Contract Drafting (Spring 2020)

By D. C. Toedt III
Attorney & arbitrator — tech contracts & IP
Adjunct professor, University of Houston Law Center

Updated Wednesday January 22, 2020 17:22 Houston time

Here are links to:

• The Syllabus (PDF)

• The TANGO Terms 2020A course book (PDF, 600-plus pages)

• The virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section )

1 Class plan - Day 3 (Wed. Jan. 21)

1.1 Review of reading & last week

In your groups, in the virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ), list some of the things you found in the reading, or in last week's discussion, that were one or more of the following:

  • surprising;
  • memorable; and/or
  • important

1.2 Ambiguity and traffic signs

See this sign.

Better: This sign

Better still: This sign

1.3 Canvas accounts

I use the Canvas system for quizzes. Please do the following:

1. sign up for a (free) Canvas account at https://canvas.instructure.com/register_from_website; then

2. sign up for this course on Canvas at https://canvas.instructure.com/courses/1814046

1.4 From the real world: Termination of a finder agreement

Scan through this finder agreement.

QUESTION: Can "Company" unilaterally terminate the agreement, i.e., fire "Advisor"? What's the best way?

1.5 Read-along lecture: Titles, preambles, backgrounds

From the Tango Terms:

• Titles (page 599)

• Preambles (page 606)

• Background of the Agreement (page 628)

1.6 Demonstration: Drafting problems with a contract

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

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

QUESTIONS:

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

DCT COMMENTS:

  1. "Within thirty (60) days …" is a mismatch, illustrating the reason for the D.R.Y. (Don't Repeat Yourself) principle.
  2. "Within 30 days of the close …" is ambiguous — it could mean within the 30 days preceding the end of the quarter.
  3. In the first phrase, it should be "… days of the close of the previous quarter term.
  4. "Quarter term" is not a conventional phrase — consider "calendar quarter," or perhaps "fiscal quarter," instead.
  5. "ABC shall provide XYZ with a revenue report" is OK, and some practitioners prefer it, but "ABC will provide" would be softer and more collaborative-sounding.

DCT REWRITE:

(a) Each quarter, ABC will provide XYZ with a revenue report. The revenue report is to state the following:

(1)     the total amount of Data Revenue and Software Revenue obtained by ABC during the referenced quarter term,

(2)     minus any associated costs or expenses and customer returns or refunds.

Each such report is referred to as a "Revenue Report."

(b) Each Revenue Report is due no later than 30 days after the close of the previous quarter term.

1.7 Drafting exercise: Title, preamble, signature blocks

For the MathWhiz-Gigunda "deal," draft a title, a preamble, and signature blocks.

1.8 Ambiguity exercise: Success

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

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

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

COMMERCIAL LEASE

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

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

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

Term: Five (5) years

Scheduled Date for Delivery of Premises: August 1, 2007

Commencement Date: August 1, 2007

Expiration Date: July 31, 2012

Base Rent:

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

QUESTIONS FOR CLASS DISCUSSION:

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

2 Class plan - Day 1

2.1 Course startup

  1. Student introductions:
    • Name
    • 2L? 3L? LLM?
    • Career intentions
    • Undergraduate school & degree
    • Work experience
    • Previous contract experience
  2. First in-class exercise: Where did Professor Toedt go to law school? Reason: It's a good idea to look up the people on the other side of a contract negotiation — or for that matter, anyone else you'll be dealing with. Google and LinkedIn are extremely useful for that purpose.
  3. Read-along lecture: Course info
  4. Email addresses in virtual whiteboard ( 6:00 p.m. section | 7:30 p.m. section ) for a Google Groups list
  5. PSA requested by the University: Counseling is available (see the course book)

2.2 Exercises

2.2.1 Streamlining the sentence: The team meeting

In your small groups, discuss how to trim out the "fat" from the following sentence:—

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

After: ???

2.2.2 Ambiguity exercise: Lola, by The Kinks

From The Kinks' famous song Lola (YouTube):

Well I'm not the world's most masculine man
But I know what I am and I'm glad I'm a man
And so is Lohhh-lahhh
Lo lo lo lo Lohhh-lahhh. Lo lo lo lo Lohhh-lahhhh

(Emphasis added.)

QUESTION: When the artists sing, "And so is Lola," what exactly is Lola?

EXERCISE: In your small groups, discuss how this could be clarified (don't worry about rhyme or meter).

2.3 Thumbsucker questions: Goals, etc.

For discussion, in small groups:

  1. In your practice, do you expect you'll be doing more drafting of contracts, or more review of drafts that others have prepared? Explain.
  2. What do you think are the main goals of a contract drafter or reviewer?
  3. In abstract terms, what do you think is the client's overarching goal in negotiating a contract?
  4. What do you think is likely to be the worst bottleneck in getting a contract to signature?
  5. What kind of contract language do you think business lawyers should aspire to write?
  6. TRUE OR FALSE: A contract drafter should strive to anticipate and address all harms to the client that might occur in the course of the parties' relationship.

2.4 Read-along lecture

2.5 In-class drafting exercise

Footnotes:

[1]

"Commercial Lease" is appropriate — a lease is a contract that creates a leasehold interest. See Black's Law Dictionary, 10th ed.

[2]

A contract can state that it is effective as of an earlier- or later date if that's what the parties want. CAUTION: Signers should never backdate their signatures to make it appear that the contract was signed earlier- or later than it was; doing so sent a number of senior executives to prison.

[3]

Party names are sometimes capitalized in a preamble so as to make them easy for a skimming reader to spot.

[4]

Defining key "business" terms (e.g., "Base Rent") at the beginning of an agreement — and then consistently using those defined terms elsewhere in the agreement — makes it convenient for reviewers and safer for revisers, who need only revised the definitions.

[5]

Including "Each item in this Article 1 incorporates …" is probably unnecessary.

[6]

Including the italicized portion, "to the extent there is any conflict …" is dangerous because it could lead to inconsistencies during revision of the draft during negotiation.

[7]

Defined terms and their definitions are typically set forth (i) in a separate section at the beginning of the agreement; (ii) in a separate section at the end of the agreement; and/or (iii) "in-line" at the place in the agreement that the defined term is principally used.

[8]

Both "Term: Five (5) years" and "Year One: $60,000 ($5,000 per month)" violate the "[BROKEN LINK: DRY]" (Don't Repeat Yourself) rule, which can cause major problems if the words are changed but not the numerals, or vice versa; the linked section tells the sad tale of a bank that lost $693,000 because of such a drafting screw-up.