Syllabus - Contract Drafting (Toedt Spring 2015)

Table of Contents

1 Introduction

Please note the summary table of contents at the upper-right corner of your browser window. I will be posting and updating this syllabus at Last revised January 29, 2015.

2 Topics

2.1 Thursday, Jan. 29

2.1.1 Language; punctuation; grammar: Davos

Discuss in your groups: What's wrong with what John McArthur is quoted below as having said?

“The range of people who are here is quite unique,” says John McArthur, slightly out of breath as he walks briskly through the streets of Davos, between meetings with development ministers, World Bank officials, and social entrepreneurs. [From Kate Wheeling, Does Davos Actually Do Anything?, Pacific Standard, Jan. 23, 2015.]

2.1.2 Language; punctuation; grammar: Meiyee Apple's friends

Discuss in your groups: Note the punctuation of the first words of the following quotation. What does it say about the number of friends the author has?

My friend, Meiyee Apple, recently underwent LASIK surgery after decades of wearing glasses. “I felt I was losing part of my identity since I identified myself as a cool glasses person,” Apple says. [From Rick Paulas, The Hidden Psychology of Wearing Glasses, Pacific Standard, posted Jan. 27, 2015. Cf. the book Eats, Shoots & Leaves]

2.1.3 Exercises: Warranties

Use the virtual whiteboard to do this exercise. Each student is to do the exercise in his or her individual whiteboard; then each group should develop a consensus.

  1. As briefly as you can: From a litigator's perspective, what are the basic differences between a representation and a warranty?
  2. As briefly as you can: From a business person's perspective, what are the basic differences between a representation and a warranty?
  3. Drafting exercise: How could 1) and 2) be arranged so as to comply with the D.R.Y. principle ("Don't Repeat Yourself")?

2.1.4 Experiment: Students read and explain, in groups

Use the virtual whiteboard to do this exercise. Each student is to do the exercise in his or her individual whiteboard; then each group should develop a consensus.

  1. In Stark § 19.3.1, briefly explain the difference(s) between the shaded examples on p. 266 (contractor's right to terminate; corporate power and authority)
  2. In Stark § 19.3.2, briefly explain the difference(s) between the shaded examples on p. 267-68 (developer's representations and warranties; employee sanctions)
  3. In Stark § 19.3.2, briefly explain the difference(s) between all three shaded examples on p. 267
  4. Drafting exercise: Rewrite 1) through 3) to comply with the D.R.Y. principle.

2.1.5 Exercise: Stark Ex. 5-3, paragraph 10 — Governing law is that of Virginia

First individually, then in groups, use the virtual whiteboard to draft a governing law provision as requested by the exercise. Hint: Check out the Common Draft governing-law provision and notes

2.1.6 Discuss: Governing law; forum selection

First individually, then in groups, use the virtual whiteboard to address the following. Short answers, please.

  1. Will governing-law clauses generally be enforced? When might they not be?
  2. Same questions for forum-selection provisions.

2.1.7 Exercise: Stark Ex. 7-2 defined terms

Use the virtual whiteboard to do Stark Ex. 7-2. Each student is to do the exercise in his or her individual whiteboard; then each group should develop a consensus.

2.1.8 Discuss Stark Chapter 6 (continued)

In groups, use the virtual whiteboard to address the following (short answers are OK)

  1. Top of p.70: What if the drafter doesn't know the date on which the agreement will be signed? (Hint: See the bottom of p.70 and top of p.71.)
  2. Middle of p.71: In the two versions of dates, where exactly are the two commas?
  3. Bottom of p.71 and top of p.72: Why would Stark consider "This [Agreement] is made among Smith, Jones, and Doe" to be incorrect usage?
  4. Bottom half of p.73: Do you agree with Stark's categorical view on the right and wrong way to specify a party's state of incorporation? (Hint: Where might a contract be litigated?)
  5. § 6.4 - which approach to "consideration" is best?

2.1.9 Exercise: Stark Ex. 6-2 — draft a preamble to Stark Ex. 5-3

Use the virtual whiteboard to do this exercise. Each student is to do the exercise in his or her individual whiteboard; then each group should develop a consensus.

2.1.10 For Tues. Feb. 3 and Thurs. Feb. 10


  • Stark Chapters 7, 8, 18, 19
  • Common Draft redlining representation (be sure to read the notes)


2.2 Week of Tuesday, Feb. 3 [WILL BE REVISED]

2.2.1 Discuss: Stark § 18.2

First individually, then in groups, use the virtual whiteboard to address the following. Short answers, please.

  1. Page 257: In the middle of the page, do you agree that the "Better" example is in fact better than the "Good" example? Argue each position.
  2. Page 257: At the bottom of the page, what's the danger in the "Correct" version? (Hint: Think of what might happen in the negotiation process.)
  3. Page 258: At the top of the page, how could the "Correct" version be rewritten to make it even more readable? (Hint: This has nothing to do with archaic language.)

2.2.2 Discuss: Stark § 18.3

First individually, then in groups, use the virtual whiteboard to address the following. Short answers, please.

  1. Is represent and warrant an example of a couplet to be avoided? Why or why not?
  2. Top of page 259, right-hand column: What do you think of the phrase means and includes?
  3. Last line of page 259: What do you think of Stark's enter into a contract with example?
  4. Page 260, left-hand column: In Stark's forthwith example, would promptly be a synonym for forthwith or immediately?

2.2.3 Discuss: Stark § 7.5 (defined terms guidelines)

[Some of these will be moved to later dates in keeping with the spaced-repetition principle.]

Use the virtual whiteboard to do this exercise. Each student is to do the exercise in his or her individual whiteboard; then each group should develop a consensus. Short answers, please.

Of Stark's enumerated guidelines for defined terms:

  1. Pick the one defined-terms enumerated guideline that you thinks provides the most "bang for the buck" in terms of serving the reader. Explain your opinion.
  2. Pick the one defined-terms enumerated guideline that you thinks would be the most difficult to comply with. Explain your opinion.
  3. Are there any guidelines that you think could be honored in the breach?
  4. Page 101, Item #3: Can you think of any circumstances in which it might be useful to have multiple defined terms for a single definition — e.g., using both Purchaser and Buyer in the same agreement. (Hint: Think of how contracts are sometimes drafted in the real world, with parties going back and forth under time pressure.)
  5. Page 102, item 8: What term other than means could you use to introduce the meaning of a defined term? (Hint: Look at some of the Common Draft defined terms.)
  6. Page 104: In the "Wrong" and "Correct" example in the top third of the page, do you agree with Stark's position?
  7. Page 104, #15: How else could the "Wrong" example be fixed?
  8. Page 106, #20: Explain this guideline in your own words.
  9. Page 108, #22: When might you want to "lock in" a reference to a particular version of another agreement, statute, arbitration rules, etc., as opposed to not doing so?
  10. If you're going to define a term "in line" (that is, in the body of the substantive provision and not in a separate definitions section), how can you make it easier for a later reader to find the definition when first delving into the agreement?

2.2.4 Exercise: Stark Ex. 7-3 – defined terms

Use the virtual whiteboard to do this exercise. Each student is to do the exercise in his or her individual whiteboard; then each group should develop a consensus.

2.2.5 Exercise: Stark Ex. 8-6: Quarterback-agent contract

Use the virtual whiteboard to do this exercise. Each student is to do the exercise in his or her individual whiteboard; then each group should develop a consensus.

2.2.6 Exercise: Stark Ex. 19-1 (tabulation; get the Word document from the publisher's Web site)

2.2.7 Exercise: Stark Ex. 19-2 (tabulation; get the Word document from the publisher's Web site)

2.2.8 Exercise: Stark Ex. 19-3 (tabulation; get the Word document from the publisher's Web site)

2.2.9 Exercise: Stark Ex. 19-4 (tabulation; get the Word document from the publisher's Web site)

2.2.10 Exercise: Stark Ex. 19-5 (tabulation — ambiguity of list on p. 266)

2.2.11 Exercise: Stark Ex. 7-6: Which "breach" defined term is better?

2.2.12 * Exercise: Stark 18-1 (legalese)

2.2.13 Exercise: Stark 18-2 (legalese)

2.2.14 Exercise: Stark 18-3 (legalese)

2.2.15 Exercise: Stark 18-4 (legalese)

2.2.16 Exercise: Stark 18-5 (legalese)

2.2.17 Exercise: Stark 18-6 (legalese)

2.2.18 Exercise: Stark 18-7 (legalese)


2.4 Tuesday Jan. 27

2.4.1 Homework due Tues. Feb. 10

Stark Ex. 8-3 (term of agreement; salary). Collaboration is encouraged. If multiple students collaborate, submit one homework with each student's exam number on it.

2.4.2 Virtual whiteboard

  1. Each student create an individual section in the virtual whiteboard. Use a pseudonym if you prefer anonymity.
  2. Groups: Feel free to delete old content from your group whiteboard (leave each other's individual whiteboards alone).
  3. Individuals: Consider using your whiteboard notes as study aids. You should periodically copy and paste your work into a Word document for backup purposes.

2.4.3 Discuss: Chapter 6, Introductory Provisions

In groups, use the virtual whiteboard to address the following (short answers are OK)

  1. Pages 65-66: Is there any substantive difference between Version 1 and Version 2?
  2. Pages 65-66: Does your group have a consensus about which of Versions 1 and 2 is easier to read?
  3. Page 65, first paragraph: How can a preamble bind the wrong party?
  4. § 6.2: When should a bold font be used? What's the point of doing so?
  5. § 6.2.1: When should all-caps be used? What's the point of doing so?
  6. Compare the all-caps name of the agreement in Version 1 on p.65 and the initial-caps ("nitcaps") name of the agreement at the bottom of p.67. Does your group have a consensus about which "looks better"?
  7. § 6.2.2: When might it be a really bad idea to use an "as of" date?
  8. Top of p.73: Why specify the state in which a corporate party is incorporated?
  9. Top of p.74: Think of a reason for reciting the locations of the parties' principal places of business? (Hint: Think litigation.)

2.4.4 Exercise: Stark Ex. 5-1 (selected portions)

First individually, then in groups, use the virtual whiteboard to draft only the following for Stark Exercise 5-1:

  1. The preamble
  2. The signature blocks
  3. The absolute minimum provisions needed to make the contract enforceable.

2.4.5 For Thursday, skim:


Use the virtual whiteboard (for now):

3.1 Introduction: Tues. Jan. 20

  • Name signs
  • Self-sort into three groups of four each, alphabetically; sit together
  • All introduce themselves

3.2 What to expect: Tues. Jan. 20

  • Peer instruction: Problem sets done in class by small groups on virtual whiteboard; it's a combination of Socratic method and (in-class) study groups
  • Study actual "in the wild" contracts such as Sheryl Sandberg's employment agreement with Facebook; Tesla's real-estate lease agreement with Stanford University; Continental-United Airlines merger agreement; others TBA
  • "In the news": Discuss recent developments
  • Course materials:
    • Common Draft clauses and commentary (a work in progress)
    • Tina L. Stark, Drafting Contracts, 2d ed.
  • Known no-class days: Last week of February, April 16. Makeup days TBA.
  • Homework: Comparatively little at first; more as the semester goes on. Collaboration is encouraged
  • Final exam: Take home, open book, open notes (NO collaboration)
  • Survey: Does everyone have a Google account? (For possible use of Google Docs)
  • Blackboard system experiments

3.3 Contracts "in the wild" – Thurs. Jan. 22


3.4 What are the minimum requirements for a contract?

3.5 What are some of the most important goals of a contract:

  • for the client?
  • for the lawyer?

3.6 What are the main component parts of a contract?

3.7 What are some "dangerous" clauses in a contract?

3.8 If the client will be doing multiple transactions with another party, how can the "admin" costs be minimized?

3.9 Paragraph organization


3.10 Numbers


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

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

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

  • Awkward: The quiz will contain ten to 12 questions.
  • Better: The quiz will contain 10 to 12 questions.

Spell out "million" for numbers ≥ 1 million. see, e.g., the merger agreement between United Airlines and Continental Airlines, which uses that style.

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

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

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

As one example, the merger agreement between United Airlines and Continental Airlines, which had high-powered law firms on each side of the table, did not use the archaic style, but instead used the better approach below:

  • Archaic: Three hundred million dollars ($300,000,000.00)
  • Better: $300 million
  • Dangerous: Three hundred million dollars ($250,000,000.00) — which is it?


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

3.11 Currency: Tues. Jan. 28

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

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

Abbreviations for other countries' currencies can be found at Wikipedia

3.12 Percentages: Tues. Jan. 28

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

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

3.13 Use industry-standard terminology (when possible): Tuesday Jan. 28

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. Why? For two reasons:

• First, someday you may 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 you do. 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 (and to be better able to spot errors) if you use terminology with which they're familiar.

3.14 Don't count on the spell checker: Tues. Jan. 28

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

3.15 D R Y — Don't Repeat Yourself: Tues. Jan. 28

Suppose you inadvertently cover the same subject in two different provisions in your draft contract. The odds are that at some point in the negotiation process, you'll revise one of the provisions but not the other. So then which provision are the parties supposed to follow — or a judge supposed to enforce?

3.16 Contract review mechanics: Tues. Jan. 28


Stark Chapter 28 (contract review & comment)

Stark Chapter 30 (ethics)

Common Draft, Redlining Representation, with my blog explanation (including linked posts)


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

3.17 Dangerous clauses

3.18 Signatures



  • "Signatures may be electronic" in the Common Draft clause collection (be sure to skim the notes).
  • E-SIGN Act, 15 USC § 7001 et seq.
  • The following sections of the Texas Uniform Electronic Transactions Act (UETA), Tex. Bus. & Comm. Code ch 322;
    • § 322.002 (definitions)
    • § 322.003 (scope)
    • § 322.005
    • § 322.007
    • § 322.012
  • Texas statute of frauds for sales of goods, Tex. Bus. & Comm. Code § 2-201


  • Stark Exercise 17-1 (signature)
  • Who should sign a contract, and why?

3.19 Post-signature changes to document, exhibits, etc.

3.19.1 Facts

Yesterday your client and "the other side" signed a contract that included several exhibits.

You have all signed copies of the contract in your possession and are supposed to send one fully-signed copy to the other side today.

You just noticed that one of the exhibits includes a significant typographical error.

3.19.2 Question: Just change it?

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


3.19.3 Question: What other options?

How else could you handle this situation?

3.20 Switched-out pages?

3.20.1 Facts

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

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

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

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

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

3.20.2 Question: Prevention?

How could you have prevented this from arising?


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


3.21 The Addams family wants to sign a contract while en route from Hawai'i

3.21.1 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.

3.21.2 Exercise: Draft the signature block

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

3.21.3 Question: Sign on April 1?

Why might the Widgets sales rep be so eager to get the contract signed on March 31? Could that pose a problem? What about just signing it on April 1 when the family gets back to Houston?

3.21.4 Question: Signature-delivery mechanics?

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

3.22 This diamond ring doesn't shine for him anymore

3.22.1 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.

3.22.2 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.

3.22.3 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.

3.22.4 Question: Paperless records OK?

Back when TexBling consulted you about setting up their on-line sales operation, should you have told them to be sure to save a hard-copy printout of Nick's "I agree" contract form to make it enforceable? Please explain your answer.

3.22.5 Suggested reading

3.23 Notarizing a document

3.23.1 Facts

Your client, Landlord, has negotiated a five-year commercial lease agreement for one of its office buildings. The tenant's lawyer wants the signers to have their signatures notarized. Landlord agrees to have the signatures notarized.

3.23.2 Question: Why ask for notarization?

Why might the tenant's lawyer want the lease agreement to be notarized? Would that be in your client Landlord's best interest?


3.23.3 Question: Notarize without a seal?

If your secretary can't find her notary seal, can she sign the notary certificate without one?


3.23.4 Question: Identifying the signer

What must your secretary do before signing the notary certificate to confirm that the signers are who they claim to be?


3.23.5 Question: Record of identification

Is the notary's certificate required to say anything in particular about the identity of the signer?


3.23.6 Question: What to do after notarizing?

What must your secretary do after notarizing the signature(s)?


3.23.7 Question: Attorney as notary?

If no notary is around, can you notarize the signatures as an attorney? Should you?


3.23.8 Question: Notarize remotely?

Surprise! The person who will sign the lease for the tenant has gone on a business trip to Kuwait and will FAX her signed signature page to you. Can your secretary, who is here in Houston, notarize that signature page?


3.23.9 Question: Notarizing in California

Another document in the transaction must be signed and notarized by an individual who's in California.

  • Is there anything special that's required for the notary certificate?
  • What downside risk does the notary have if the notary is asked to sign the certificate in the absence of the individual who's going to sign the document?


3.23.10 Question: Notarization in a foreign country?

Who in Kuwait could "notarize" the signature?


3.23.11 NOTES

3.24 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)

What was the primary warranty that Ziff-Davis supposedly violated, according to CBS?

At what point in the progress of the transaction did CBS conclude that Ziff-Davis wasn't in compliance with the warranty?

What legal options and practical options did CBS have when it discovered what it believed was an accounting problem?

What was Ziff-Davis's position as to whether CBS could assert a claim for breach of warranty?

What was CBS's position?

What did the NY Court of Appeals have to say about Ziff-Davis's position concerning CBS's claim for breach of warranty?

3.25 Generally accepted accounting principles (GAAP)

3.25.1 Question 7.1: Form 10-K

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

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

3.25.2 Question 7.2: Form 10-Q

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


3.25.3 Question 7.3: GAAP and the earnings process

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

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

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

RESOURCES: Wikipedia

3.25.4 Question 7.4: Significance of GAAP

Why do publicly-traded companies care about GAAP?

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

3.25.5 Question 7.5: GAAP in Europe

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



3.26 Representations

3.26.1 Question 8.1: Differences between rep and warranty?

RESOURCES: Reps and warranties

3.27 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?

3.28 A sales quotation for keychain split rings

3.28.1 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:


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.


Betty Boop


3.28.2 Question 9.1: "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.


3.28.3 Question 9.2: Sufficient detail?


  • 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.


3.28.4 Question 9.3: Formation of a contract?


  • 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.


3.28.5 Question 9.4: Federal E-SIGN Act applicability?

3.28.6 Question 9.5: 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.


  • Absence of specified place for delivery, Tex. Bus. & Com. Code § 2.308

3.28.7 Question 9.6: 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?


3.28.8 Question 9.7: 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.

3.28.9 Question 9.8: 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


3.28.10 Question 9.9: 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.


3.28.11 Question 9.10: Merchandise quality


  • 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.


3.28.12 Question 9.11: Stolen property


  • 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.?


3.29 Warranty-of-quality comparison: Honeywell vs. Honeywell

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

  • section 11 of its terms of sale, versus those in
  • section 18 of its terms of purchase,

on the following subjects:

  1. To whom does the seller make the warranty?
  2. For goods: To what extent is the intended use of the goods relevant?
  3. For services: To what quality standards will services conform?
  4. With what laws will the seller comply?
  5. How long does the Warranty Period last?
  6. Are the stated warranties the exclusive ones?
  7. How restricted are the remedies for breach of warranty?

3.30 Magnuson-Moss Act

3.30.1 Question 11.1: "Limited" warranties

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

3.30.2 Question 11.2: Warranty statements

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

3.30.3 Question 11.3: Implied warranty disclaimers

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

3.30.4 Resources

3.31 Warranty disclaimers in England


  • Your client, Seller, manufactures widgets.
  • Seller's CEO, while on a vacation in London, had the good fortune to make friends with a prominent British industrialist. Seller's CEO landed a big order to deliver 1 million widgets to the industrialist's company in Liverpool.
  • Seller's standard terms of sale includes:
    • a statement of limited warranties and remedies; and
    • the following statement: "ALL OTHER WARRANTIES ARE DISCLAIMED."


(a) Whose law applies?

(b) Suppose that English law applies. Will Seller's disclaimer be enough to disclaim all potential liability for implied statements about the widgets?

(c) Suppose that the U.S. Uniform Commercial Code applies. Will Seller's disclaimer be enough to disclaim an implied warranty of title?

(d) Could Seller's disclaimer language be improved?

3.32 Limitations of liability

3.32.1 Facts

Your client, Buyer, ordered a large quantity of widgets from Seller, which uses a standard terms-of-sale form copied essentially verbatim from the Honeywell terms of sale.

Seller, however, was unable to deliver the widgets on time. Your client, Buyer, had to "cover" the purchase by ordering rush delivery from another manufacturer.

To find the substitute widgets, Buyer had to spend a fair amount of time and money on, for example:

  • travel expenses to visit the other manufacturer's factory, and
  • testing of the other manufacturer's widgets to make sure they would meet Buyer's requirements.

3.32.2 Question 13.1: Reimbursement of cover expenses

Under § 13 of the Honeywell terms of sale and UCC 2-715(1), can Buyer recover the expenses mentioned above from Seller as part of its "cover" damages?

3.32.3 Question 13.2: Carve-outs from limitations of liability

In § 13 of the Honeywell terms of sale, why does the last sentence carve out personal injury or death?

3.32.4 Resources

3.33 14. Indemnities

3.33.1 Facts

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.

3.33.2 Question 14.1: Knock-for-knock indemnity enforceability in Texas?

Under Texas law, could a knock-for-knock indemnity agreement even be enforceable on these facts?

3.33.3 Question 14.2: Knock-for-knock indemnity enforceability in Louisiana?

Under Louisiana law, would a knock-for-knock indemnity agreement even be enforceable on these facts?

3.33.4 Question 14.3: Texas requirements

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?

3.33.5 Question 14.4: Conspicuousness

Under Texas law, how could you make an indemnity obligation "conspicuous"?

3.33.6 Question 14.5: Knock-for-knock indemnity drafting exercise

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.

3.33.7 Question 14.6: Defense obligation?

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 GC;
  • An employee of the subcontractor writes a letter to GC, asserting a claim that comes within the scope of the indemnity obligation;
  • GC spends some money on outside-counsel fees investigating the claim;
  • GC and the subcontractor employee reach a settlement agreement, with GC paying the employee a nominal sum;
  • The fees and expenses billed by GC's outside counsel for investigating the claim are not insignificant.


(a) Must the subcontractor reimburse GC for its outside-counsel fees and expenses?

(b) Would your answer be different if all of this were taking place in Los Angeles instead of Houston?

3.33.8 Resources

Indemnities and Defense in General

Knock-for-knock indemnities:

Texas indemnification law:

Anti-indemnity statutes:

Duty to defend:

3.34 15. Most-favored-customer pricing

3.34.1 Facts

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

3.34.2 Question 15.1: Most-favored-customer pricing — questions to ask

What business-type questions might you ask Seller before commenting on the most-favored-customer clause in the Buyer PO? (Suggestion: Read the materials listed under Resources, below.)

3.34.3 Question 15.2: Most-favored-customer pricing — response

How might Seller respond to Buyer about the most-favored-customer clause?

3.34.4 Question 15.3: Oracle's MFC breach

(a) What happened to Oracle when it breached its most-favored-customer clause with the U.S. Government (in its GSA contract)?

(b) What specifically did Oracle do that brought down the government's wrath on it?

(c) How much money did the whistleblower get for his trouble?

3.35 16. Insurance

3.35.2 Facts

You represent ChemCo, which owns and operates a chemical refinery in Pasadena.

ChemCo has a periodic maintenance shutdown scheduled for some of its equipment scheduled for July. ChemCo is interested in engaging Provider to do some of the maintenance work. Provider's workers would be coming onto ChemCo's site for this purpose.

3.35.3 Question 16.1 Coverage types

What types of insurance coverage should ChemCo ask Provider to carry for this purpose?

3.35.4 Question 16.2 Basis – occurence, or claims-made

Should ChemCo ask for Provider's policy to be an "occurrence" policy or a "claims-made" policy?

3.35.5 Question 16.3 Additional insured status — customer's position

Should ChemCo ask to be named as an additional insured on Provider's policy? Why?

3.35.6 Question 16.4 Additional insured status — provider's position

Would you expect Provider to push back in response to the additional-insured requirement? Why or why not?

3.35.7 Question 16.5 Waiver of subrogation

Should ChemCo ask for a waiver of subrogation?

3.36 Why or why not?

3.36.1 Question 16.6 E&O additional-insured status (in-class problem)


  • 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.

QUESTION: Would ChemCo actually be able to make claims against Provider's E&O policy?

QUESTION: 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).]

3.36.2 Question 16.7 Negotiation strategy for insurance clauses (in-class problem)

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

3.36.3 Question 16.8 Certificate


  • 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?

3.38 Amendments and waivers in writing

3.38.1 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."

3.38.2 Instructions

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

3.38.3 Questions

  • 18.1 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.

  • 18.2 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.

  • 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.
  • 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.)

3.38.4 Suggested reading

  • Amendments must be in writing


3.39 Amendments - unilateral

3.39.1 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.

3.39.2 Questions

  • 19.1 On the facts given, would the terms of service be enforceable? Explain.
  • 19.2 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.

3.39.3 Suggested reading

  • Electronic signatures
  • Amendments - unilateral


3.40 Attorneys' fees

3.40.1 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.

3.40.2 Questions

  • 20.1 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?)
  • 20.2 Same question, with California law applying.
  • 20.3 Same question, with Texas law applying.
  • 20.4 Same facts, but this time Seller sues Buyer and loses, and Texas law applies.

3.40.3 Suggested reading

  • Attorneys' fees


3.41 Assignment of employment agreement

3.41.1 Suggested reading

  • Assignment of Agreement

3.41.2 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.

3.41.3 Questions

  • 21.1 Can your friend assign the employment agreement, that is, hire someone to do her job for her?
  • 21.2 If instead the agreement were silent on the employee's right to assign, could your friend assign the agreement?
  • 21.3 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?
  • 21.4 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.)
  • 21.5 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?


3.42 Assignment of Mickey-Dee franchise agreement

3.42.1 Suggested reading

Common Draft assignment commentary (sorry, no time to get a link)

3.42.2 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.

3.42.3 Questions

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

3.43 23. Signed originals of Agreement

3.43.1 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.

3.43.2 Questions

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

3.43.3 Suggested reading

3.44 24. Interpretation - contra proferentem rule

3.44.1 Facts

  • You represent Buyer in negotiating a long-term master purchase agreement with Seller.
  • You draft a price-increase clause that limits Seller's permissible price increases to no more than the increase in CPI (and no more than once a year as well).
  • A year later, Seller says it is increasing its price by the percentage stated in a special CPI published by the U.S. Government specifically for the industry in which Seller and Buyer operate. You didn't know there 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.

3.44.2 Question

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

3.44.3 Suggested reading

  • Contra proferentem rule

3.45 25. Counsel representation

3.45.1 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 that the other side actually wasn't represented by counsel.

3.45.2 Question

How might a court analyze this situation?

3.45.3 Suggested reading

  • Counsel in negotiation


3.46 Backdating a contract at the end of the quarter

3.46.1 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.

3.46.2 Question: Backdate the signatures?

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

SUGGESTED READING: Backdating signatures

3.46.3 Optional question: Personal motivations for backdating?

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

  • financial incentives
  • non-financial motivations


3.47 Competitive statements

3.47.1 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.

3.47.2 Question

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

3.47.3 Suggested reading


3.48 Why long paragraphs are best (a satire)

Make this long paragraph more readable (but don't try to rewrite it substantively). Go for:

  • Short sentences
  • Short paragraphs
  • Short, single-topic paragraphs where possible


3.49 Entire agreement – or not?


3.50 The end-of-quarter purchase order

3.50.1 Facts

  • It is September

3.51 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.

3.51.1 Questions

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

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

3.51.2 Suggested reading


3.52 Dangers of ambiguity


3.53 Early neutral evaluation

3.53.1 Reading assignment

  • ENE - Early Neutral Evaluation

3.53.2 Questions

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

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

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

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

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

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


3.54 Escalation of disputes

3.54.1 Reading assignment

  • Escalation of disputes

3.54.2 Questions

33.1 Under the sample clause language, must the parties' CEOs get involved in escalating a dispute if lower-level managers can't resolve it?

33.2 When might it not be reasonable to expect the parties' CEOs to get involved?

33.3 How might the sample clause be rewritten with Question 33.2 in mind?

33.4 Is escalation automatic, or must there be some triggering event?

33.5 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."


3.55 Clause numbering can be a good thing (substantive issue: implied covenant of good faith)

3.55.1 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.

3.55.2 Suggested reading

  • Good faith and fair dealing – an implied duty?

3.55.3 Questions

34.1 Under this contract language (and without regard to what the law might say), does the Hospital have:

  1. a general duty to cooperate in good faith with the Contractor, or
  2. 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" ?

34.2 What would the answer be if Texas law applied?

34.3 What would the answer be if the UCC applied?

34.4 What would the answer be if the Restatement (Second) applied?

34.5 What would the answer be if English law applied?

34.6 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?

34.7 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?

3.56 [x]. Introductory paragraphs of a contract


3.56.1 Question: Minimum information needed?

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

3.56.2 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



3.57 Entire agreement / disclaimers


3.58 Early neutral evaluation


3.59 Independent contractors


3.60 Jury trial waiver

3.60.1 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.

3.60.2 Questions

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

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

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

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

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

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

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

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

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

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

3.60.3 Suggested reading


3.61 Confidentiality agreement

3.61.1 Facts

  • You represent Seller, Inc., which is considering signing a confidentiality agreement with a potential customer, Buyer, Inc.
  • The confidentiality agreement is substantially identical to this one from the Harvard Business School Web site.

3.61.2 Question 41.1 Everything is confidential?

Are you OK with the end of paragraph 1(a), which says (extra paragraphing added):

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.

3.61.3 Question 41.2 Whose information should be protected?

In the blanks at the beginning of the agreement for "Disclosing Party" and "Recipient," what should be filled in? (We will divide the groups into negotiating teams.)

3.61.4 Question 41.3 Time limit on protected disclosures?

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

3.61.5 Question 41.4 Subpoenas, etc.

Would you object to paragraph 1(b)? Why?

3.61.6 Question 41.5 Remedies

What do you think of paragraph

3.62 (We'll divide the class into Seller and Buyer teams again.)


3.63 The Rick's real estate deal

3.63.1 42.1 Corporate forms

What's really going on here – who will be operating the business when the dust settles, and who will own:

  • the dirt
  • the building

(Careful: The language isn't a stellar example of clarity.)

3.63.2 42.2 Lease agreement

Lines 40-41: Is it necessary (or a good idea) to incorporate the lease agreement by reference?

3.63.3 42.3 General warranty deed

What's a general warranty deed?

What other types of deed might Seller have wanted to use — and why?

3.63.4 42.4 Title insurance

  • What's the purpose of requiring the Seller to pay for title insurance? (Hint: See lines 230 et seq.)
  • If a problem arises with the title, is the Seller off the hook just because there's a title insurance policy?

3.63.5 42.5 Due diligence

  • What opportunity does the Purchaser have to conduct due diligence? (Hint: See lines 242 et seq.; also Article IV.)
  • FACTS: A building inspector sent by the Purchaser accidentally starts a kitchen fire that does severe damage to the building. QUESTION: What are Seller's options?

3.63.6 42.6 Earnest money

How does "earnest money" work? Specifically:

  • When does earnest money have to be paid?
  • Under what circumstances is it refundable to the buyer?
  • What happens if the deal falls apart?
  • Is the buyer automatically off the hook if the seller keeps the earnest money?


3.64 Your cousin George, the job-hunter

3.64.1 Facts

You get a call from your cousin George, who lives in Dallas. He's just about to graduate from SMU with a business degree, but he's really an up-and-coming fashion designer. That's a brutally-competitive industry, but George's designs have been attracting some attention.

After interviewing with several fashion houses, George has been offered a job by a mid-tier company in NYC, which is willing to let him work remotely from Dallas. The company wants him to sign an employment agreement that uses the Common Draft Model Employment Agreement provisions.

George is also very tech-savvy. For several years, to help pay for his tuition and other bills, he has had a small consulting practice as an independent Web-site developer, building Web sites for small businesses.

George tells you that he has an idea for a dress design that he thinks could be a big success. He wants to keep that idea to himself for awhile, just in case the job doesn't work out.

The fashion house's offer letter to George says he will get medical and dental insurance. That's important to George because his fiancee has a pre-existing health condition, and when they marry this coming summer, he wants to be sure she gets covered.


The actual agreement document that the fashion house wants George to sign says that New York law will apply.

3.65.1 Pre-employment questions

43.1 George would like to continue doing Web-design work, on the side, at least until he gets a sense for how a fashion career will work out for him. How would you advise him? See §§ 2(f), 3(b).

43.2 If George were to sign the employment agreement, would his desire to keep his dress-design idea to himself pose a problem? See §§ 2, 7.

43.3 What job security would George have under the employment agreement? See §§ 5, 10.

43.4 Given that George would be living and working in Dallas, how likely is it that a court would apply New York law? (Hint: Which court might be faced with that question, and why that court?


3.66 Cousin George is unhappy with his job

(This is a continuation of "Your cousin George, the job-hunter")

3.66.1 Facts

It's now November. You see George at your extended family's Thanksgiving dinner, and ask him how the new job at the NYC fashion house (working from home in Dallas) s going.

George says he isn't especially happy with his job.n For starters, he's been having "creative differences" with his boss.

For another thing, effective January 1, George's company will be changing its health insurance program, so that employees now have to pay 80% of the premium for their coverage. In effect, this means a significant pay cut for all employees.

A college friend of George's has started a new fashion house in Dallas. She has urged George to come work for her as chief designer. This would be a risk for George, but with some significant upside potential, both financially and career-wise.

3.66.2 Questions

44.1 George wants to know if he has any legal rights under his employment agreement with the NYC fashion house, in connection with the health-care premium increase. How would you advise him? See §  4.

44.2 George wants to know how much of his work he can take with him. How would you advise him? See § 7, 8, 11.

44.3 Suppose that George gives two weeks' notice to the NYC fashion house. Can the company immediately fire him and not pay him for the remaining two weeks? Are they likely to do that? See § 10; also consider the question of unemployment benefits.

44.4 Suppose the NYC fashion house does fire George. He calls you to say that they are insisting that he do an exit interview by Skype video conference. He doesn't want to do that because he's too busy with his new company. What should you tell him? (Hint: Consider how George's refusal might come across to a judge — and is it likely that a judge might be involved any time soon?)


3.67 Ron Johnson gets fired from JC Penney

3.67.1 Reference

Ron Johnson employment agreement, at

3.67.2 Questions

44.1 Could Johnson have any legal rights to contest his firing?

44.2 How long a vesting period did Johnson's restricted stock units (RSUs) have?

44.3 What special benefits, over and above those available to ordinary employees, did Johnson get under his contract?


3.68 Redlining


3.69 Reliance on redlining


3.70 Reliance on external representations disclaimed


3.71 Signers' authorization to sign


3.72 Alice's scrambled eggs

Alice is a restauranter. She's developed a blend of herbs and spices that she uses in cooking scrambled eggs. Alice's scrambled eggs are very popular with the public, drawing almost as much publicity as celebrity cupcakes.

Alice consults you about legal protection for this goose that is laying golden eggs for her. What would you tell her?

Bob is another restauranter. He's seen the news coverage of Alice's scrambled eggs, and he'd love to get some of that business himself.

At a restauranter's convention, Bob sees Alice chatting with several other people in the exhibit hall. He walks over, introduces himself, and joins the conversation. A few minutes later, Bob says, "Say, Alice, what's your secret to those scrambled eggs of yours?"

Alice excuses herself, calls you, relates her conversation with Bob, and asks what she should do. What might you tell her?

4 Important Course Information (2015)

CONTACT INFO: E:; O: (713) 364-6545 (also forwards to my cell); my About page

MY LAST NAME: is pronounced "Tate"; cf. Speaker of the House John Boehner.

YOUR EMAIL ADDRESS: On the first class day I will be asking for your email addresses; please provide an address that you check regularly.

EXTRA FIVE MINUTES: Because the class period ends just before lunch time, we will meet on Tuesdays and Thursdays from 10:30 a.m. to 11:50 a.m. (vice 11:45 a.m.). The extra five minutes will give us not quite two extra classes worth of lecture time that can be used in lieu of make-up class periods. To the extent that we end up not needing make-up periods, we'll end the course that much earlier.

BOOK: The required text is Tina Stark, Drafting Contracts: How and Why Lawyers Do What They Do, 2d ed. (Aspen Publishers 2013). NOTE 1: We will not be covering the chapters in order. NOTE 2: On some issues Prof. Stark's views are not the same as mine, so don't blindly accept what she says (nor for that matter what I say). We will also be making extensive use of the materials in (or linked to in) this Web page. NOTE 3: Professor Stark has posted downloadable versions of certain parts of the book.

FIRST-DAY READING: Stark chapters 1 and 27.

GRADING POLICY: Grades for the course will be based on a 1,000-point scale (curved as required by school policy), as follows:

  • 100 points automatically earned for excellent class attendance;
  • 400 points from the (pass-fail) homework assignments;
  • 500 points from the final exam; and
  • the possibility of a half-point increase in the final grade for outstanding class participation;

all as discussed below.

ATTENDANCE: Because we will be doing 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. Moreover, ABA accreditation rules and school policy require attendance at 80% of the class meetings for each course. We have 28 class meetings; rounding to the nearest whole number of classes, a student may miss a maximum of six class periods.

GRADE POINTS FOR ATTENDANCE: A student who attends a minimum number of class periods will automatically earn points out of the 1,000-point total for the course, as follows:

26 or more 100
24 to 25 50

PASS-FAIL HOMEWORK ASSIGNMENTS: There will be a total of eight relatively-short written homework assignments, counting for a total of 400 points out of a possible 1,000 for the course. I will mark up and return your homework assignments, but won't grade them other than pass-fail, that is, either zero points or full points for that particular homework assignment, based on whether the homework has been turned in and appears to reflect a good-faith effort. WARNING: In one past class, a student got a (low) passing grade on the final exam, but failed the course because the student had turned in almost none of the homework assignments.

To preserve homework anonymity, use your Winter 2015 exam number instead of your name. If you don't know it now, find it out.

Homework assignments are to be turned in not later than the beginning of the announced class periods. I will not accept late assignments in the absence of good reason; in that regard, I'm reasonable but not a pushover.

We will review each homework exercise in class, in many cases using group discussion, but not necessarily immediately after it's turned in.

Students who put significant effort into the homework will learn the most and generally perform well in the course. The reverse is also true.

HOMEWORK COLLABORATION: Unless I say otherwise in a particular case, feel free to collaborate with your classmates, and/or to consult anyone else except me, in doing homework and/or in-class exercises. (That's how it often happens in law firms and companies.) Some students might be tempted to free-ride on their classmates' work, but that tends to be a self-correcting problem, inasmuch as collaboration is entirely voluntary. If you work in a team to do a homework assignment, I suggest that one team member turn in one copy of the completed assignment with all team members' exam numbers on it.

FINAL EXAM: The final exam will be take-home, open-book, open-notes, counting for 500 points out of a possible 1,000 points for the course. The final exam will be distributed no later than the end of the last class period on Thursday, April 30 and is due at the library no later than 12 noon on Thursday May 14, giving you two weeks to complete it. The exam should take roughly four to six hours to complete. Late exams will not be accepted without the specific approval of the Associate Dean.

GRADING CURVE: For a class this size (under 20 students), law school policy requires that the average of the final class grades must fall between 2.8 and 3.2. That seems to happen naturally; I don't recall that I've ever had to actually curve the final grades to achieve that average.

CLASS PARTICIPATION BUMP: As permitted by law-school policy, I will increase a student's grade by one-half grade level for outstanding class participation, e.g., from a B to a B-plus, assuming that this doesn't cause the class average to exceed the maximum of 3.2. Here's how it works administratively: I send the Registrar a list with the final course grade for each exam number. At the same time, I send the Registrar a list of the names of students who are to get a one-half grade increase for class participation, ranked in order of priority as subjectively and finally determined by me. The Registrar then combines these two lists, implementing as many of one-half grade increases as will not cause the overall class average to to bust out of the maximum. I do not reduce grades for sub-standard participation (as long as you're here).

NAME "TENTS" FOR DESKS: At the beginning of the first class period, I will hand out individual paper name signs for each student to display at his or her desk at each class period. (I got the idea when guest-lecturing at the Jones Graduate School of Business at Rice University.)

RECORDINGS OF 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.

OFFICE HOURS – AT SUBWAY BY APPOINTMENT: Lecturers don't have offices, and I've never had a student take me up on my offer to do office hours by Skype video. I'm happy to meet one or more students after class at the Subway in the student lounge on the lower level of the Law Center, as long as you don't mind my eating while we talk.

COMPUTER USE: Computer use in class is not just encouraged but required; you will need in-class Web access for some of the exercises. If this will be a problem, be sure to contact me well in advance.

KNOWN ABSENCES: I am scheduled to be out of town on business the week of February 23; I also have a previous commitment out of town on April 16.

COURSE GOALS: The primary goal of this course is to help students prepare for assignments they will likely see throughout their careers: drafting, reviewing, analyzing, explaining, and negotiating contracts for clients, always with an eye on potential business and litigation consequences. We will focus on:

  • equipping students to spot important substantive issues in the legal- and business provisions they will see in contracts; and
  • style points that serve as the hallmark of a skilled professional.

My informal personal goal is this: When a (former) student gets to a law firm or an in-house law department, I want his or her supervising attorney to be impressed with how un-rookie-like the new lawyer is.

Our main areas of focus will be:

  • Substance: The business and legal issues that commonly arise in contract drafting- and negotiation projects.
  • Strategy: Thinking ahead a few moves on the chessboard, trying to anticipate what could happen and what the client might want
  • Style: The things supervising partners, clients, and the other side's counsel will expect (consciously or otherwise).
  • Mechanics: How to move a contract negotiation from start to finish, as smoothly as the circumstances will allow.
  • Self-protection: Avoiding career unpleasantness; keeping your firm (and your malpractice carrier) happy.

5 Remaining Class Plan & Homework Assignments (from 2014)

Virtual whiteboard – copy and paste in-class exercises so the class can see them.

Tues 4/22 Stark 23-2 YES Real estate leases – Tesla Motors lease K posted (updated) Tesla lease agreement; Signing a Business Contract freebie
Thurs 4/24 None N/A Ethics; review LAST DAY OF CLASS
Tues 3/25 None N/A Insurance basics; Limitations of liability; Numbers PS 22: Mickey Dee franchise;
Thurs 3/27 None N/A Payments & taxes; Audits PS 16: Insurance; PS 13: Limitation of Liability
Tues 4/1 Stark 14-2 YES Review past homework; Termination Stark 14-1; PS 11: MagMoss Act; PS 15-3
Tues 4/8 Problem Set 11 No Review homework; real estate agreements (look over) Diagram real-estate timeline
Thurs 4/10 Stark 19-2 No Review homework; real estate agreements (continued) Real estate problem set 42; PS 15-3; Stark 15-7
Fri 4/11 None N/A Review homework; general provisions (read clauses & commentary) Recording of lecture (IT Dept will take down after semester)
Tues 4/15 Stark 19-4 YES Model employment agreement provisions Lecture notes & exercises
Thurs 4/17 Stark 20-6 No Services agreements and Subcontracting in Common Draft Employment PS: 43, 44, and 45; Stark 15-7; FINAL EXAM POSTED

6 Cheat Sheet (in progress)

6.1 Insurance

6.1.2 Issues

  • What types are requested?
    • CGL – Commercial General Liability (AI status?)
    • E&O – errors & omissions (no AI status)
    • Automobile
    • Worker's comp
    • Employer liability
  • Occurrence, or claims-made?
    • "Tail" coverage
  • Certificates – who provides?
  • Certificates
    • Plain certificate: No third-party rights
    • Endorsement: Additional-insured coverage
    • Endorsement: Notification endeavor
  • Additional-insured coverage
    • Draws down policy limits
    • No insured-vs-insured coverage

6.2 Limitations of liability

6.2.2 Issues

  • Consequential damages?
  • Damages cap?
    • Cap at relevant insurance coverage?
  • Exclude "incidental" damages?
  • Exclude direct damages as well as indirect?
  • Carve-outs
  • Negotiate risk-by-risk?

6.3 Term; Termination

  • Termination for breach
    • Notice & cure period
    • Problem phrasing: "Non-breaching party" can terminate?
  • Automatic termination?
  • Evergreen clauses
    • "Extension" vs. "renewal"
  • Termination for convenience
  • Termination for insolvency, etc.
    • U.S. Bankruptcy Code – ipso facto clause unenforceability
  • Special case: Employment agreements (Martha Stewart, Sheryl Sandbert)

6.4 Amendments; Waivers

Amendments in writing Unilateral amendment rights

6.5 Dangerous Situations

  • No-hire provisions
  • FCPA
  • Export controls
  • Side letters
  • Round trip sales transactions

6.6 Dispute Management

  • Arbitration (including Baseball)
  • Escalation
  • Fee-shifting to encourage settlement
    • Prevailing party ("loser pays") fee award
    • Rejector of settlement offer pays offeror's fees if not bettered at trial

6.7 Business Operations

  • Audits
    • Advance notice
    • Working space
    • Cooperation
    • Confidentiality
    • How often?
  • Confidentiality
    • Which party has confidentiality obligation?
    • Marking requirement?
    • Expiration?
    • Return or destruction?
  • Site rules
  • Status-review Conferences


6.8 Payments & Taxes

6.8.2 Issues

  • Invoicing requirements
    • Form requirements
    • Deadlines
  • Net 30 days? Net 45? 2/10 net 30?
  • Net from when – invoice date, or invoice-receipt date?
  • What if there's a dispute about the amount due?
  • COD after late payments?
  • Stop work if payments late?
  • Pay when paid? Or is the payment obligation independent?
  • Offsets – yes, or no?
  • Expense reimbursement – compliance with policies required?
  • Invoices – required? Why?

6.9 Audits

6.9.1 Reading

6.9.2 Issues

  • Record-keeping and -retention requirements
    • Sources of record-retention requirments
  • How much advance notice of an audit?
  • What information is auditable?
  • Cooperation & facilities
  • Confidentiality of audit report?
  • Limited information in audit report?
  • Fee-shifting?

6.10 Interest on past due amounts

6.10.1 Issues

  • What's the maximum rate? (Usury laws)
  • When can it start?
  • Is it worth bothering?
  • What if usury laws are violated?

6.11 Model employment agreement

1. Definitions

"Company Business" - sets up the noncompete provision (section 10). Note the "demonstrable preparation" for future business.

"Company Group Member" - allows for greater corporate-affiliate flexibility.

"Company Innovation" - drafted to comply with state law in a variety of states; see note 6 on page 2 of this diagram

"Confidential Information" - note the three carve-outs (commercial NDAs have two more).

"Designated Owner" – another provision for greater corporate affiliate flexibility.

"Employment Relationship" – this will come into play in the termination provisions.

"Innovation" – pose a question – Bratz dolls case; correlate with 2(g), "Knowledge."

2. Employee duties

2(a) Position: What if the offer letter says "we're hiring you for X position"? (See also 13(d), "Entire Agreement.")

2(a) What if the employee later claims, "you orally told me I'd be promoted in three months"? (See also 13(d)(2).)

2(b) Best Efforts: Why bother, if it's "employment at will"?

2(c), (d) - work hours, travel: Why include this?

2(e) Compliance: Why?

2(f) Employee wants to write a book in her spare time – can she? (See also 3(b).) Who keeps the royalties, if any? (See 7, Innovations.)

2(g) Bratz dolls case: Mattel employee has an idea while employed, doesn't say anything about it, pitches to a competitor – his Mattel employment agreement talks about "inventions." (See also 7(b).)

Back to 1 - "Confidential Information" – if company doesn't mark information as confidential, can employee do whatever she wants with it? Why or why not?

4(b) Compensation schedule: Maintain flexibility for the company to change its payroll policies (but watch out for legal requirements).

4(b) Note the phrase "comparably-situated employees."


  • Employee gets fired on December 15.
  • Bonuses are to be declared by Board in January and paid after that.
  • Employee's target bonus was to be $10K bonus.

Discuss the company's position (use the virtual whiteboard). Consider not just the "legal" position but also the practical and PR aspects (but remember that your job is mainly to give legal advice).

4(g) Expense reimbursement – note the reference to company policies and guidelines to make life easier for the accounts-payable people (customers often impose this on suppliers, too).

6(b) Company policies not contractual.

8. Confidentiality obligations – apply as a matter of law in U.S. jurisdictions.

8(c) Confidential information of others – why include this?

10 Termination. QUESTION: Employee gives 2 weeks notice – can the employer tell the employee, go now?

10(a): QUESTION: Why terminate the Employment Relationship, vice the Agreement?

10(c) Final compensation – statutes might compel immediate payment, without withholding.

10(e): QUESTION: Why require the employee to participate in an exit interview?

11 Noncompetition covenant – Texas, California, Massachussetts, other states (AZ, WA).

11(f) Consent to new employment: QUESTION: Why include this clause?

11(g), investments, etc., is a standard exception.

12 Arbitration: Fed. Arb. Act.; state laws; class action waivers

13(b) Unilateral amendments – dangers

13(e) Equitable relief – common to ask for, but dangerous

13(f) Governing law – enforceable?

13(j) Notices: QUESTION: What's the best address for the company to use to notify the employee by mail?

13(m) Signatures: QUESTION: What if the company doesn't countersign the agreement?

6.12 Real estate

6.13 Real estate

6.14 Employment agreements

Look over:

Problem sets 43, 44, and 45

6.15 Numbers

6.15.1 Reading

Stark Chapter 22

6.15.2 Issues

  • Don't use both words and numbers. WRONG: "ten (10) days"
  • Words for ten or less; numbers for 11 and up.
  • $4.95 [cents included]
  • $250 [leave off .00]
  • $4 million [easier to read than $4,000,000]
  • Don't start a sentence with a number. WRONG: "15 days after the Start Date …." RIGHT: "On the date 15 days after the Start Date …."
  • Use a non-breaking space, e.g., "section 5.2"

6.16 Negotiation Process

  • Formatting for easy review
  • Redlining of changes
  • Redlining representation

7 Professor Stark's New Two-Credit-Hour Syllabus Template

NOTE FROM DCT: The topics listed below are not the official assignments for our class. They represent Professor Stark's new template syllabus for a two-hour course using the second edition of her book, which were very recently posted in the "Professors" section of the publisher's Web site. (Due to ongoing health issues, Professor Stark has not yet completed a second-edition template syllabus for a three-hour course such as ours.)

Our reading- and homework assignments will largely follow the general progression set forth below, but:

  • We will cover some topics in a different sequence than they are listed in the Stark syllabus template.
  • I will be inserting other readings and problem sets as the semester goes on.
  • I will also attempt to take into account the pace at which our class is progressing, given that every group of students is different.

NOTE ABOUT WRITING IN BOOK: Some of the items in Professor Stark's syllabus template suggest that you write answers in your book. If you prefer to keep your book pristine for possible resale, I won't mind if you make a photocopy of the relevant page(s) and write your answers there instead.

7.1 Class

7.1.1 Reading Assignment

  • Chapter 6 – Introductory Provisions.
  • Chapter 18 – Legalese.
  • Chapter 19, § 19.4 – Numbering Systems.
  • Chapter 27, § 27.6.2 – Using a Precedent.
  • Chapter 28, § 28.3 (Contract Analysis: How to Read and Understand a Contract Provision) and Appendix (Framework for Contract Analysis Long Form)

7.1.2 Drafting Assignments

  • Exercise 5-1. (Use House Purchase Agreement, Document 1, Chapter 32 as a precedent.)
  • Finish Exercise 5-2, if not completed in Class 1.
  • Exercise 5-4, if not completed in Class 1. (Write answers in textbook.)
  • Exercise 6-1. Assume that you will have to draft a preamble without looking at any resource other than this Top Ten List.

7.2 Class

7.2.1 Reading Assignment

  • Chapter 7 – Definitions and Defined Terms.
  • Chapter 8 – Action Sections.
  • Chapter 16, § 16.2.1 – Assignment and Delegation.
  • Chapter 32, Document 3 – Assignment and Assumption Agreement. Try to answer questions by notating agreement.
  • Chapter 32, Document 4 – The Action Sections of an Asset Purchase Agreement
  • Chapter 32, Document 5 – Bill of Sale
  • Chapter 19, §19.4 and Appendix. (Overview of numbering systems and tabulation; we’ll study in detail later in the semester.)
  • Appendix, Escrow Agreements, pp. 555-556.
  • Escrow Agreement, pages 91-93. (Read complete agreement and identify the following parts: preamble, recitals, words of agreement, subject matter performance provisions, and endgame provisions.)

7.2.2 Drafting Assignment

  • Exercises 6-4 and 6-5.
  • Exercises 7-1, 7-2, and 7-4. (Submit Exercises 7-1 and 7-2. Mark the answer to Exercise 7-4 in your book.)

7.3 Class

7.3.1 Reading Assignment

  • Chapter 9 – Representations and Warranties.
  • Chapter 10 – Covenants and Rights.
  • Chapter 11 – Conditions.
  • Chapter 12 – Discretionary Authority and Declarations.
  • Chapter 13 – Will and Shall.
  • Chapter 14 – Drafting the Contract Concepts – A Summary Chart.

7.3.2 Drafting Assignment

  • Exercise 8-2.
  • Exercise 8-5
  • Exercise 10-2. (Note answer in book.)
  • Exercise 10-3
  • Exercise 11-3, 11-4, and 11-6 (Submit)
  • Exercise 12-1. (Note answer in book.)

7.4 Class

Drafting the Action Sections. Continued.

Drafting Representations and Warranties, Covenants and Rights, Conditions, Discretionary Authority, and Declarations. In this unit, we turn to the multiple issues inherent in drafting representations and warranties, covenants, conditions, discretionary authority, and declarations.

7.4.1 Reading Assignment

  • Chapter 9 – Representations and Warranties.
  • Chapter 10 – Covenants and Rights.
  • Chapter 11 – Conditions.
  • Chapter 12 – Discretionary Authority and Declarations.
  • Chapter 13 – Will and Shall.
  • Chapter 14 – Drafting the Contract Concepts – A Summary Chart.

7.4.2 Drafting Assignment

  • Exercise 8-2.
  • Exercise 8-5
  • Exercise 10-2. (Note answer in book.)
  • Exercise 10-3
  • Exercise 11-3, 11-4, and 11-6 (Submit)
  • Exercise 12-1. (Note answer in book.)

7.5 Class

Drafting Representations and Warranties, Covenants, Conditions, Discretionary Authority, and Declarations. Continued.

Drafting the Endgame Provisions and Signatures.

Client Memoranda

7.5.1 Reading Assignment

  • Chapter 15 – Endgame Provisions.
  • Chapter 17 – Signatures.
  • Chapter 32, Document 7 – Drafting Client Memoranda

7.5.2 Drafting Assignment

  • Exercise 14-1.

Additional Chapter 14 exercises to be assigned in previous class.

  • Exercise 15-4.
  • Exercise 15-5.

7.6 Class

Drafting Clearly and without Ambiguity. Articulating the agreement of the parties is the goal of drafting contracts. In this unit, we explore the drafting problems that impede the realization of this goal as well as ways to cure the problems.

7.6.1 Reading Assignment

  • Chapter 19 – Clarity through Format.
  • Chapter 20 – Clarity through Sentence Structure.
  • Chapter 21 – Ambiguity.

7.6.2 Drafting Assignment

  • Exercise 19-1.
  • Exercise 21-4 (Mark in book.)

Due, Friday, March 7, 2014, no later than 5:00 p.m. - Exercise 31-1. Redraft of the Car Purchase Agreement, along with accompanying memo to the client.

7.7 Class

Drafting Clearly and Without Ambiguity. Continued.

7.7.1 Reading Assignment


7.7.2 Drafting Assignment

  • Exercise 19-4.
  • Exercise 19-5.
  • Exercise 20-2.
  • Exercises 21-5, 21-8, and 21-11. (Submit all.)

7.8 Class

Drafting Numbers and Financial Provisions. Drafting financial concepts is critical to memorializing a deal accurately. This unit focuses first on how to draft mathematical formulae, including those that rely on accounting concepts.

A Potpourri of Other Drafting Considerations. Here, we will look at technical drafting points that did not fit neatly into our earlier classes.

Organizing a Contract and its Provisions. Through lecture and in class exercises, you will learn how to organize an agreement for which there is no precedent.

The Drafting Process. Finally, we will consider the drafting process from the initial consultation with the client to the drafting of the final agreement.

7.8.1 Reading Assignment

  • Chapter 22 – Numbers and Financial Provisions.
  • Chapter 23 – A Potpourri of Other Drafting Considerations.
  • Chapter 26 – Organizing a Contract and its Provisions.
  • Chapter 27 – The Drafting Process.

7.8.2 Drafting Assignment

  • Exercises from Chapter 21, as assigned in class.
  • Exercise 31-5.
  • Exercise 31-6.
  • Exercise 23-2. (Note answers in book.)

7.9 Class

Adding Value to the Deal. This class focuses on the lawyer’s role as business counselor. You will learn

• how to look at a deal from the client’s business perspective; and • • how to add value to a transaction by identifying business issues that are buried in the principals’ deal. •

7.10 Class

Reviewing and Commenting on a Contract. You will not always be the drafter of a deal’s contract. Therefore, to protect and advance your client’s interests, you must know how to analyze and comment on the other side’s drafts. In this class, you will begin work on the Carrie Richards contract, which you will review, comment on, negotiate, and redraft.

7.10.1 Reading Assignment

  • Chapter 28 – How to Review and Comment on a Contract.

Materials to be distributed.

7.10.2 Drafting Assignment

  • Exercise 21-4.
  • Exercise 31-7.
  • Exercise 28-1. Complete Steps 1 through 3. Be prepared to discuss the business issues in class.

7.11 Class

Reviewing and Commenting on a Contract. Continued.

7.11.1 Reading Assignment


7.11.2 Drafting Assignment

  • Exercise 28-1 – Mark-up the contract from your client’s perspective. Prepare both a clean and marked copy. Draft an accompanying memo to the other side.

7.12 Class

Drafting the General Provisions. The general provisions include the following clauses: choice of law, anti-assignment, severability, waiver of jury trial, no oral amendments, merger, and notices. Drafters often give short shrift to these provisions because they are at the end of a contract and thought of as “boilerplate.” They are, however, more than mere housekeeping rules. Through class discussion and exercises, you will learn the business terms and legal issues that a drafter must address and analyze when drafting each of these provisions.

Amendments, Consents, and Waivers. In this unit, you will learn how to draft the documents that change or amplify a deal's original terms.

7.12.1 Reading Assignment

  • Chapter 29 – Amendments, Consents, and Waivers.
  • Chapter 16 – General Provisions.

7.12.2 Drafting Assignment

To be assigned.

7.13 Class

Drafting Ethically. In this class, we will work through a series of exercises that raise ethical issues that can arise when negotiating and drafting contracts.

7.13.1 Reading Assignment

  • Chapter 30 – Ethical Issues in Drafting.