Contract Drafting (Toedt - Spring 2017)

1 Preface

Updated Wed. Feb. 22, 2017 15:00 CST — SUBJECT TO REVISION

Welcome. This Web page contains important information about my Contract Drafting course. Please see the table of contents at the top right.

TODAY'S CLASS PLAN    

Mnemonics (a work in progress)

Dynalist for virtual whiteboard (for in-class exercises):

•   M-W 4 p.m.

•   M-W 7:30 p.m.

•   T-Th 2:30 p.m.

2 Reading assignments

Reading for the week of Mon Jan 23 / Tues Jan 24

A Somewhat Barebones Contract (including annotations)

Preambles including annotations (that will be the case for all Common Draft readings)

Signatures — especially the signers' personal representations.

How to Sign a Contract

Acknowledgements in contracts

Reading for the week of Mon Jan 30 / Tues Jan 31

Review questions for A Somewhat-Barebones Contract

Common Draft §§ 4.1 (payment terms) through 4.5 (deposits) (and their annotations, of course)

Common Draft §§ 4.8 (interest) and 4.9 (usury savings)

Implied-Warranty Disclaimer

Representation Definition

Misrepresentation Definition

Warranty Definition

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

Contra proferentem exercise

Reading for the week of Mon Feb 20 / Tues Feb 21

Common Draft definitions preamble and its commentary

Stanford-Tesla lease agreement worksheet 1 – be prepared to discuss the questions in class.

Reading for the week of Mon Feb 27 / Tues Feb 28

Assignment of an agreement

Review again the Sandberg employment agreement and the Stanford-Tesla lease agreement; we will continue working through them and examining some of the doctrinal background and drafting issues presented.

Skim the headings in the text (not just the table of contents) of the Verizon-Yahoo stock purchase agreement to see what issues those drafters addressed.

Reading for the week of Mon Mar 6 / Tues Mar 7

Defense against indemnified claim exercise

Assignment of port operating agreement exercise

Verizon-Yahoo stock purchase agreement – just the following:

Article II: Representations and warranties of seller

Article III: Representations and warranties of purchaser

Section 8.16 (disclosure schedules)

Reading for the week of Mon Mar 20 / Tues Mar 21

Section 5.02(a) of the Verizon-Yahoo stock purchase agreement — we will use that as a vehicle for discussing some typical issues that can come up in M&A work.

The Common Draft General Provisions Baseline Terms and their commentary.

Warranty disclaimers in England

Reading for the week of Mon Mar 27 / Tues Mar 28

Reading for the week of Mon Apr 3 / Tues Apr 4

Common Draft Standards; Inspections; Restrictions and their annotations

Verizon-Yahoo stock purchase agreement §§ 4.03 (access to information)

Common Draft Guaranty provisions and associated annotations

Reading for the week of Mon Apr 10 / Tues Apr 11

Common Draft Model Employment Agreement Provisions (yellow-highlighted & footnoted)

Common Draft confidentiality provisions and their annotations

Reading for the week of Mon Apr 17 / Tues Apr 18

Reading for the week of Mon Apr 24 / Tues Apr 25

3 Homework assignments

Homework 1: Due Wed Jan 25 / Thurs Jan 26

Q1. (5 points) Worksheet: Microsoft Word basics

Q2. (5 points) For Selling a used computer : Draft a simple preamble and "background" section for a contract. If the hypothetical facts don't provide details that you'd want to include, make something up. Explain (very briefly): • why you included what you did, and • if you decided to leave anything out: what, and why.

Homework 2: Due Wed Feb 1 / Thurs Feb 2

For each of the below: Explain (very briefly): • why you included what you did, and • if you decided to leave anything out: what, and why.

Q3. (5 points) As if you were representing the seller: Draft the signature blocks for the selling a used computer exercise if the seller were Sarah's Computer Sales, Inc., which is a Texas corporation; Sarah is the founder and CEO. (Careful: Does a company's founder necessarily have signature authority for the company?)

Q4. (5 points) Same as above, except that the seller is Sarah's Computer Sales L.P., which is a limited partnership that was set up in Delaware; Sarah is a celebrity who is a limited partner in the company (i.e., an investor), and she is letting the company use her name, but she has no other role in the company.

Homework 3: Due Wed Feb 8 / Thurs Feb 9

Homework 4: Due Wed Feb 15 / Thurs Feb 16

Q6. (5 points) Returning to the computer-sale transaction : Today's date is January 20, 2017. For reasons not explained to you, the seller's principal has asked you to be sure that the date-signed fields in the signature blocks will read "January 2, 2017." The seller's principal is going through a divorce. QUESTION: Is it OK, or not, to go along with the principal's request about the January 2 date? Explain.

Q7. (5 points) You represent Buyer in the computer-sale transaction . List the reps and warranties that you would want Seller to make about the computer. (Think about what the remedies should be in case a warranted fact proves untrue, and consider including those remedies in the rep-and-warranty provisions.)

Q8. (5 points) Now you represent Seller in the computer-sale transaction . (For class discussion only: Could that happen in real life?)

  • For each of the reps and warranties in the list you made for Q7, indicate whether Seller should make • a representation, or • a warranty.
  • For one of the items in the list, revise Seller's language to make it a representation only.

Homework 5: Due Wed Feb 22 / Thurs Feb 23

Homework 5: Due Wed Mar 1 / Thurs Mar 2

First take-home quiz

Homework 7: Due Wed Mar 8 / Thurs Mar 9

Q9. (5 points) For the selling a used computer facts:

  • As Buyer's lawyer, draft a provision that allows Buyer to have a computer-savvy person inspect and test the computer before the closing.
  • As Seller's lawyer, think about what precautions might be appropriate during the inspection to reduce the risk* of bad things happening for which Seller might want to blame Buyer. * Notice that I didn't say "to ensure that bad things won't happen."

Explain (very briefly): • why you included what you did, and • if you decided to leave anything out: what, and why.

Homework 8: Due Wed Mar 22 / Thurs Mar 23

Q10. (5 points) Draft a set of "closing" provisions stating what is to happen at the closing; include both:

  • provisions that Seller would want; and
  • provisions that Buyer would want.

Explain (very briefly): • why you included what you did, and • if you decided to leave anything out: what, and why.

Homework 9: Due Wed Mar 29 / Thurs Mar 30

Q11. (5 points) For the selling a used computer facts, as Seller's lawyer, draft a payment provision that you think will provide Seller with an acceptable risk of non-payment.

Q12. (10 points) Do the Financial questions about the computer sale exercise.

Homework 10: due Wed Apr 5 / Thurs Apr 6

Second take-home quiz is due.

Homework 11: Due Wed Apr 12 / Thurs Apr 13

Homework 12: Due Wed Apr 19 / Thurs Apr 20

Q14. (10 points) Contract-review mechanics

4 Class plans

4.1 Class plan: Tues Jan 17 / Wed Jan 18

Housekeeping

  1. Hand out paper name tents
  2. Break into three groups of four (these groups will be reshuffled twice during the semester on the same day as the due dates of the take-home quizzes)
  3. Introduce selves
  4. Overview of this course's approach:
    • In-class exercises, often in small groups (sort of like in-class study groups)
    • "Enhanced Socratic method" – lots of Q&A, with:
      • most questions posted on the Web page in advance
      • discuss in small groups
    • Homework assignments – many of them relatively short
    • Lots of in-class review (a.k.a. "spaced repetition") to help with long-term retention
  5. Check Web site for reading & homework assignments.
  6. Go over course information, especially:
    • 81-minute class sessions
    • Grading – 400 total points for the semester, via the final exam, two in-class quizzes, 12 short homework assignments, and class attendance
  7. The T-Th section will not meet on Thursday Jan. 19; that will re-synchronize the T-Th section with the M-W sections.
  8. Possibility of Webinar-style remote meeting if DCT will be absent.
  9. Use Dynalist pages to collect email addresses for a Google Group mailing list, which I use to send out all-hands emails.

•   M-W 4 p.m.

•   M-W 7:30 p.m.

•   T-Th 2:30 p.m.

Reading review

QUESTION: What if anything did you find confusing difficult about the reading?

Lecture: The value of speed in getting to signature sooner

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

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

Questions for discussion

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

Questions for small-group discussions

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

DCT lecture: Introductory reading

4.2 Class plan: Mon Jan 23 / Tues Jan 24

In the news

Houston Astros and starting pitcher Mike Fiers avoided salary arbitration by splitting the difference between their final proposals (Chron.com); this is a useful illustration of how "baseball arbitration" motivates parties to settle disputes on reasonable terms.

In-class exercises

• FIX THIS: "The [health-insurance] companies wanted to minimize the risk of losing money by paying for costly medical care for too many of their customers." (From Reed Abelson, Trump’s Vow to Repeal Health Law Revives Talk of High-Risk Pools, NYTimes.com). USE THE DYNALIST WHITEBOARD (right click to open in a new tab):     M-W 4 p.m.     M-W 7:30 p.m.     T-Th 2:30 p.m.

Class discussion of the reading

4.4 Class plan: Mon Jan 30 / Tues Jan 31

Homework review

Exercises:

4.5 Class plan: Wed Feb 1 / Thurs Feb 2

• Reminder: Make note of your takeaways from the reading.

• Show: Signing the Wrong Line on The Japanese Surrender

• Exercise: Grammar fail: The email attachments

• Exercise: Rep & warranty exercises (1)

• Exercise: Brainstorm and draft a rep-and-warranty (which? both?) for 1) absence of viruses in the computer, 2) computer in good working order. Use the virtual whiteboard: M-W 4 p.m.     M-W 7:30 p.m.     T-Th 2:30 p.m.

• Exercise: Brainstorm and draft a warranty disclaimer for the computer that Sarah Seller wants to sell. Use the virtual whiteboard: M-W 4 p.m.     M-W 7:30 p.m.     T-Th 2:30 p.m.

Gerrymandering and the wrong choice of words

A Somewhat-Barebones Contract (continued)

• Review: Preamble Q&A – don't peek at the answers, please.

• Review: Today's takeaways

4.6 Class plan: Mon Feb 6 / Tues Feb 7

• Review: Takeaways from: (i) last week; and/or (ii) the reading for this week.

• D.R.Y. example from Bryan Garner's Twitter feed

• Exercise: 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: Rewrite the italicized part. PART 2: Clarify by changing the punctuation between the italicized sentence and the immediately-following one.

• Exercise (MW 7:30 pm class only): Brainstorm and draft a warranty disclaimer for the computer that Sarah Seller wants to sell. Use the virtual whiteboard

• Exercise: Redraft the "Whereas" sections of the Rick's Cabaret purchase agreement as a "Background" section.

• Exercise: Honeywell purchase-order warranties

Homework review

4.7 Class plan: Wed Feb 8 / Thurs Feb 9

• Reminder: Make note of your takeaways from the reading for next week.

(M-W 4pm class only) D.R.Y. example from Bryan Garner's Twitter feed

• Review of Homework 2: What do you think are the key points of DCT's comments?

• Mnemonic: D.R.Y. is a specific case of R.O.O.F. – Root Out Opportunities for F[oul]-ups.

• Reps and warranties mnemonic: RRRR: Representation – Reasonable Reliance (is) Required.

• Reps and warranties mnemonic: WIL: Warranty (is an) Insurance (policy and shoulld have) Limits.

(M-W 4 p.m. only) Exercise: Redraft the "Whereas" sections of the Rick's Cabaret purchase agreement as a "Background" section.

(M-W 7:30 p.m., T-Th 2:30 p.m.) Exercise: Review DCT rewrite of the Rick's Cabaret purchase agreement "Whereas" clauses.

(T-Th 2:30 p.m. only) Exercise: Honeywell purchase-order warranties

4.8 Class plan: Mon Feb 13 / Tues Feb 14

• Your takeaways, surprises, and questions from (i) this week's reading, and (ii) last week's class discussions & exercises.

• In the news, apropos of how contract drafters should anticipate and plan for the future: "The American Society of Association Executives would pull its 2021 annual meeting scheduled in Dallas if the bill becomes law, executive vice president Susan Robertson said. 'We wouldn't want to do it,' she said. 'We had one of our most successful meetings in Dallas, but it's written into our contract, so we would act on it.'" Ileana Najarro, Bathroom bill could keep future Super Bowls from Texas (HoustonChronicle.com Feb. 10, 2017) (emphasis added).

Discussion: Sheryl Sandberg employment agreement

4.9 Class plan: Wed Feb 15 / Thurs Feb 16

• Homework takeaways review – see the master comments document.

• Ambiguity exercise – fix the italicized segment of following, from a sign at a local swimming pool: "All children must be changed in a locker or changing room." (Are children really supposed to be changed in a locker?)

• Experiment: A Family Feud-style review game (Wednesday sections only).

• Continue with Discussion: Sheryl Sandberg employment agreement

• Continue the review questions for A Somewhat-Barebones Contract – start at question 26.

4.10 Class plan: Mon Feb 20 / Tues Feb 21

1. On Wednesday/Thursday we'll review my comments on the answers to Homework #4; feel free to look over the comments to develop your takeaways and questions (especially "Dodgeball" questions you might be asked to pose to one of the other groups in your class).

2. New Dynalist document: Mnemonics collection (in progress).

3. From a client contract I'm helping to negotiate (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?

4. From the same client contract: "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? (Hint: Ever heard of "Hollywood accounting"?)

5. From the same client contract: "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. Review questions and takeaways from the reading assignment for this week.

7. Begin reviewing Stanford-Tesla worksheet #1.

[DIDN'T FINISH #7]

• Continue the review questions for A Somewhat-Barebones Contract – start at question 26?

• Continue with Discussion: Sheryl Sandberg employment agreement

4.11 Class plan: Wed Feb 22 / Thurs Feb 23

1. Quiz 1 will be posted to Blackboard at 9 p.m. Feb. 22 for the Wednesday sections and at 4 p.m. Feb. 23 for the Thursday section.

2. In the news: Many stockpile bitcoin to make payoffs (phys.org) – this is relevant to the T.I.L.T. mnemonic about advance-preparation questions to ask the client (in which "I" stands for obtaining insurance or other sources of funding).

3. In the news: Verizon and Yahoo renegotiate their deal at a price of $4.48 billion ($350 million lower). DISCUSSION: MAC clauses.

4. Homework 4 review

As time permits, continue with:

5.  Discussion: Sheryl Sandberg employment agreement

6.  Stanford-Tesla lease agreement worksheet 1 .

7.  review questions for A Somewhat-Barebones Contract – start at question 26?

5 General course information

5.1 Contact information; computer use; email addresses

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

5.2 Course goals

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

Students will:

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

5.3 Course materials

We will not use a course book per se; instead, we will use materials available for free on-line, such as:

5.4 Course approach

We will take up various worksheets, exercises, and homework assignments; I'm in the process of revising the order based on experience in past semesters.

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

5.5 Extra class time to avoid Friday makeup sessions

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. To avoid having to use an official Friday-afternoon or -evening makeup day, and as recommended by the Law Center's administration:

  • Each class session will last 81 minutes.
  • The M-W sections will end at 5:21 p.m. and 8:51 p.m., respectively.
  • The T-Th section will end at 3:51 p.m. (If anyone in the T-Th section needs to leave at 3:50 p.m. to get to a 4:00 p.m. class, let me know.)

This arrangement is driven by the ABA accreditation requirement of 700 instructional minutes per credit hour, i.e., 2,100 minutes for a three-hour course:

  • By doing 81-minute classes, we get 2,106 minutes of class time in 26 class meetings instead of the usual 27 meetings.
  • That gives us one extra regular class day, which we can use as a makeup day if necessary — or, if we don't have to cancel any classes (and thus don't have to use the makeup day), then* we can just end the semester one class meeting early.

* Notice how I used the word "then" to demarcate that part of the longish conditional sentence.

6 Grading

6.1 Final grade based on 400 total points

Your course grade will be determined by how many points you earn out of 400 total possible points, as explained below.

6.2 School-required average

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 between 3.0 and 3.4.

6.3 Final exam: 150 points

The final exam:

  • will be administered via Blackboard;
  • will consist mainly of short-answer questions, along with some true-false and multiple-choice questions;
  • will be open-book, open-notes, but it will be timed; you can take it any time you like during the examination period, but once you start it, you must complete the exam within one hour;
  • will be drawn very largely from the problems addressed during the course (with some variations mixed in).

The honor code will of course apply: If you take the final exam early in the examination period, you're not to reveal the questions to other students taking it later.

6.4 Two take-home midterm quizzes: 100 points total (50 points per quiz)

We will have two, take-home, mid-term quizzes. Notice how I used commas to separate the interchangeable adjectival phrases, namely "two, take-home, midterm." See Comma Rule 2 at GrammarBook.com.

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

The quizzes will be open-book and open-notes.

Each quiz will be made available via Blackboard a week before the due dates, which will be Wed Mar 1 / Thurs Mar 2 and Wed Apr 5 / Thurs Apr 6 respectively.

6.5 Homework: 100 points

There will be a series of homework assignments.

  • In the early part of the semester, homework assignments will be mainly pass-fail; students who make a decent effort will get full credit.
  • Homework assignments are to be emailed to me unless I say otherwise. This grading won't be anonymous, but knowing your names will help me provide at least some individualized attention.
  • Many homework assignments will involve writing and/or editing; others will be more doctrinal.
  • We will go over each homework assignment during a class period after the due date. (Usually but not always, we will review homework during the class period after the due date — the spaced-out timing is intentional.)
  • Homework assignments can be submitted after the due date, but any homework assignment that I receive more than 24 hours after the due date will be docked 20% of the possible points. This will help to discourage gaming the system by submitting an assignment after we've already reviewed the assignment in class.
  • For some homework assignments I will not necessarily mark up each student's assignment individually, because we will be discussing the correct answer(s) in class.
  • 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.

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

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

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

ABA accreditation rules and school policy require attendance at 80% of the class meetings for each course. We have 26 scheduled class meetings, not counting the regular-day makeup day at the end of the semester (if needed). 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 25
5 or more all 50

This means, of course, that students who miss more than two classes 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 grading curve.

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

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

6.7 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.

6.8 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.

If I think your email question might be of general interest, I'm very likely not to respond directly to you, but instead to email the question (without your name), and my response, to the whole class. (Notice how I used parentheses and commas for clarity in the last part of the previous sentence — notice also how long the sentence is.)

REWRITTEN: I might conclude that your email question is likely to be of general interest to the class. If so, I probably won't respond to you; instead, I'll email the question (without your name, of course), along with my response, to the whole class. (Notice how this version has two shorter sentences; I also substituted "along with" as a mid-sentence guide phrase to help the reader navigate the wording.)

6.9 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.