(I) It turns out that Alice can't afford to pay Bob's legal bills for defending against Carol's claim.

6.103.8 Another question

What if anything might Bob have done during contract negotiation to mitigate this problem?

6.104 (L) 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?

6.105 (L) Early neutral evaluation

6.105.1 Reading assignment

6.105.2 Questions

  1. What do you think the principal benefit of ENE would be?
  2. Why might a party not want to commit to ENE?
  3. Name three reasons that a lawyer might not want her client to have to go to ENE. (Cynical thinking is OK here.)
  4. What is the most important way in which ENE differs from arbitration?
  5. Is ENE automatic, or must it be triggered by some action?
  6. In ENE, is it a concern that the trial judge might be influenced by the neutral evaluator's views? Why or why not?

6.106 (L) Employment agreements

  1. REVIEW QUESTION: Under Texas law, what two basic requirements must a post-employment noncompetition provision meet?
  2. FACTS: An employment agreement for use in Texas contains a choice-of-law provision stating that New York law will apply. QUESTION: How likely is it that a U.S. court would give effect to that choice of law provision?
  3. QUESTION: Same question, but for a choice of forum provision stating that all litigation must be in New York.
  4. QUESTION: What if the choice-of-law provision stated that California law would apply?
  5. QUESTION: What is a "no-moonlighting" provision in an employment agreement? How does it differ from a non-competition provision?
  6. QUESTION: What is a "no-solicitation" provision in an employment agreement? How does it differ from a non-competition provision?
  7. QUESTION: Should an employment agreement form specify the frequency of the employee's pay periods (e.g., twice a month, every two weeks, or whatever)?
  8. QUESTION: Why might an employment agreement obligate the employee to abide by the confidentiality obligations that the employee owes to former employers?
  9. FACTS: An employer's "policy manual" includes a binding arbitration provision with a class-action prohibition. QUESTION: What if any legal effect might that provision have on the employee's right to join in a class action against the employer, e.g., for discrimination?
  10. QUESTION: If an employee resigns with two weeks' notice, must the employer allow the employee to work out (and get paid for) the notice period?

6.107 (L) Equitable relief clause review & revision

This is a provision from an actual contract form provided by Customer. ASSIGNMENT: As the attorney for Provider, build a list of issues to discuss with Provider and/or with Customer, as follows:

  • substantive issues; and
  • "necessary" stylistic changes, e.g., for enhanced client readability and/or to R.O.O.F.

x.x Equitable Relief. Provider acknowledges and agrees that there can be no adequate remedy at law for any breach of Provider’s obligations or covenants under Sections [omitted], and that any such breach will result in irreparable harm to Customer. Provider agrees that upon any such breach or any threat thereof, Customer will be entitled to appropriate equitable relief in addition to whatever remedies it might have at law (without being required to post a bond or other security).

6.108 (L) Escalation of disputes

6.108.1 Suggested reading

6.108.2 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.

6.109 (L) Feedback clauses in nondisclosure agreements

One of my blog readers, a paralegal for a USD $13B (revenue) multinational corporation, asked me my thoughts about the following clauses, which she said her customers were increasingly asking her company to agree to in confidentiality agreements.

Clause 1 (extra paragraphing, paragraph numbering, and bullets added):

1.1 Feedback: Vendor may (but is not obligated to) provide feedback or input to Company based on Confidential Information.

1.2 Any and all such feedback (including any and all test results, error data, reports or other information) shall be the exclusive property of Company, and/or are hereby assigned to Company by Vendor at no cost to Company.

1.3 Company may use such feedback in any manner and for any purpose, without limitation, liability or obligation to Company and its successors and assigns.

1.4 Vendor warrants and represents[:]

  • that it owns an intellectual property rights in and to the Feedback and
  • that the Feedback does not infringe upon the intellectual property rights of any other third party.

Clause 2:

2.1 Feedback Clause. Any ideas, suggestions, guidance, or other information disclosed by Vendor regarding the design of Company’s components, including design and design for manufacturability feedback, and all intellectual property rights therein and thereto, shall be collectively deemed “Feedback.”

2.2 Notwithstanding [another section], Company shall own all Feedback and all such Feedback shall be deemed to be the Confidential Information of Company and not Vendor.

2.3 Accordingly, Vendor hereby assigns to Company all of its right, title, and interest in and to such Feedback.

2.4 To the extent that the foregoing assignment is ineffective for whatever reason, Vendor agrees to grant and hereby grants to Company a non-exclusive, perpetual, irrevocable, royalty-free, worldwide license (with the right to grant and authorize sublicenses) to make, have made, use, import, offer for sale, sell, reproduce, distribute, modify, adapt, prepare derivative works of, display, perform, and otherwise exploit such Feedback without restriction.

EXERCISE: As counsel for Vendor, how might you respond to these various proposed provisions?

6.110 (L) Generally accepted accounting principles (GAAP) (in development)

6.110.1 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

6.110.2 Form 10-Q

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

SUGGESTED READING:

6.110.3 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

6.110.4 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)

6.110.5 GAAP in Europe

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

RESOURCES:

6.111 (L) Honeywell purchase-order warranties

BASIC (hypothetical) FACTS:

• Alice is an "account executive" (translation: sales rep) for ABC Corporation of Houston, which makes specialty chemicals. Alice is excited to have landed a purchase order from the local office of UOP LLC, a wholly-owned subsidiary of Honeywell (both are real companies); this is the first order that ABC has received from UOP, which Alice hopes will turn into a steady customer.

• The P.O. says that the terms and conditions are set out in Honeywell's Standard Purchase Order Terms and Conditions for Goods and Services (see [BROKEN LINK: HoneywellPO] and the online PDF).

• Without consulting you or any other lawyer, Alice countersigns UOP's P.O. and FAXes it back to UOP together with an order confirmation form that, by sheer conincidence, contains language substantially identical to section 1 of [BROKEN LINK: HoneywellTOS].

• Alice then turns in the P.O. for processing. In due course, ABC's fulfillment department ships the order to UOP.

• Unbeknowst to Alice, UOP uses ABC's specialty chemicals as a component of a specialized catalyst assembly for a petrochemical refinery in Pasadena.

• The refinery experiences problems with the UOP catalyst assembly. This causes the refinery to be shut down for an extended period. The refinery loses significant revenue that it otherwise would have earned from selling the refined products that the refinery was unable to manufacture because of the shutdown.

QUESTION 1: Which of ABC and UOP are "merchants" with regard to ABC's specialty chemicals? (See the Common Draft commentary on merchant status.) [79]

QUESTION 2: On these facts, are the P.O. terms binding? (See [BROKEN LINK: HoneywellPOAcceptance] of the Honeywell P.O. terms and conditions and UCC § 2-207.) [80]

QUESTION 3: Suppose that Alice had not FAXed back ABC's order acknowledgement form. On those facts would the UOP P.O. terms be binding? [81]

QUESTION 4: Would UOP's refinery customer be able to sue ABC for breach of warranty? [82]

QUESTION 5: If the refinery were to sue UOP for breach of warranty, would UOP be able to cross-claim against ABC for the attorney fees that UOP spent in defending against the refinery's claim? [83]

QUESTION 6: Of the various [BROKEN LINK: HONBPOWARRANTY] in the Honeywell purchase order, which one(s) would UOP and/or the refinery likely claim were breached? [84]

QUESTION 7: Under the Honeywell purchase order, would ABC's damages be limited in any way? [85]

6.112 (L) Indemnity – 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.

6.113 (L) 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.

6.114 (L) Indemnity: Basic questions

QUESTION 1: How does an indemnity relate to a warranty? [86]

QUESTION 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.) [87]

QUESTION 3: IF FALSE, EXPLAIN WHY: An indemnity obligation allocates at least some of the financial risk of Event X. [88]

QUESTION 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. [89]

6.115 (L) Indemnity (Lockheed-Martin)

FACTS: You represent a supplier that wants to sell components to Lockheed Martin to use in C-130 transport aircraft. In Lockheed's standard purchase-order terms and conditions ("T&Cs"), you see the following (this is true):

  1. INDEMNITY

SELLER shall defend, indemnify, and hold harmless LOCKHEED MARTIN, its officers, directors, employees, consultants, agents, affiliates, successors, permitted assigns and customers from and against all losses, costs, claims, causes of action, damages, liabilities, and expenses, including attorney’s fees, all expenses of litigation and/or settlement, and court costs, arising from any act or omission of SELLER, its officers, employees, agents, suppliers, or subcontractors at any tier, in the performance of any of its obligations under this Contract.

HYPOTHETICAL: Lockheed mistakenly orders the wrong components. Supplier timely fills the order. Lockheed's people correctly install the components into airplanes, but not noticing that the components are the wrong ones. [In reality, this would be unlikely to happen.] One of the planes crashes, allegedly because the components were the wrong ones; people are killed and their survivors sue Lockheed.

QUESTIONS

  1. Would Supplier's indemnity obligation apply?
  2. What factors might affect Supplier's overall legal expenses here?
  3. What are (at least) two ways that the above indemnity language might be revised to make the business risk more acceptable to Supplier?
  4. MORE FACTS: Supplier's business people decide that they're going to sign the contract even with the indemnity provision as originally written. QUESTION: What would you advise them to do?

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

6.116.2 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.

6.116.3 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?

6.117 (L) Preamble

[IN PROGRESS]

6.117.1 Question: Minimum information needed?

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

6.117.2 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

6.118 (L) Jury trial waiver

6.118.1 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.

6.118.2 Questions

  1. Your classmate asks if the jury-trial waiver would be enforceable in a Texas court. What do you tell her?
  2. You ask your classmate whether the jury-trial waiver would be enforceable in a Georgia court. What will her answer be?
  3. Your classmate asks whether the one-year limitation period is enforceable in Texas. What do you tell her?
  4. Would your answer on the limitation period be any different if the contract were for the sale of goods?
  5. You ask your classmate whether the one-year limitation period is enforceable in Georgia. What will her answer be?
  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?
  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.)
  8. If any new language is necessary to implement your proposed changes, draft it.
  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?

6.118.3 Suggested reading

6.119 (L) Limitations of liability

SUGGESTED READING:

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 [BROKEN LINK: HoneywellTOS].
  • 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 [BROKEN LINK: HoneywellTOS] 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 [BROKEN LINK: HoneywellTOS], why does the last sentence carve out personal injury or death?

6.120 (L) Most-favored-customer pricing

6.120.1 Takeaways

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

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

6.120.2 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 [BROKEN LINK: HoneywellPO].

6.120.3 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?

6.120.4 Resources

6.120.5 Other resources (read later)

6.121 (L) Payment Terms Worksheet 1

INSTRUCTIONS: Mentally try to answer each of the following questions, then hold your mouse cursor over the grayed-out area below the question.

1. PROVISION: "Alice represents that she will pay Bob net 30 days."

QUESTION: What does "net 30 days" mean? [90]

QUESTION: Is anything wrong with the "net 30 days" part? [91]

QUESTION: Is anything else wrong with this provision? [92]

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? [93]

QUESTION: Should Bob read anything into the fact that Alice's lawyer objected to this provision? [94]

3. FACTS: A contract payment provision states that past-due payments will bear interest at 8% per month beginning on the due date. Texas law applies.

QUESTION: Any problem with this provision? [95]

QUESTION: How should you respond if you see this while reviewing a contract drafted by another party — that is, if it were your client that putatively would have to pay interest on past-due amounts? [96]

6.122 (L) PayPal contract change

From a recently-announced amendment to PayPal's user agreement:

In representations to your customers or in public communications, you agree not to mischaracterize PayPal as a payment method.

At all of your points of sale (in whatever form), you agree not to try to dissuade or inhibit your customers from using PayPal;

and, if you enable your customers to pay you with PayPal, you agree to treat PayPal’s payment mark at least at par with other payment methods offered.

[Extra paragraphing added.]

QUESTION: What if a PayPal user doesn't want to agree to these changes — does the user have any recourse? [97]

6.123 (L) Preamble (Billy Buyer 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? [98]

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? [99]

6.124 (L) Release (in development)

6.125 (L) Reps and warranties strategy

FACTS: You've passed a bar (exam) and are a licensed attorney. As a favor to a friend, you're helping the friend sell a car to a stranger. The friend says that s/he doesn't know of any mechanical problems with the car.

MORE FACTS: The buyer asks the seller to represent and warrant that the car has no problems.

QUESTION: how might you respond? [100]

QUESTION: T/F: It's acceptable for the seller to phrase the statement as, "to my personal knowledge the vehicle has no problems"? [Note where the question mark is, i.e., outside the quotation mark.] [101]

6.126 (L) Right of First Refusal = Option to Purchase?

FACTS: From Edgar v. Mills, 2017 S.D. 7:

[¶1.] In this breach of contract action, the circuit court found a lease agreement ambiguous and considered parol evidence.  * * *

[¶3.] The lease agreement contained a provision titled, “Right of First Refusal.” That provision provided:

It is hereby agreed that should said land become subject to sale after completion of the crop season in the final year of this lease, that in such an event, the Lessee shall have the right of first refusal to buy said property at a price set by making the final lease payment as described above plus the additional sum of Seven Thousand Two Hundred One and no/100 Dollars ($7,201.00). This first right of refusal shall be only during the term of this lease.

[1.] … The court concluded that the parties intended the lease agreement to be a lease with an option to purchase.

The court ordered specific performance, compelling the owners of the real estate to execute a warranty deed in favor of the lessees.

The owners appeal.

[Extra paragraphing added.]

QUESTION: How do you think the state supreme court responded to the landowners' appeal? [fn::The court reversed the order compelling specific performance:

[¶28.] From our review of the lease, the parties did not create a traditional right of first refusal. That, however, does not mean that an ambiguity exists or that the parties intended to create an option to purchase. When the language of a contract is plain and unambiguous, it is our duty to interpret it and enforce it as written.

(Citation omitted.)]

6.127 (L) Sales quotation for keychain split rings

6.127.1 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


6.127.2 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:

6.127.3 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:

6.127.4 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:

6.127.5 Question 4: Federal E-SIGN Act applicability?

6.127.6 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:

6.127.7 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:

6.127.8 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.

6.127.9 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:

6.127.10 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:

6.127.11 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:

6.127.12 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:

6.128 (L) Sandberg employment agreement (continued)

These questions relate to the Sheryl Sandberg employment agreement in the Supplement, which starts at page 101.

For purposes of the following questions, assume that you represent Facebook in negotiating this agreement (unless stated otherwise below).

  1. Lines 130-35 (no other rights upon termination): Sandberg's lawyer would like to delete this provision. What is your recommendation, and why?
  2. Lines 141-43 (general release): Facebook's HR VP wonders why you're drafting a form of general release to include as an exhibit — it seems like an unnecessary expenditure of legal fees when a release might never be necessary. How do you advise the HR VP?
  3. Lines 141-43 (general release): Is there any way you could recommend to the HR VP to defer having to draft a general release at this juncture?
  4. The FB HR VP wants to know why Sandberg's employment agreement specifies that she'll work out of Facebook's Menlo Park office. What do you tell her? (Hint: See lines 174-80 (vesting acceleration) and 261-62 (definition of Involuntary Termination) of the agreement.)
  5. Lines 294-98 (confidentiality agreement): The FB HR VP wonders why this provision doesn't incorporate the confidentiality agreement of Exhibit B by reference. How do you respond? (Hint: See lines 494-95.)
  6. Lines 100-01 (vacation time, etc.): This provision states that Sandberg will get vacation time and PTO "at the rate equal to other similarly situated executives." Sandberg's lawyer would like to lock in that she will get at least 20 business days per year. How do you advise the HR VP?
  7. Lines 110-16 (expense reimbursement): This provision requires Sandberg to provide supporting documentation for any requested expense reimbursements. Her lawyer says this would be too burdensome. How do you advise the HR VP?

6.129 (L) Selling a used computer (part 1)

SETTING UP: Groups 1 and 2 will represent Sarah Seller; Groups 3 and 4 will represent Billy Buyer.

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. Billy is wealthy, so he wants the actual purchase to be made by his family office, Buyer Investments L.P.

ASSIGNMENT: In your three-person groups, and using your group's Google Doc whiteboard, each group is to think of a list of provisions that you would want to see in a "minimum viable contract."

6.130 (L) Services Q&A

  1. What kind of review — if any — should an attorney do of a Statement of Work? Explain.
  2. What are some pros and cons of having each Statement of Work be a separate agreement?
  3. Which should take precedence: A master agreement, or a Statement of Work entered into under the master agreement?
  4. From a "what makes good business sense" perspective: Who should own any new intellectual property developed by a service provider pursuant to a Statement of Work? Explain.

6.131 (L) Sheryl Sandberg employment agreement

Reference: Sheryl Sandberg employment agreement

For purposes of the following questions, assume that you represent Facebook in negotiating this agreement (unless stated otherwise below).

  1. When might a drafter want to do an amended and restated agreement instead of just amending the agreement?
  2. What are some other ways of amending an agreement?
  3. Sandberg's lawyer asks that you change all the instances of the second person ("you") to third person ("the Executive"). How do you advise Facebook about the pros and cons of her request?
  4. Lines 30-40: The letter goes into great detail about Sandberg's duties. Facebook's HR vice president wants to know if you can eliminate all that, because from the title "Chief Operating Officer" it should be obvious what Sandberg's duties will be. QUESTION: What do you advise the HR VP about the possible concerns here — for Sandberg and FB? (Hint: See lines 174-80 (vesting acceleration) and lines 273-75 (definition of Involuntary Termination — material adverse change in responsibilities).)
  5. Lines 72-73 ("your Employment will not infringe the rights of any other person"): From a drafting-technique perspective, what's wrong with this provision?
  6. Lines 74-78 (return of prior employers' confidential information): Facebooks' HR VP wants to know why this provision has Sandberg both representing and warranting these things. What do you say?
  7. Lines 81-82 (salary): The provision refers to Sandberg's salary as the "gross annual rate" of $300K per year (emphasis added). Sandberg's lawyer wants Facebook to change the provision to "an annual salary of $300,000 per year." What do advise Facebook, and why?
  8. Lines 83-84 (salary per company's standard payroll procedures): If Sandberg wanted to lock in her pay periods at, say, weekly, how would you advise Facebook to respond? [MW1600 stopped here]
  9. Lines 130-35 (no other rights upon termination): Sandberg's lawyer would like to delete this provision. What is your recommendation, and why?
  10. Lines 141-43 (general release): Facebook's HR VP wonders why you're drafting a form of general release to include as an exhibit — it seems like an unnecessary expenditure of legal fees when a release might never be necessary. How do you advise the HR VP?
  11. Lines 141-43 (general release): Is there any way you could recommend to the HR VP to defer having to draft a general release at this juncture?
  12. The FB HR VP wants to know why Sandberg's employment agreement specifies that she'll work out of Facebook's Menlo Park office. What do you tell her? (Hint: See lines 174-80 (vesting acceleration) and 261-62 (definition of Involuntary Termination) of the agreement.)
  13. Lines 294-98 (confidentiality agreement): The FB HR VP wonders why this provision doesn't incorporate the confidentiality agreement of Exhibit B by reference. How do you respond? (Hint: See lines 494-95.)
  14. Lines 100-01 (vacation time, etc.): This provision states that Sandberg will get vacation time and PTO "at the rate equal to other similarly situated executives." Sandberg's lawyer would like to lock in that she will get at least 20 business days per year. How do you advise the HR VP?
  15. Lines 110-16 (expense reimbursement): This provision requires Sandberg to provide supporting documentation for any requested expense reimbursements. Her lawyer says this would be too burdensome. How do you advise the HR VP?

6.132 (L) Sheryl Sandberg employment agreement (1)

These questions relate to the Sheryl Sandberg employment agreement in the Supplement, starting at page 101.

For purposes of the following questions, assume that you represent Facebook in negotiating this agreement (unless stated otherwise below).

1. When might a drafter want to do an amended and restated agreement instead of just amending the agreement? [102]

2. What are some other ways of amending an agreement?

3. Sandberg's lawyer asks that you change all the instances of the second person ("you") to third person ("the Executive"). How do you advise Facebook about the pros and cons of her request? [103]

4. Lines 30-40: The letter goes into great detail about Sandberg's duties. Facebook's HR vice president wants to know if you can eliminate all that, because from the title "Chief Operating Officer" it should be obvious what Sandberg's duties will be. QUESTION: What do you advise the HR VP about the possible concerns here — for Sandberg and FB? (Hint: See lines 174-80 (vesting acceleration) and lines 273-75 (definition of Involuntary Termination — material adverse change in responsibilities).)

5. Lines 72-73 ("your Employment will not infringe the rights of any other person"): From a drafting-technique perspective, what's wrong with this provision? [104]

6. Lines 74-78 (return of prior employers' confidential information): Facebooks' HR VP wants to know why this provision has Sandberg both representing and warranting these things. What do you say? [105]

7. Lines 81-82 (salary): The provision refers to Sandberg's salary as the "gross annual rate" of $300K per year (emphasis added). Sandberg's lawyer wants Facebook to change the provision to "an annual salary of $300,000 per year." What do you advise Facebook, and why? [106]

8. Lines 83-84 (salary per company's standard payroll procedures): If Sandberg wanted to lock in her pay periods at, say, weekly, how would you advise Facebook to respond? [107]

6.133 (L) Signed originals of Agreement

6.133.1 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.

6.133.2 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?

6.133.3 Suggested reading

6.134 (L) 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.

6.135 (L) 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.)

6.136 (L) 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.)

6.137 (L) 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?

6.138 (L) Termination (Honeywell)

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?

6.139 (L) Termination vs. expiration

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 | FALSE | MAYBE: 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 | FALSE | MAYBE: 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 | FALSE | MAYBE: 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]

6.140 (L) Terms from an actual contract (1)

FACTS: You represent Seller. Discuss the following contract text.

1. CONTRACT TEXT: "Seller shall appoint an individual reasonably acceptable to Buyer whom shall be in charge of the performance of Seller’s obligations under this Agreement." DISCUSS. [108]

2. CONTRACT TEXT: "Buyer will have the right, at all times, to set off any amount due or payable to Seller hereunder against any claim or charge Buyer may have against Seller." DISCUSS. [109]

1. CONTRACT TEXT: "Buyer and Seller acknowledge and agree that Buyer’s damages for the failure to receive the Equipment on the dates set forth on the Schedule, the failure of the Equipment to achieve the Minimum Performance Criteria and meet the Reliability Test, and the failure to achieve the Scheduled Substantial Completion Date are difficult to predict with any certainty, that the Delivery Liquidated Damages and Performance Liquidated Damages (collectively, the 'Liquidated Damages') are a reasonable estimate of such damages, and that the Liquidated Damages are not a penalty. The parties further acknowledge and agree that the Liquidated Damages are not a sole or exclusive remedy of Buyer and that all of Buyer’s remedies hereunder are cumulative." DISCUSS. [110]

8. CONTRACT TEXT: "ARTICLE 15. Except with regard to Liquidated Damages, either party’s breach of its representations and warranties to the other party, Buyer’s claims against Seller for indemnification and for Seller’s acts or omissions of willful misconduct or fraud, neither party shall be liable for loss of profit or revenues, or for any special, consequential, incidental, indirect or exemplary damages, even if the other party has been advised of, or had reason to know of, the possibility of such damages." DISCUSS. [111]

9. CONTRACT TEXT: "Performance to Continue. During the pendency of any Dispute process undertaken hereunder, Buyer and Seller shall continue to perform their respective obligations hereunder subject to the terms and conditions of this Agreement, including without limitation Section 2.3 [payments] and Articles 12 [termination by Buyer without cause] and 13 [termination for cause]." DISCUSS. [112]

10. CONTRACT TEXT: "Seller will conduct its business with, or on behalf of, Buyer in a manner that is consistent with [Buyer] Inc.’s Code of Business Conduct (the 'Business Code'). Seller acknowledges that it has received a copy of the Business Code or will obtain a copy on line and that if it has any questions regarding the Business Code, it will contact Buyer's Executive Director of Corporate Ethics and Compliance at [number omitted]. The Business Code is also available at [URL omitted]." DISCUSS. [113]

11. CONTRACT TEXT: "The development and construction of the Project may be financed through loans from lenders (the “Lenders”). Seller will assist Buyer in its endeavors relating to the financing of the Project, and cooperate with the Lenders by providing such information and access, and in agreeing to such subordination agreements, consents, opinions, certificates, direct agreements and other matters, as the Lenders may reasonably require or as otherwise may be customary in transactions of this type." DISCUSS. [114]

6.141 (L) Terms from an actual contract (2)

1. CONTRACT TEXT: "'Services' shall mean all labor, services, Material, equipment, tools, vehicles, transportation, storage, design, engineering, procurement, Site preparation, construction, installation, equipping, testing, training, and other things and actions necessary to complete and to perform the Services set forth in the Specifications that reference this Agreement." DISCUSS.

2. CONTRACT TEXT: "'Specification' shall mean the detailed scoping document that sets forth the technical requirements for the performance of the Services and is attached hereto as Exhibit A, as may be modified or supplemented by written agreement of the parties from time to time." DISCUSS.

6.142 (L) Purchase order at EOQ

6.142.1 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.

6.142.2 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:

  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.)
  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.
  3. Should you advise anyone else in the company about Sam's situation?
  4. What if any input might you want to get from others in the company?
  5. What action would you recommend to Sam?

6.142.3 Suggested reading

6.143 (L) Warranties: Magnuson-Moss Act

6.143.1 "Limited" warranties

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

6.143.2 Warranty statements

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

6.143.3 Implied warranty disclaimers

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

6.143.4 Resources

6.144 (L) Diamond ring doesn't shine for him anymore

6.144.1 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.

6.144.2 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.

6.144.3 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.

6.144.4 Suggested reading

6.145 (L) Reps and warranties (Verizon-Yahoo)

See the Verizon-Yahoo stock purchase agreement.

SMH: Take a look at the original formatting of the Verizon-Yahoo's definition of Business Material Adverse Effect (the link takes you to the definitions section, which includes a link to the definition).

Then compare that formatting with that of the broken-up definition in the course materials (also scroll down again).

QUESTION 1: What representation and/or warranty might Yahoo have breached in connection with the "hacks" that were revealed to have occurred? [115]

QUESTION 2: What right would Verizon have had to walk away from the transaction? [116]

QUESTION 3: Suppose that Verizon went ahead with the closing despite the hack problem. Could Verizon sue for breach of warranty, as happened in CBS v. Ziff-Davis? [117]

FACTS: Suppose that the North Koreans were to launch a nuclear missile at the U.S., with the warhead exploding harmlessly in the Pacific Ocean 100 miles west of Yahoo's headquarters in Sunnyvale, California.

QUESTION 5: Would this constitute a Business Material Adverse Effect? [118]

QUESTION 6: Whose knowledge qualifies as the Knowledge of Seller? [119]

6.146 (L) Warranties: CBS v. Ziff-Davis, Inc.

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.

6.147 (L) Warranties: Honeywell vs. Honeywell (1)

In a Word document with a table (this is to practice using Word's table feature), very briefly answer the following questions about the warranty- and remedy provisions that Honeywell sets out in the following provisions:

  • the Honeywell terms of sale ([BROKEN LINK: HONBTOSPRODUCTWARRANTY]) ([BROKEN LINK: HONBTOSLIMLIAB]) versus those in
  • the Honeywell terms of purchase ([BROKEN LINK: HONBPOWARRANTY]) ([BROKEN LINK: HONBPOREMEDIESCUMULATIVE]) ([BROKEN LINK: HONBPOLIMLIAB]).

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. How long does the Warranty Period last?
  3. Are the stated warranties the exclusive ones?
  4. How restricted are the remedies for breach of warranty?

6.148 (L) Warranties: Honeywell vs. Honeywell (2)

Same instructions as for Part 1:

  1. For goods: To what extent is the intended use of the goods relevant to the contract terms?
  2. For services: To what quality standards will services conform?
  3. With what laws will the seller comply?

6.149 (L) Warranties: English-law disclaimers

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:

6.150 (L) Employment agreements (in progress)

6.150.1 Basic employment agreements

References: See the Common Draft:

  • Model Employment Agreement Form
  • Model Employment Agreement Provisions (yellow-highlighted & footnoted)
    • Non-compete provisions (review)
    • Entire agreement notes:
      • "Final, complete, exclusive, and binding"
      • "No other representations" — but that likely won't preclude a misrepresentation claim
      • "No reliance on external representations" — TX. S. Ct. has said this can defeat a misrepresentation claim
    • Arbitration
      • Democrats in Congress are making ugly noises about one-sided arbitration agreements
    • Equitable relief
      • Waiving the bond requirement is dangerous
    • Governing law
    • Forum selection
    • Signature – waive signature by the company?

6.150.2 Executive employment agreements

Reference: Sheryl Sandberg employment agreement (annotated)

7 Simplifying a wall of words (WOW), step by step

Introduction

A great way to learn to write good contract language is to practice rewriting problematic language, especially the long, complicated paragraphs that are known as "walls of words," a term that could appropriately be shortened to WOW. To that end, this book contains numerous WOW provisions from real-world contracts; most of the examples are drawn from actual contracts filed with the Securities and Exchange Commission and available via the SEC's EDGAR Web site.

Rewriting a wall-of-words contract provision is a skill that contract professionals use all the time. Most contract professionals spend much of their time reviewing and revising others' contract drafts, many of which include WOW provisions.

A reviewer should always consider breaking up any WOW provision, for two reasons:

  • To reduce the risk of the MEGO factor (Mine Eyes Glaze Over), and
  • to make the provision easier for the client to read.

And in any case, few drafters start a project by crafting language from scratch — instead, they look for one or more existing contracts (or drafts) and then copy and revise language to match their current needs, and some of that language might be in WOW form.

(This learn-by-rewriting approach could be thought of as a form of "deliberate practice," a concept originated by Professor K. Anders Ericsson. See generally, e.g., K. Anders Ericsson, Michael J. Prietula, and Edward T. Cokely, The Making of an Expert, Harvard Business Review, July-August 2007.)

Here's one example of a WOW provision, excerpted from a Collaborative Research and License Agreement between Pfizer and Rigel Pharmaceuticals. (You don't need to read the provision other than to see how long it is.)

9.2.12 PATENTS AND TRADEMARKS. To the best of its knowledge (but without having conducted any special investigation), Rigel owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, and proprietary rights and processes (including technology currently licensed from Stanford University) necessary for its business as now conducted and as proposed to be conducted without any conflict with, or infringement of the rights of, others. Rigel currently licenses certain technology from Stanford University (the "Licensed Technology") on an "as is" basis, with no representation or warranty from Stanford University that such technology does not infringe the proprietary rights of others. To Rigel's knowledge, Rigel has not, as of the date hereof, received any claims from any third party alleging that the use of the Licensed Technology infringes the proprietary rights of such party. Except for agreements with its own employees or consultants and standard end-user license agreements, there are no outstanding options, licenses, or agreements of any kind relating to the foregoing, nor is Rigel bound by or a party to any options, licenses, or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, and proprietary rights and processes of any other person or entity, other than the license agreements with Janssen Pharmaceutica N.V., Stanford University, SUNY, and BASF. Rigel has not received any communications alleging that Rigel has violated or, by conducting its business as proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights, trade secrets, or other proprietary rights or processes of any other person or entity. Rigel is not aware that any of its employees is obligated under any contract (including licenses, covenants, or commitments of any nature) or other agreement, or subject to any judgment, decree, or order of any court or administrative agency, that would interfere with the use of such employee's best efforts to promote the interests of Rigel or that would conflict with Rigel's business as proposed to be conducted. Neither the execution nor delivery of this Agreement, nor the carrying on of Rigel's business by the employees of Rigel, nor the conduct of Rigel's business as proposed, will, to the best of Rigel's knowledge, conflict with or result in a breach of the terms, conditions, or provisions of, or constitute a default under, any contract, covenant, or instrument under which any of such employees is now obligated. Rigel is not aware of any violation by a third party of any of Rigel's patents, licenses, trademarks, service marks, tradenames, copyrights, trade secrets or other proprietary rights.

7.1 Split up multiple-sentence paragraphs

The first thing to do when encountering a wall-of-words provision is to break each sentence into a separate paragraph.

(EXCEPTION: Multiple, short, sentences concerning a single topic might be left in a single paragraph.)

NOTE: You might not want to bother numbering the new separate paragraphs just yet, although the "after" examples below are generally numbered for convenient reference.

Before:

The Premises as furnished by Landlord consist of the improvements as they exist as of the Effective Date and Landlord shall have no obligation for construction work or improvements on or to any portion of the Premises. Prior to entering into this Lease, Tenant has made a thorough and independent examination of the Premises and all matters related to Tenant’s decision to enter into this Lease. Tenant is thoroughly familiar with all aspects of the Premises and is satisfied that it is in an acceptable condition and meet Tenant’s needs. Tenant does not rely on, and Landlord does not make, any express or implied representations or warranties as to any matters including, without limitation, (a) the physical condition of the Premises including without limitation the structural components of any improvements or any building systems within or serving the improvements (including without limitation indoor air quality), (b) the existence, quality, adequacy or availability of utilities serving the Premises or any portion thereof, (c) the use, habitability, merchantability, fitness or suitability of the Premises for Tenant’s intended use, (d) the likelihood of deriving business from Tenant’s location or the economic feasibility of Tenant’s business, (e) Hazardous Materials on, in, under or around the Premises, (f) zoning, entitlements or any laws, ordinances or regulations which may apply to Tenant’s use of the Premises or business operations, or (g) any other matter whatsoever. Tenant has satisfied itself as to such suitability and other pertinent matters by Tenant’s own inquiries and tests into all matters relevant in determining whether to enter into this Lease. Tenant accepts the Premises in their existing “AS-IS”, “WHERE-IS” condition, and “WITH ALL FAULTS”. Tenant shall, by entering into and occupying the Premises, be deemed to have accepted the Premises and to have acknowledged that the same are in good order, condition and repair in all respects. Upon the Commencement Date, tenant shall execute and deliver to Landlord the Acceptance Form attached hereto as Exhibit C.

After:

(a)     The Premises as furnished by Landlord consist of the improvements as they exist as of the Effective Date.

(b)     Landlord shall have no obligation for construction work or improvements on or to any portion of the Premises.

(c)     Prior to entering into this Lease, Tenant has made a thorough and independent examination of the Premises and all matters related to Tenant’s decision to enter into this Lease.

(d)     Tenant is thoroughly familiar with all aspects of the Premises and is satisfied that it is in an acceptable condition and meet Tenant’s needs.

(e)     Tenant does not rely on, and Landlord does not make, any express or implied representations or warranties as to any matters including, without limitation,

(1)     the physical condition of the Premises including without limitation the structural components of any improvements or any building systems within or serving the improvements (including without limitation indoor air quality),

(2)     the existence, quality, adequacy or availability of utilities serving the Premises or any portion thereof,

(3)     the use, habitability, merchantability, fitness or suitability of the Premises for Tenant’s intended use,

(4)     the likelihood of deriving business from Tenant’s location or the economic feasibility of Tenant’s business,

(5)     Hazardous Materials on, in, under or around the Premises,

(6)     zoning, entitlements or any laws, ordinances or regulations which may apply to Tenant’s use of the Premises or business operations, or

(7)     any other matter whatsoever.

(f)     Tenant has satisfied itself as to such suitability and other pertinent matters by Tenant’s own inquiries and tests into all matters relevant in determining whether to enter into this Lease.

(g)     Tenant accepts the Premises in their existing “AS-IS”, “WHERE-IS” condition, and “WITH ALL FAULTS”.

(h)     Tenant shall, by entering into and occupying the Premises, be deemed to have accepted the Premises and to have acknowledged that the same are in good order, condition and repair in all respects.

(i)     Upon the Commencement Date, tenant shall execute and deliver to Landlord the Acceptance Form attached hereto as Exhibit C.

ALTERNATIVE: Add bracketed pilcrows [¶] to help the reader's eye locate the beginnings of sentences:

The Premises as furnished by Landlord consist of the improvements as they exist as of the Effective Date and Landlord shall have no obligation for construction work or improvements on or to any portion of the Premises. [¶] Prior to entering into this Lease, Tenant has made a thorough and independent examination of the Premises and all matters related to Tenant’s decision to enter into this Lease. [¶] Tenant is thoroughly familiar with all aspects of the Premises and is satisfied that it is in an acceptable condition and meet Tenant’s needs. …

7.2 Next: Split up multiple-topic paragraphs

When a paragraph covers multiple topics, even if closely related: Consider breaking up those topics into separate paragraphs each as a complete sentence. (You might have to add transitional language to "help lead the reader by the hand along the path.")

Before:

The Premises as furnished by Landlord consist of the improvements as they exist as of the Effective Date and Landlord shall have no obligation for construction work or improvements on or to any portion of the Premises.

After:

(a) The Premises as furnished by Landlord consist of the improvements as they exist as of the Effective Date. and

(b) Landlord shall have no obligation for construction work or improvements on[,] or to any portion of[,] the Premises.

7.3 Watch out for parentheticals addressing separate topics

Before:

The number of shares of Purchaser Common Stock subject to each Purchaser RSU Award shall be equal to the product (rounded up to the nearest whole share unless otherwise agreed by Seller and Purchaser) of (A) the number of shares of Seller Common Stock subject to the cor­res­p­ond­ing Seller RSU Award immediately prior to the Closing and (B) the Purchaser Ratio ….

After:

(a) The number of shares of Purchaser Common Stock subject to each Purchaser RSU Award shall be equal to the product (rounded up to the nearest whole share unless otherwise agreed by Seller and Purchaser) of (A) the number of shares of Seller Common Stock subject to the cor­res­p­ond­ing Seller RSU Award immediately prior to the Closing and (B) the Purchaser Ratio ….

(b) The number of shares computed in accordance with subdivision (a) is to be rounded up ….

ALTERNATIVE, with em-dashes in lieu of parentheses for greater visibility:—

The number of shares of Purchaser Common Stock subject to each Purchaser RSU Award shall be equal to the product — rounded up to the nearest whole share unless otherwise agreed by Seller and Purchaser — of (A) the number of shares ….

7.4 Judiciously add punctuation to help guide the reader's eye

Make a long sentence easier to grasp by judiciously inserting commas; semi-colons; parentheses; and em-dashes.

Before:

Landlord shall have no obligation for construction work or improvements on or to any portion of the Premises.

After:

Landlord shall have no obligation for construction work or improvements on[,] or to any portion of[,] the Premises.

See also the alternative of selectively replacing parentheses with em-dashes.

7.5 Next: Spin off "provided that …." language

Seriously consider breaking off "provided that" language into its own paragraph — possibly using terms such as "except as otherwise provided below …" or comparable language, as shown in the example below.

Before:

The number of shares of Purchaser Common Stock subject to each Purchaser RSU Award shall be equal to the product … of (A) the number of shares of Seller Common Stock subject to the corresponding Seller RSU Award immediately prior to the Closing and (B) the Purchaser Ratio; provided that, with respect to any Seller RSU Award that is subject to performance-based vesting (A) with respect to any performance year that includes the Closing Date, the number of shares of Purchaser Common Stock subject to each Purchaser RSU Award shall be based on target-level performance, and such Purchaser RSU Awards shall not be subject to performance-based vesting criteria for such performance year, and (B) with respect to any performance year that commences after the Closing Date, Purchaser or its Affiliates shall establish the applicable performance goals following the Closing.

After:

(a) Except as provided in subdivision (b) below, the number of shares of Purchaser Common Stock subject to each Purchaser RSU Award shall be equal to the product … of (A) the number of shares of Seller Common Stock ….

(b) With respect to any Seller RSU Award that is subject to performance-based vesting ….

7.6 Sometimes a bit of repetition can add clarity

In the long, single-sentence, "Before" version below, note how there are two different "branches," labeled with "(A)" and "(B)." The "After" version breaks up those branches into two different subdivisions.

Before:

[W]ith respect to any Seller RSU Award that is subject to performance-based vesting (A) with respect to any performance year that includes the Closing Date, the number of shares of Purchaser Common Stock subject to each Purchaser RSU Award shall be based on target-level performance, and such Purchaser RSU Awards shall not be subject to performance-based vesting criteria for such performance year, and (B) with respect to any performance year that commences after the Closing Date, Purchaser or its Affiliates shall establish the applicable performance goals following the Closing.

After:

(a)     Case 1:

(1)     This subdivision applies to any Seller RSU Award that is subject to performance-based vesting with respect to any performance year that includes the Closing Date.

(2)     For that Seller RSU Award: (A) the number of shares of Purchaser Common Stock subject to each Purchaser RSU Award shall be based on target-level performance; and (B) such Purchaser RSU Awards shall not be subject to performance-based vesting criteria for such performance year.

(b)     Case 2:

(1)     This subdivision applies to any Seller RSU Award that is subject to performance-based vesting with respect to any performance year that commences after the Closing Date.

(2)     For that Seller RSU Award: Purchaser or its Affiliates shall establish the applicable performance goals following the Closing.

7.7 Consider using a more-oral narrative style to break up long sentences

Give some thought to setting the stage for a long contract provision to provide some context for the reader.

Before:

[W]ith respect to any Seller RSU Award that is subject to performance-based vesting (A) with respect to any performance year that includes the Closing Date, the number of shares of Purchaser Common Stock subject to each Purchaser RSU Award shall be based on target-level performance, and such Purchaser RSU Awards shall not be subject to performance-based vesting criteria for such performance year, and (B) with respect to any performance year that commences after the Closing Date, Purchaser or its Affiliates shall establish the applicable performance goals following the Closing.

After:

(a) Some Seller RSU Awards might be subject to performance-based vesting for which the relevant performance year includes the Closing Date. For those awards:

(1) the number of shares of Purchaser Common Stock subject to each Purchaser RSU Award shall is to be based on target-level performance; and

(2) such those Purchaser RSU Awards shall are not to be subject to performance-based vesting criteria for such performance year.

(b) Other Seller RSU Awards might be subject to performance-based vesting for which the relevant performance year commences begins after the Closing Date. For those awards, Purchaser or its Affiliates shall will establish the applicable performance goals following the Closing.

7.8 When a sentence includes an "if … then …" statement

Be sure that the word "then" is included as a visual guide at the beginning of the "then" portion. This isn't a hard and fast rule, but it's a useful rule of thumb.

Before:

15.5 Landlord’s Right to Cure. If Tenant shall fail or neglect to do or perform any covenant or condition required under this Lease and such failure shall not be cured within any applicable grace period, Landlord may, on five (5) business days written notice to Tenant, but shall not be required to, make any payment payable by Tenant hereunder, discharge any lien, take out, pay for and maintain any insurance required hereunder, or do or perform or cause to be done or performed any such other act or thing (entering upon the Premises for such purposes, if Landlord shall so elect), and Landlord shall not be or be held liable or in any way responsible for any loss, disturbance, inconvenience, annoyance or damage resulting to Tenant on account thereof.

After:

15.5 Landlord’s Right to Cure. If Tenant shall fail or neglect to do or perform any covenant or condition required under this Lease and such failure shall not be cured within any applicable grace period, then Landlord may ….

EVEN BETTER: If an if-then sentence is long and/or complicated, then consider writing the if-then labels as follows: "IF: …; AND: …; THEN: …." Note especially the use of all-caps, colons, and semi-colons.

Before:

15.5 Landlord’s Right to Cure. If Tenant shall fail or neglect to do or perform any covenant or condition required under this Lease and such failure shall not be cured within any applicable grace period, Landlord may, on five (5) business days written notice to Tenant, but shall not be required to, make any payment payable by Tenant hereunder, discharge any lien, take out, pay for and maintain any insurance required hereunder, or do or perform or cause to be done or performed any such other act or thing (entering upon the Premises for such purposes, if Landlord shall so elect), and Landlord shall not be or be held liable or in any way responsible for any loss, disturbance, inconvenience, annoyance or damage resulting to Tenant on account thereof.

After:

15.5 Landlord’s Right to Cure. IF: Tenant shall fail or neglect to do or perform any covenant or condition required under this Lease; AND: Such failure shall not be is not cured within any applicable grace period; THEN: Landlord may, on five (5) five business days written notice to Tenant, ….

7.9 … Or: Spin off the conditions into a preamble

When confronted with a long if-then provision, consider turning the "if" portion into a preamble for the section, with the "then" part(s) being set forth as subdivisions.

Before:

15.5 Landlord’s Right to Cure. If Tenant shall fail or neglect to do or perform any covenant or condition required under this Lease and such failure shall not be cured within any applicable grace period, Landlord may, on five (5) business days written notice to Tenant, but shall not be required to, make any payment payable by Tenant hereunder, discharge any lien, take out, pay for and maintain any insurance required hereunder, or do or perform or cause to be done or performed any such other act or thing (entering upon the Premises for such purposes, if Landlord shall so elect), and Landlord shall not be or be held liable or in any way responsible for any loss, disturbance, inconvenience, annoyance or damage resulting to Tenant on account thereof.

After:

15.5 Landlord’s Right to Cure. IF: Tenant (i) fails to do anything required by this Agreement and (ii) does not cure the failure within the applicable grace period; THEN: The following will apply:—

(a) Landlord may, without limitation:

(1) make any payment payable by Tenant under this Agreement:

(2) discharge any lien;

(3) take out, pay for[,] and maintain any insurance required under this Agreement; and/or

(4) take (or cause to be taken) any other necessary or appropriate action.

(b) Landlord must give Tenant five business days' written notice to Tenant before taking any action under subdivision (a).

(c) This Agreement does not require Landlord to take any action under subdivision (a).

(d) Tenant will not attempt to hold Landlord responsible or liable for any loss, disturbance, inconvenience, annoyance or damage that might result to Tenant arising from any action by Landlord under subdivision (a).

7.10 When any paragraph contains a "laundry list"

Consider spinning off a long laundry list into separate subdivisions — possibly as a defined term.

Before:

Tenant does not rely on, and Landlord does not make, any express or implied representations or warranties as to any matters including, without limitation, (a) the physical condition of the Premises including without limitation the structural components of any improvements or any building systems within or serving the improvements (including without limitation indoor air quality), (b) the existence, quality, adequacy or availability of utilities serving the Premises or any portion thereof, (c) the use, habitability, merchantability, fitness or suitability of the Premises for Tenant’s intended use, (d) the likelihood of deriving business from Tenant’s location or the economic feasibility of Tenant’s business, (e) Hazardous Materials on, in, under or around the Premises, (f) zoning, entitlements or any laws, ordinances or regulations which may apply to Tenant’s use of the Premises or business operations, or (g) any other matter whatsoever.

AFTER (1):

Tenant does not rely on, and Landlord does not make, any express or implied representations or warranties as to any matters including, without limitation, the following:

(1) the structural components of any improvements or any building systems within or serving the improvements (including without limitation indoor air quality);

(2) any other aspect of the physical condition of the Premises;

(3) the existence, quality, adequacy or availability of utilities serving the Premises or any portion thereof,

(4) the use, habitability, merchantability, fitness or suitability of the Premises for Tenant’s intended use,

(5) the likelihood of deriving business from Tenant’s location or the economic feasibility of Tenant’s business,

(6) Hazardous Materials on, in, under or around the Premises, or

(7) zoning, entitlements or any laws, ordinances or regulations which may apply to Tenant’s use of the Premises or business operations.

AFTER (2): If the above list will be used more than once, turn it into a defined term as a subdivision of the section, (or alternatively in the main Definitions article if appropriate):

(a) Tenant does not rely on, and Landlord does not make, any express or implied representations or warranties as to any matters including, without limitation, the Premises Condition (defined below).

(b) "Premises Condition" refers to one or more of the following:

(1) the physical condition of the Premises including without limitation the structural components of any improvements or any building systems within or serving the improvements (including without limitation indoor air quality),

(2) the existence, quality, adequacy or availability of utilities serving the Premises or any portion thereof,

(3) the use, habitability, merchantability, fitness or suitability of the Premises for Tenant’s intended use,

(4) the likelihood of deriving business from Tenant’s location or the economic feasibility of Tenant’s business,

(5) Hazardous Materials on, in, under or around the Premises, and

(6) zoning, entitlements or any laws, ordinances or regulations which may apply to Tenant’s use of the Premises or business operations.

7.11 Spin off lengthy exceptions into separate paragraphs

Time-pressured drafters sometimes keep stuffing exceptions and "provided, that" verbiage into a paragraph as though it were a sausage. That can make life difficult for reviewers and other readers, as seen in the following Before example:

Before:

15.1 Event of Default. The occurrence of any of the following shall be an “Event of Default” on the part of Tenant: …

*  *  * 

(2) Failure to perform any other covenant, condition or requirement of this Lease when such failure shall continue for a period of thirty (30) days after written notice thereof from Landlord to Tenant; provided that if the nature of the default is such that more than thirty (30) days are reasonably required for its cure, then an Event of Default shall not be deemed to have occurred if Tenant shall commence such cure within said thirty (30) day period and thereafter diligently and continuously prosecute such cure to completion. …

A better approach is to

After:

15.1 Event of Default. The occurrence of any of the following shall will be an “Event of Default” on the part of Tenant: …

*  *  * 

(2) Except as provided in subdivision (b) below, failure to perform any other covenant, condition[,] or requirement of this Lease [Agreement] when such if the failure shall continue continues for a period of thirty (30) 30 days after written notice thereof of the failure from Landlord to Tenant (the "Cure Period");

(c) Exception: IF: The nature of the default is such that more than 30 days are reasonably required to cure it; THEN: An Event of Default will not be deemed to have occurred if Tenant shall commence begins to cure the default ….

And another example:

Before:

15.6 Landlord’s Default. Landlord shall be in default under this Lease if Landlord fails to perform obligations required of Landlord within thirty (30) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have heretofore been furnished to Tenant in writing, specifying wherein Landlord has failed to perform such obligations; provided, however, that if the nature of Landlord’s obligations is such that more than thirty (30) days are required for performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. Tenant shall be entitled to actual (but not consequential) damages in the event of an uncured default by Landlord, but the provisions of Article 17 shall apply to any Landlord default and Tenant shall not have the right to terminate this Lease as a result of a Landlord default.

After:

15.6 Landlord’s Default.

(a) Except as provided in subdivision (c), Landlord will be in default under this Lease Agreement if Landlord fails to perform its obligations within 30 days after written notice by Tenant to Landlord.

(b) Any notice under subdivision (a) must provide reasonable detail about Landlord's failure to perform .

(c) If the nature of Landlord’s relevant obligation(s) is such that more than 30 days are required for performance, then Landlord will not be in default if Landlord begins performance within that 30-day period and thereafter diligently prosecutes the same to completion.

(d) Tenant shall be entitled to actual (but not consequential) damages in the event of an uncured default by Landlord, but the provisions of Article 17 shall apply to any Landlord default and Tenant shall not have the right to terminate this Lease as a result of a Landlord default.

(b) IF: Landlord has provided Tenant with the name and address of the holder of a first mortgage or deed of covering the Premises; THEN: Tenant must send, to that holder, a copy of any notice under subdivision (a).

7.12 Hunt down duplication

Look for and eliminate any duplication of substantive terms in a draft agreement; as discussed in [TO DO: Link: DRY], failing to do so ended up costing a bank $693,000. This is especially important because, as the draft agreement evolves during the parties' negotiations, the duplicate terms could end up being revised differently — and inconsistently.

7.13 Actually, never mind. (A satire.)

Forget everything you just read; instead, think about all the advantages of having your contract provisions go on and on:

  • When your client reads a long provision, she'll be impressed by your lawyering skills, and happy to be paying your fees to support the creation of a true work of art.
  • Your client isn't that interested in getting the deal to signature quickly, so it won't bother her that the dense verbiage will take longer for everyone to review, edit, and sign off on.
  • The other side's contract reviewer, lulled by the MEGO effect ("Mine Eyes Glaze Over"), might unwittingly skip over the problematic phrase that you (inadvertently?) buried in the middle of the paragraph. Don't fret — surely your counterpart won't think you were trying to pull a fast one on him.
  • Nor will your counterpart object to spending a lot of time puzzling over long sentences and paragraphs; it means more billable hours for him.
  • Your firm's managing partner will thank you for using such a dense writing style — using less white space in a contract draft means you need less paper and toner to print it out, and those things aren't free. And readability is such a vague, subjective thing. But the cost savings you achieve by printing out fewer pages? Now those are easily measured, and will be noticed and rewarded.
  • If the signed contract ever has to go to litigation, the judge's law clerk will be glad to have a fine specimen to study, to help fill those endless idle hours in chambers.

So by no means should you ever consider breaking up a long paragraph into shorter ones.

Remember, lawyers have drafted contracts with long, hard-to-read paragraphs since time immemorial. That alone justifies their continuing to do so.

Bonus tip: Challenges to this or any other established practice can be met by closing your eyes, sticking your fingers in your ears, and chanting, "we've always done it that way; we've always done it that way …."

7.14 Apply the same step-by-step rewriting skills to your own drafts

As you continue to practice the rewriting skills summarized above, you'll find that you unconsciously do the same kinds of rewriting in your own drafting work. That will result in your producing clearer, more-understandable drafts, which in turn will help you to help your clients get workable contracts to signature sooner.

8 Counseling availability

The university- and law-school administrations have asked all faculty members to include the following information in their syllabi: The university's Counseling and Psychological Services (CAPS) can help students who are having difficulties managing stress, adjusting to the demands of a professional program, or feeling sad and hopeless. You can reach CAPS ([BROKEN LINK: www.uh.edu/caps]) by calling 713-743-5454 during and after business hours for routine appointments or if you or someone you know is in crisis. No appointment is necessary for the “Let's Talk” program, a drop-in consultation service at convenient locations and hours around campus. http://www.uh.edu/caps/outreach/lets_talk.html

Footnotes:

[1]
Homework is worth 60 points.
[2]
You could still pass the course, but you'd have to make up the missing points.
[3]
Mutual consultation on homework is encouraged, but (1) each student must do his or her own work, and (2) you should indicate in your homework whom you collaborated with.
[4]
B. Format the style of the paragraph.
[5]
"Commercial Lease" is appropriate — a lease is a contract that creates a leasehold interest. See Black's Law Dictionary, 10th ed.
[6]
A contract can state that it is effective as of an earlier- or later date if that's what the parties want. CAUTION: Signers should never backdate their signatures to make it appear that the contract was signed earlier- or later than it was; doing so sent a number of senior executives to prison.
[7]
Party names are sometimes capitalized in a preamble so as to make them easy for a skimming reader to spot.
[8]
Defining key "business" terms (e.g., "Base Rent") at the beginning of an agreement — and then consistently using those defined terms elsewhere in the agreement — makes it convenient for reviewers and safer for revisers, who need only revised the definitions.
[9]
Including "Each item in this Article 1 incorporates …" is probably unnecessary.
[10]
Including the italicized portion, "to the extent there is any conflict …" is dangerous because it could lead to inconsistencies during revision of the draft during negotiation.
[11]
Defined terms and their definitions are typically set forth (i) in a separate section at the beginning of the agreement; (ii) in a separate section at the end of the agreement; and/or (iii) "in-line" at the place in the agreement that the defined term is principally used.
[12]
Both "Term: Five (5) years" and "Year One: $60,000 ($5,000 per month)" violate the "D.R.Y." (Don't Repeat Yourself) rule, which can cause major problems if the words are changed but not the numerals, or vice versa; the linked section tells the sad tale of a bank that lost $693,000 because of such a drafting screw-up.
[13]
A and B. In rare circumstances, courts will treat C, a representation of a future fact, as a covenant or warranty (in essence, bailing out the incompetent drafter), e.g., I represent that I will pay you Tuesday for a hamburger today. NOTE: For drafting purposes, treat A and B as the only correct answers.
[14]
Here's a general "proof checklist" for an action for misrepresentation? (a) A statement, made by the defendant; (b) The statement was false or misleading when made; (c) (With variations:) The defendant knew, or should have known, that the statement was false or misleading; (d) (With variations:) The defendant knew, or should have known, that the plaintiff would rely on the statement; (e) The plaintiff did in fact rely on the statement; (f) The plaintiff's reliance was reasonable; and (g) The plaintiff suffered damage attributable to the statement.
[15]
This is a matter of convention – like It's not customary to include factual representations in the recitals. It might also be dangerous to do so: If memory serves, in some jurisdictions the courts might not treat the recitals as part of the contract. ¶ The safer thing to do would be to rework the recitals as a "1. Background" section and have the parties make whatever initial representations they're willing to make.
[16]
Possibly not, because the warranty is to ABC. In any case, that's a conversation you don't want to have.
[17]
One possibility, with two steps: (1) Define a term such as Buyer (or perhaps Purchaser) as, whichever entity is making purchases under the master agreement; and (2) Rewrite the warranty provision to read, "XYZ warrants to Buyer" instead of "XYZ warrants to ABC …."
[18]
A warranty implicitly includes an indemnity obligation.
[19]
False: This doesn't reduce the risk, it merely allocates it.
[20]
True.
[21]
False: The proper phrasing would be "Alice will indemnify Bob," that is, reimburse him (or, make him whole).
[22]
I would change "Trump may win" to "Trump might win" or "Trump could win" — "may" is too often used to signify permission, e.g., "Alice may charge Bob interest on any past-due amount."
[23]
That might be a litigatable question — the County might take the position that the contracted-for services were sufficiently unique that consent was required for any assignment by Port Operations. ¶ Also, a given state might have a statute like that of New York, which prohibits contracts with state agencies from being assigned.
[24]
That might depend on the applicable state law — in many jurisdictions, a merger is deemed to cause a transfer of assets to the surviving company, which would trigger the consent requirement.
[25]
In negotiating the contract, Port Operations might have asked: (1) for the assignment-consent provision to be deleted; ¶ (2) for an exception in the case of an all-asset transfer; ¶ (3) for a requirement that the County's consent not be unreasonably withheld, together with a fast-track arbitration provision.
[26]
DCT COMMENTS: (1) "Represents and warrants" – Seller will want to figure out which it wants to do for which statement. (2) That's a lot of potential plaintiffs. (3) What exactly is "the specific purpose of Buyer"?
[27]
DCT COMMENT: "All applicable laws and permits in effect …" is a pretty broad statement.
[28]
DCT COMMENT: What is "its intended purpose"?
[29]
Just include numbers, not words.
[30]
"I heard that was never planned, but was a spontaneous gesture of respect by crane drivers."
[31]
The sentence should be written as: "Attached are three files: The event surveys; the CLE sheet for DC; and the mailing list sign up form."
[32]
Full payment is due in 30 days (but 30 days from when?).
[33]
It doesn't specify when the 30 days starts.
[34]
Yes — this isn't a representation, it's a covenant.
[35]
Presumably so.
[36]
Alice's lawyer's objection might be a clue that the lawyer, or Alice, or both, might be difficult to deal with.
[37]
Yes: (a) 8% per month is 96% per year — that should trigger worries about usury statutes. (b) Under Texas usury law, a safe harbor for interest rates is to have the interest start to accrue 30 days after the due date of the payment.
[38]
One possibility would be not to do anything to this provision, because under the Texas usury statute, the interest provision might very well be void as usurious. (But you'd want to make sure that the usury statute actually applied, i.e., that the late-payment charge would be properly characterized as "interest" under the statute.)
[39]
If the title were just "Agreement," then* the title wouldn't be as informative when the title is listed in an index or other referring document. Notice how I used the word "then" as a separator — this helps the reader see more quickly where the "if" clause ends and the "then" clause begins.
[40]
That paragraph is referred to as the preamble.
[41]
This flags the definitions of those defined terms; when the first instance of a defined term is eye-catching in this way, it helps the reader to find the term's definition more quickly.
[42]
(1) If Seller were ever to have to sue Buyer, it would be important for the complaint (in federal court and some state courts) or original petition (in Texas state courts) and subsequent documents to identify Buyer precisely. ¶ (2) One reason to state the type of entity is to inform future trial counsel, because that could affect whether a federal court can exercise diversity jurisdiction. That's because for diversity-jurisdiction purposes, courts generally treat LLCs as having the citizenships of its members, in contrast to a corporation having its own citizenship. See generally, e.g., Sevan Ogulluk and Jason Lissy, How to Determine the Citizenship of LLCs (Hint: Keep Digging!) (BNA.com 2014).
[43]
Stating a corporate party's principal place of business can help to establish at least one permissible location for (i) personal jurisdiction, and (ii) venue — which are two different things (albeit related).
[44]
It's convenient to have the parties' initial address for notice on the front page of the contract, so that future readers don't have to go paging through the document looking for it.
[45]
It's a good idea to state Sam's place of residence to establish one permissible venue (a county, usually) in which Sam could be sued if necessary.
[46]
Yes — as a minor, Billy probably does not have the legal capacity to enter into a contract.
[47]
Yes – does Beta-Beta Research actually have the financial wherewithal to pay $1 million per year? Any concerns in this area could be addressed with, for example: •a personal guaranty from Billy; • a standby letter of credit from a bank or other financial institution • a hefty deposit, coupled with the ability to terminate and repossess the computer for failure to pay rent.
[48]
A romanette is a lower-case Roman numeral in parentheses.
[49]
To give future readers — e.g., company exectives, trial counsel, judges — a quick introduction, to help get them up to speed.
[50]
At least in U.S. jurisdictions, a contract doesn't need any of these things to be enforceable.
[51]
Otherwise, the contract might bind only Seller or only Buyer (in which case the contract would be a call option or a put option).
[52]
(1) "Seller shall sell" is certainly acceptable for the U.S., because here the word shall is generally understood as mandatory. That might not be the case, though, in other English-speaking countries; see the Common Draft definition of "shall" and its commentary (scroll down to the New Zealand and Australia mentions). ¶ (2) When drafting a contract for a seller, I prefer to use, for example, "Customer will do X" instead of "Customer shall do X" because the former is arguably more respectful in tone — because after all the customer doesn't have to do the deal ….
[53]
"USD" is a standard abbreviation for U.S. dollars. Note how the usage is "USD $800."
[54]
Yes, of course parties are free to change the Closing Time and Closing — but sometimes it doesn't hurt to throw in things like this anyway, to give some reassurance to non-lawyer readers on the other side of the deal.
[55]
A "safe harbor" clause says, in essence (for example), you don't have to do things this way, but if you do, you can't be attacked for having failed to do it properly. (Safe harbors are often seen in securities law and tax law.)
[56]
"For the avoidance of doubt" is a British-ism, a signal to a judge that what follows is a guide to interpretation. (Some practitioners dislike for-the-avoidance-of-doubt provisions, feeling that contract language should be clear enough not to need such interpretive guides. This is a worthy aspiration, but in practice it might not always be achieved.)
[57]
Unless the term is defined, a court might treat the term as being subject to the doctrine of ejusdem generis.
[58]
Any clause for the sale of one or more assets is likely to include a clause like this, which could be referred to as a "lockdown" clause. We see similar provisions in merger- and acquisition agreements, in wnich the seller is required to continue running the business "in the ordinary course," and thus requiring the seller to get the buyer's approval for extraordinary transactions.
[59]
If you wanted to be more emphatic, you could try "Seller may not use the Computer …" or "Seller must not use the Computer …."
[60]
No and no — but Seller might have included section 2 as a way of increasing the "curb appeal" of the total offering.
[61]
Seller might not be the one to actually perform the clean install (e.g., Seller might take the computer to the Apple Genius bar).
[62]
An affirmative covenant (as contrasted with a "thou shalt not" negative covenant).
[63]
A "condition."
[64]
Because Buyer wants the right to walk away from the deal — and not be in breach of contract for doing so — if the stated prerequisites aren't met.
[65]
"D.R.Y. — don't repeat yourself." Repetition is dangerous: You might change one instance but forget to change the other. (A bank lost $693,000 that way.)
[66]
Seller has no obligation to remove the Grateful Dead decals, and thus won't be in breach of contract if the decals aren't removed. BUT: Buyer can walk away from the deal if the decals are left on the computer.
[67]
"To Seller's knowledge" is ambiguous: It could mean: • Seller knows for a fact; or • Seller doesn't have any knowledge one way or another. Under contra proferentem, if Seller drafted the agreement (which will usually be the case for a small transaction like this), other things being equal, the ambiguity would be construed against Seller.
[68]
Buyer can walk away from the deal, without being in breach of contract.
[69]
To "kick the can down the road" in lieu of drafting a more-specific standard of performance. (Note how "more-specific" is hyphenated.)
[70]
Because we care more about whether the action gets done (Seller gets paid) than about who, exactly, is performing the action. ¶ (In some circumstances, though, we might care greatly about just who is performing the action.)
[71]
"Is to be paid" could work.
[72]
A cashier's check could be counterfeit, in which case the bank would have no obligation to honor the check.
[73]
An acknowledgement.
[74]
(1) The other side might add text to the bottom of the page just before the signature page. QUESTION: How could this concern be addressed? (2) A question might arise as to whether the individual who signed the signature page was using the signature page from (let's say Draft #10 of the contract or Draft #11). QUESTION: How could this concern be addressed?
[75]
To make it clear when the contract is actually being signed — this is important in transactions involving public companies, which must report their earnings quarterly, because the date of actual signature is important for determining when earnings (or expenses) are permitted to be "recognized" under generally-accepted accounting principles. See generally the discussion of the dangers of backdating for deceptive purposes in [BROKEN LINK: CABackdating][BROKEN LINK: CABackdating] of On Contract Drafting.
[76]
In U.S. jurisdictions (and likely others as well), an agreement to agree ("A2A") is generally unenforceable. If a material term of a contract is the subject of an A2A, it's possible that the contract might not be valid.
[77]
An agreement to negotiate in good faith can be enforceable, but it can open up a can of worms if one party later accuses another of refusing to negotiate in good faith, or of negotiating in bad faith.
[78]
Chances are that the court would rule in favor of Seller, because you (on behalf of Buyer) drafted the price-increase provision.
[79]
Both ABC and UOP are likely to be deemed "merchants" under the UCC, but that might depend on facts not specified in our hypothetical situation.
[80]
Under UCC § 2-207, the P.O. terms are likely binding to the extent that they match the terms in the order and any additional terms otherwise agreed to by the parties.
[81]
Quite possibly – section 1 provides that (1) Alice's title as "account executive" might create a fact issue — requiring a trial — as to whether someone holding that title has "apparent authority" to bind ABC. ¶ (2) Even if Alice hadn't signed the P.O., ABC's shipment of goods might well qualify as acceptance of an offer for a unilateral contract.
[82]
Yes – by its terms, the [BROKEN LINK: HONBPOWARRANTY] runs to "Honeywell's" customers and end users. And under [BROKEN LINK: HoneywellPOAcceptance], the term "Honeywell" refers to "the member of the Honeywell International Inc. group of companies identified on the face of this document …." ¶ This doesn't mean that the refinery would necessarily win — but ABC might have to spend a lot of money defending itself; quaere whether it has sufficient insurance.
[83]
UOP likely would try to sue ABC under the [BROKEN LINK: HONBPOGenIndemn] provision. Again, UOP might not win, but the case might cost ABC a lot of money.
[84]
Possibly the "fit for intended purpose" warranty — but is that warranty language sufficiently clear UOP likely would try to sue ABC under the [BROKEN LINK: HONBPOGenIndemn] provision. Again, UOP might not win, but the case might cost ABC a lot of money.
[85]
Not under the purchase order (see the [BROKEN LINK: HONBPORemedies] section), but definitely under the limitations of liability in the [BROKEN LINK: HONBTOSLIMLIAB].
[86]
An indemnity is a reimbursement; a warranty is a promise to reimburse (i.e., indemnify) someone if a warranted state of affairs turns out not to be true.
[87]
False — it doesn't reduce the risk, it allocates the risk.
[88]
True.
[89]
False — it should be "Alice will indemnify Bob [i.e., future tense] …."
[90]
Full payment is due in 30 days (but 30 days from when?).
[91]
It doesn't specify when the 30 days starts.
[92]
Yes — this isn't a representation, it's a covenant.
[93]
Presumably so.
[94]
Alice's lawyer's objection might be a clue that the lawyer, or Alice, or both, might be difficult to deal with.
[95]
Yes: (a) 8% per month is 96% per year — that should trigger worries about usury statutes. (b) Under Texas usury law, a safe harbor for interest rates is to have the interest start to accrue 30 days after the due date of the payment.
[96]
One possibility would be not to do anything to this provision, because under the Texas usury statute, the interest provision might very well be void as usurious. (But you'd want to make sure that the usury statute actually applied, i.e., that the late-payment charge would be properly characterized as "interest" under the statute.)
[97]
Basically, the user must terminate his or her PayPal account: "We may amend this user agreement at any time by posting a revised version on our website. The revised version will be effective at the time we post it. If we change the user agreement in a way that reduces your rights or increases your responsibilities, we will provide you with 30 days’ prior notice by posting notice on the Policy Updates page of our website." ¶ The amendment to the arbitration provision states in part: "If you do not agree to these amended terms [of arbitration], you may close your PayPal account within the 30-day period and you will not be bound by the amended terms."
[98]
Yes — as a minor, Billy probably does not have the legal capacity to enter into a contract.
[99]
Yes – does Beta-Beta Research actually have the financial wherewithal to pay $1 million per year? Any concerns in this area could be addressed with, for example: • a personal guaranty from Billy; • a standby letter of credit from a bank or other financial institution; • a hefty deposit, coupled with the ability to terminate and repossess the computer for failure to pay rent.
[100]
Perhaps by having the seller say simply, "so far as I'm aware, the car has no significant problems, but I'm not a mechanic and haven't had a mechanic check it out."
[101]
That'd be a bad idea — phrased that way, the statement is likely to be taken as a definitive statement that indeed there are no problems.
[102]
Two reasons come to mind: (1) An amended and restated agreement is compact, with everything in one document instead of having an original document and then one or more separate amendment documents. ¶ (2) SEC regulations required Facebook to publicly file Sandberg's employment agreement. If the parties had merely done an amendment document, then Facebook would have had to file both the amendment document and the original agreement that was being amended — and one or both parties might have wanted to keep the original agreement confidential.
[103]
Fine, but it's not something Sandberg's lawyer would likely have requested — it takes time; it creates the risk of overlooking a change; and it doesn't add a lot of value.
[104]
Is this a representation by Sandberg? Or is it a commitment by Facebook?
[105]
Because the beneficiary of a rep or warranty will always want to ask for both a rep and a warranty. (Whether the beneficiary will insist on both is another matter.)
[106]
Salary numbers should be expressed as an annual rate to be clear that, if the employee gets fired partway through the year, the employee is not entitled to be paid for the rest of the year. If Facebook were to make the change requested by Sandberg's lawyer, then that change would give Sandberg ammunition to argue the opposite, namely that she was entitled to be paid for the rest of the year.
[107]
Facebook would probably respond that it did not want to have to separately manage the mechanics of paying Sandberg, which would be at least modestly burdensome to the company's payroll department.
[108]
DCT COMMENTS: (1) "Whom" is incorrect. (2) I'd be nervous about saying that the individual "shall be in charge" of Seller's performance.
[109]
DCT COMMENT: That might give Buyer a blank check (so to speak) to decline to pay — sort of like "Hollywood accounting."
[110]
DCT COMMENTS: (1) This self-serving language might not cut it in court. (2) Cumulative remedies might be problematic — liquidated damages are supposed to be the exclusive form of damages.
[111]
DCT COMMENT: So does the exclusion of "loss of profit or revenue" mean that Buyer isn't liable for the purchase price?
[112]
DCT COMMENT: This language might force Seller to keep going "in the hole" even if Buyer isn't paying its bills.
[113]
DCT COMMENT: Seller won't want to have to manage complying with the various Business Codes of all of its different customers.
[114]
DCT COMMENT: This might be too open-ended a commitment for Seller's taste.
[115]
See, e.g., § 2.08, No Undisclosed Liabilities; § 2.09, Disclosure Controls and Procedures; §2.10, Litigation.
[116]
See § 5.02, Conditions to the Obligations of Purchaser, especially subdivision (c) (officer's certificate).
[117]
No, for two reasons, one legal, one practical: (1) Section 8.01 states that reps and warranties won't survive the closing; and ¶ (2) With as many stockholders as Yahoo has, it would be impracticable to try to sue them for rescission or damages.
[118]
For discussion – be sure to read the last few paragraphs of the definition.
[119]
For discussion.