Day-by-Day Class Plans: Contract Drafting Fall 2022

By D. C. Toedt III, email: dc@toedt.com
Attorney & arbitrator — tech contracts & IP
Adjunct professor, University of Houston Law Center

Updated Wednesday September 28, 2022 17:59 Houston time

The SYLLABUS sets out general information about this course.

Today’s class plan (to be updated for each class)

This is a working document, some parts of which are hidden for now, and other parts of which will be updated as the semester progresses. The class plans are based on how things went in past semesters, but every semester (and every course section) is different, so what a course section does on any given night could be different than what’s listed below.

For those who would like a bound book, a 200-page, 8.5x11“ paperback of NCD (not including the annotated contract provisions because of printing size restrictions) is available from Amazon for $5.50 per copy plus tax and shipping, which is basically printing cost. Disclosure: Amazon pays me a royalty of, wait for it, $0.05 per copy sold.

1. Detailed class plans

1.1. Class 01: Mon. Aug. 22

1.1.1. Group assignments (initial)

Group 1 sits to my left; Group 4 to my right.

First names are used for privacy.

I will reshuffle the groups twice during the semester.

6:00 p.m. class:

Group 1: Aaron, Alexis, Ashley, Caroline
Group 2: Connor, David, Jonathan, Lucy
Group 3: Mallika, Matthew, Mohamad, P.J.
Group 4: Rachel, Ryan, William, Zeb

7:30 p.m. class:

Group 1: Brittany, Christopher, Colleen, Farhad, Jason K.
Group 2: Haekyong, Jason F., John, Kimberly, Matthew
Group 3: Luke, Marissa, Matthew, Mitchell
Group 4: Monica, Robert, Roshni, Steven

1.1.2. DCT’s version of Socratic method

Here’s how I usually do Socratic-method questioning:

  • I pose a question and ask you to discuss the question in your small groups.
  • For that question, each group designates each of the group member by a letter A through D – for example, in Group 1 below, Brittany might be Person C.
  • Then, instead of calling on a student by name, I call on a group and a letter – for example, I might say, “Group 2, Person D, what do you think?”
  • I might also call on one or more other groups and letters to see if they have anything else to add – e.g., “Group 4, Person A, what’s your thought about what [the previous student] said?”

That way:

  • Neither the students nor I know who will be called on for a question — that way, each student must be ready to answer each question.
  • But: Each student gets to discuss the question with his/her group before I call on anyone.

I haven’t done any kind of scientific study, but my sense is:

  • that students like being able to discuss the question before I ask a student to answer the question; and
  • that students get more out of it when each student prepares to answer each question.

1.1.3. Introductions

Please tell us a little bit about yourself:

  • Name
  • Class year (3L, 2L, LLM)
  • Undergrad school and major
  • Work experience?
  • Contract-related experience?
  • Something boring about yourself?

1.1.4. Set up email list and Canvas, etc.

Please provide emails for a (private) Google Groups email list on the Group 1 virtual whiteboard at the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4. IMPORTANT: Please provide an email address that you check regularly — the Law Center asks that you use your UH email address. [I’ll be deleting the email addresses from the whiteboard when I transfer them to the Google Groups email list.]

Canvas setup: Self-enroll at https://canvas.instructure.com/enroll/JBYD7Pbe sure to use your name when signing up so that I can track progress and watch out for possible issues.

IMPORTANT: If you omit your name, you won’t show up on the Canvas roll-call page as being present in class, nor as having completed the homeworks and quizzes.

1.1.5. Ambiguity: To Mars!

From Twitter: “Elon Musk predicts he will rocket people to Mars in less than 10 years” – does that mean people will depart for Mars in less than ten years, or that it’ll take them less than ten years go get there?

1.1.6. Discussion: Selling a used computer

In your small groups, answer the questions in this worksheet. (Once you’re in the worksheet, click on the table-of-contents link to get to your group; Groups 1-4 are in the 6:00 p.m. section, Groups 5-8 are in the 7:30 p.m. section.)

1.1.7. Read-along lecture

DCT to talk through the syllabus and the introductory parts of the Notes on Contract Drafting (a work-in-progress of mine). BE SURE TO READ these materials.

1.1.8. Ambiguity: Dad’s skull

1.1.9. Tales from the practice: Contract “signed” by email

1.1.10. Introduction: MathWhiz & Gigunda

Read along: Chapter 1: Introduction

QUESTION: Most contract preambles identify the parties as, e.g., “ABC Corporation, a Texas corporation.”

  • How would we identify MathWhiz?
  • How would we identify Gigunda Energy?

1.1.11. Ambiguity: Lohhh-lahhh 🎵

TEXT, from The Kinks’ famous song Lola (play the relevant clip on 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 …..” 🎵

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

EXERCISE: In your small groups:

  • Consider how that lyric line could be clarified. (Don’t worry about rhyme or meter.)
  • Choose a spokesperson for your group — I’ll call on a group quasi-randomly.

1.1.12. Turn in your name tents, please

I’ll bring them to class; that way, you won’t forget them ….

1.2. Class 02: Wed. Aug. 24

1.2.1. Housekeeping

1.  If you haven’t already put your email address in the Google Groups email list on the Group 1 virtual whiteboard, then please do so.

2.  If you haven’t signed up for this course in Canvas, please do so. From Monday: Enroll at https://canvas.instructure.com/enroll/JBYD7Pbe sure to use your name so I can track progress and watch out for possible issues. (Omitting your name means that you won’t show up in the grade book as having completed the homeworks and quizzes ….)

1.2.2. Ambiguity: Whose side?

Here’s a tweet from the @TexasDemocrats Twitter account: “PRESS RELEASE: Chairman @HinojosaTX Releases Statement on Federal Judge in Texas Siding with AG Paxton, Against Texas Women”

QUESTIONS:

1.  If you didn’t know Texas politics, and that this tweet came from the Texas Democratic Party, might you be confused about who @HinojosaTX was siding with?

2.  How could this be clarified?

1.2.3. Homework review - signature blocks

QUESTIONS – discuss in your small groups:

  1. Is “Employment Agreement” an acceptable title, and can the Agreement refer to Gigunda as “Employer”? EXPLAIN.
  2. What does “LLC” stand for? Is there a difference between an LLC and a corporation?
  3. Is it appropriate to say that MathWhiz LLC is “incorporated in Texas”? EXPLAIN. (There are two issues to spot here.)
  4. How important is it to include a party’s full legal name in a contract? EXPLAIN.
  5. Must each party’s full legal name be include in that party’s signature block? EXPLAIN.
  6. What’s Gigunda Energy’s full legal name? What would you do if you didn’t know that when drafting?
  7. What type of organization is Gigunda Energy? What would you do if you didn’t know that when drafting?
  8. Which signature block version should we use for Mary — the two-blank-lines version, or the four-blank-lines version?

1.2.4. Ambiguity: Once more into the breach ….

From this article: “Anti-vaccination sentiment was once more evenly distributed between parties and ideologies ….” (Emphasis added.)

QUESTIONS:

1.  Are there two ways to interpret the above quote?

2.  How could this be clarified?

1.2.5. Exercises from Chapter 2

Do Exercises 1 through 14 of Chapter 2 — you can use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4 if you think it’d be helpful, but you might want to just make private notes.

1.2.6. Ambiguity: Plush carpets

From an article in The Guardian:

There will be plush lecture theatres with thick carpet, perhaps named after companies or personal donors.

Martin Parker, Why we should bulldoze the business school, The Guardian, Apr. 27, 2018 (https://perma.cc/F5N6-46RE).

QUESTION: What, exactly, is named after companies or personal donors?

QUESTION: How could this sentence be rewritten to clarify it?

1.2.7. Reading review: Chapter 2

QUESTION: From Chapter 2:

  • What surprised you (if anything)?
  • What struck you as important for summer associates and new lawyers to know?

Feel free to use the the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4

1.2.8. In the news: Joint venture agreement

From the Houston Chronicle (article by Katherine Feser): “Houston-based Hicks Ventures signed a $100 million joint venture agreement with metropolitan Washington, D.C.-based Artemis Real Estate Partners to develop inpatient rehabilitation facilities and behavioral health hospitals nationwide. Hicks and its principals, Patrick Hicks, David Steidley and Larry Vaile, have completed more than $1 billion in healthcare development projects in the last 20 years. …”

QUESTION: What kinds (plural) of contract documents are likely to be involved here?

QUESTION: What sorts of things might the different parties be concerned about?

Feel free to use the the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4

1.2.9. In the news: Was this a written agreement?

The Houston Chronicle reported on a guarantee agreement that was never signed but was supposedly agreed to. Excerpt:

At the meeting [the lawsuit says], Parker presented a written agreement, and while Souki agreed to the terms, *he refused to sign the agreement, explaining that he could not sign a written agreement since he had not disclosed to his bank his liability to Parker and Red Mango ….

Parker accepted based on the two having “a long history” and on Parker’s continued faith in Tellurian’s core business model, according to the lawsuit.

In October 2021, Parker texted Souki to set up a “firm date to close out on the guarantee,” the lawsuit says, but while Souki confirmed that he and Parker had “talked in Aspen,” he did not commit to paying Parker or fulfilling his obligation.

“Since that date, Parker, on behalf of himself and Red Mango, has demanded that Souki made the payments required of him under the contract,” the lawsuit says. “However, Souki has failed to do so in breach of his agreement.”

Natalie Postgate, Tellurian investor sues co-founder Charif Souki over millions in losses (HoustonChronicle Jan. 22, 2022) (emphasis added).

UPDATE: See Rick Carroll, Text messages don’t make a contract, Souki lawyers argue (AspenTimes.com Apr. 5, 2022) (describing motion to dismiss). Excerpt:

Souki’s attorneys, however, offered a different version of the dealings between Souki and Parker. A March 22-dated motion to dismiss the lawsuit, which was filed in U.S. District Court in Denver, called both Parker and Souki “experienced” and “sophisticated businessmen” who wouldn’t hatch a financial agreement through text messages.

“Parker and Souki know how to create legally binding contractual relationships,” the motion said. “That is particularly true of a contract potentially involving tens of millions of dollars, like the one alleged here. Sophisticated businessmen do not create valid, enforceable contracts through unsigned text messages that omit essential terms such as the identity of the parties, the nature and extent of the obligation, the method of payment, and who is to benefit from performance.”

The text messages alone showed that Parker doesn’t have a case for breach of contract, the motion said. Parker’s lawsuit cited the following text exchange from August 2019 as the written agreement between the two:

Souki to Parker: “How much stock do you have and what is your (cost) basis?”

Parker: “5.5m shares and (his) net is circa 8(.)30 now.”

Souki: “Ok. Please keep this text. I will guaranty [sic; guarantee – guaranty is the noun] your capital by dec. 2020. I’ll make up any deficiency you have at that date. Thanks for your help and confidence.”

Parker: “Ok pal I got confidence in you, always here to lend an ear or advice if needed, let’s catch up in sept for dinner.”

The motion to dismiss said the exchange didn’t meet the standards for a contractual agreement, while Red Mango, for which there is scant information available, wasn’t mentioned in the texts.

(Emphasis added.) I couldn’t find anything subsequent to this report; the odds are that the lawsuit was settled.

LESSON: People will sue — and will also oppose lawsuits. (Big surprise.)

1.2.10. On the lighter side: The unreasonable effectiveness of commas

See this post.

1.3. Class 03: Mon. Aug. 29

1.3.1. In the news: The Mar-A-Lago search warrant affidavit

From page 3 of the redacted-and-unsealed affidavit:

81.  These procedures will be executed by: (a) law enforcement personnel conducting this investigation (the “Case Team”); and (b) law enforcement personnel not participating in the investigation of the matter, who will search the “45 Office” and be available to assist in the event that a procedure involving potentially attorney-client privileged information is required (the “Privilege Review Team”).

82.  The Case Team will be responsible for searching the TARGET PREMISES. However, the Privilege Review Team will search the “45 Office” and conduct a review of the seized materials from the “45 Office” to identify and segregate documents or data containing potentially attorney-client privileged information.

QUESTION: Is paragraph 81, standing alone, clear about whether the “Case Team” will be involved in searching President Trump’s office (the “45 Office”)?

POSSIBLE REWRITE (note the italics; bold-faced emphasis is mine but wouldn’t go into the affidavit):

81.  These procedures will be executed by:

(a) the “Case Team,” namely law enforcement personnel conducting this investigation, who will not search the “45 Office”; and

(b) the “Privilege Review Team,” namely law enforcement personnel not participating in the investigation of the matter, who will search the “45 Office” and be available to assist in the event that a procedure involving potentially attorney-client privileged information is required.

NOTE: Courts take notice of things such as paragraphing and indentation — I read a case just the other day where that was explicit in the court’s opinion (I hope I can find my note about it with the link).

1.3.2. Exercises from Chapter 2 (conclusion)

Do Exercise 14 of Chapter 2 — you can use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4 if you think it’d be helpful, but you might want to just make private notes.

1.3.3. In the news: A supplier gets stiffed

Product Solutions Int’l, Inc.. Aldez Containers, LLC, No. 21-2951 (6th Cir. Aug. 22, 2022):

  • Small company (“Orgo”) designs a custom cosmetics travel bag.
  • Orgo contracts out the design and manufacturer to a middleman supplier.
  • Middleman supplier places a big order for the cosmetics bag with a Chinese manufacturer.
  • Orgo discovers that its cosmetics bags aren’t selling; it stops accepting shipments from the middleman supplier.
  • The supplier ends up “eating” > $500K in payments to its Chinese manufacturer for the bags that the supplier ordered for Orgo.
  • The supplier sues not just Orgo, but its executives, and the shipping company.
  • The supplier’s case against the executives gets poured out — see Product Solutions Int’l, Inc. v. PB Products, LLC, No. 19-CV-12790 (E.D. Mich. Jun. 12, 2020) (granting in part, denying in part, defendants’ motion to dismiss).
  • Later the supplier’s case against the shipping company gets poured out again.

LESSONS:

1.  Litigation counsel can get really aggressive — in part this is because judges seldom punish bad behavior.

2.  The middleman supplier should have been more careful about making sure that Orgo had funding available — and backup funding? — before making a big financial commitment on behalf of Orgo.

1.3.4. Drafting fail: Babies and dietary guidelines

From CNN (since changed): “New US dietary guidelines include babies and toddlers for first time”

A friend posted a screen grab on Facebook with the comment, “Thanks for the offer, but I’m vegan.”

1.3.5. (Quick) Reading review: Course details

1.3.6. Ambiguity: Giving up meat

From a Washington Monthly piece about what ordinary people might have to do to reverse the effects of climate change: “Which might mean giving up meat or traveling by air. ”

QUESTION: Is the author urging us to give up one thing, or two?

QUESTION: How could this be fixed?

1.3.7. Contract format examples

Contracts can have different formats; here are a few examples, more or less at random, from an advertisement-supported Web site that harvests contracts from the SEC’s EDGAR Website.

In your groups, take a look at the following things — if desired, use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4:

  • Titles of the agreements
  • Preambles
  • Recitals (“whereas” clauses), if any
  • Numbering styles for sections / paragraphs

Here are the examples:

1.3.8. Reading review: Chapter 3

QUESTIONS: From Chapter 3:

–  What surprised you (if anything)?

–  What struck you as important for summer associates and new lawyers to know?

Feel free to use the the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4

1.3.9. MathWhiz state of organization

I had thought that the facts stated that MathWhiz LLC is a Texas LLC — well, I just looked again, and that’s not the case.

(DCT to tell the Janicke story.)

1.4. Class 04: Wed. Aug. 31

1.4.1. When style preferences clash

FACTS:

• Your client MathWhiz asks you to review a draft contract sent by a potential customer of MathWhiz.

• You notice that the draft spells out all kinds of numbers, e.g., “twenty thousand dollars.”

• The draft doesn’t also include the corresponding numerals in parentheses, i.e., it doesn’t say “twenty thousand dollars ($20,000.00).”

QUESTION: When reviewing and revising the draft contract, do you change “twenty thousand dollars” to “$20,000.00”? Why or why not?

QUESTION: What if you change (and redline) the actual number from $20K to, say, $25K — how do you do phrase that?
a. The same way, i.e., “twenty-five thousand dollars”?
b.  “$25,000.00”?
c.  “$25,000”?
d.  “$25 thousand”?

1.4.2. Quick small-group discussion: Contract framework setup

1.4.3. From the practice: Marking up an NDA

Here are (sanitized) first pages of an NDA I marked up recently for my real-life “MathWhiz” client.

Note how the original is a “wall of words” — note also the first comment in my markup, (“tactfully”) addressing that problem.

Original (first page only)

Markup (first two pages only)

In the markup, you’ll see two different colors of revision marks. That’s because the original Word document was “Protected” to remove the identity of revisers when the document was saved. I noticed this after making the first couple of changes, and removed the protection so that there’d be a paper trail of who’d made what revisions.

1.4.4. In-class drafting exercise

FACTS:

  • Mary Marvel (CEO of MathWhiz) emails you to say that she wants to buy a barely-used, top-of-the-line laptop computer from Jane Jones, who lives in River Oaks (i.e., Harris County) and is “a friend of a friend” of Mary, but Mary doesn’t know her.
  • Jane bought the laptop a few weeks ago but decided she didn’t like the feel of the keyboard, so she wants to sell it and get a different one. (She’s gone past the no-questions-asked return period from where she bought it.)
  • The purchase price will be $3,000.
  • Jane’s address for notice is at 1600 River Oaks Blvd, Houston, TX 77019.

EXERCISE: In your groups — and you might want to divide up the work — in the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4:

  1. Put together a skeleton contract with a title, preamble, and signature blocks (don’t worry about formatting the signature blocks, just put the necessary information in).
  2. Draft a background section.
  3. Put together a series of short, simple paragraphs with the “mechanics” of getting the sale done. For now, don’t worry about representations or warranties or anything like that; just put in the bare-bones requirements to make a contract.

1.4.5. Ambiguity: Traffic signs

Ambiguous: See this sign.

More clear: This sign

1.4.6. Homework review: Breaking up the Tenant audit-rights clause

Here’s one possible answer:

6.5 Tenant’s Audit Rights.

6.5.1 Landlord shall keep reasonably detailed records of all Operating Expenses and Real Estate Taxes for a period of at least two (2) years.

6.5.2 Not more frequently than once in every 12-month period, Tenant together with any representative of Tenant shall be permitted to may audit the records of the Operating Expenses and Real Estate Taxes.

6.5.3 Tenant must give Landlord at least twenty (20) 20 days’ prior written notice to Landlord.

6.5.4 Tenant shall must conduct any inspection audit at a reasonable time and in a manner so as not to unduly disrupt the conduct of Landlord’s business.

6.5.5 Any such inspection audit by Tenant shall must be limited to the sole purpose of verifying the Operating Expenses and/or Real Estate Taxes.

6.5.6 Tenant shall must hold any information obtained during any such inspection in confidence, except that Tenant shall be permitted to may disclose such information to its attorneys and advisors, provided but only if Tenant:

        (1) informs such parties of the confidential nature of such information, and

        (2) uses good faith and diligent efforts to cause such parties to maintain such information as confidential.

6.5.7 Any shortfall or excess revealed and verified by Tenant’s audit shall must be paid to the applicable party by the relevant party within thirty (30) 30 days after that party is notified of the shortfall or excess to the extent such overage or shortfall has not previously been adjusted pursuant to this Lease.

6.5.8 Landlord must reimburse Tenant for Tenant’s reasonable, third party costs of the audit, up to an amount not to exceed $5,000, if all of the following are true:

        (1) The audit for any given year or partial year reveals that Tenant was overcharged for Operating Expenses or Real Estate Taxes by an amount of greater than six percent (6%) [DISCUSSION REQUIRED];

        (2) Tenant paid such overage overcharge; and

        (3) such overage the overcharge was not otherwise adjusted pursuant to the terms of this Lease,

Some discussion points:

  1. Some students numbered the paragraphs 6.5.1, 6.5.2, etc., which is useful.
  2. For anything that’s likely to be a negotiation point, consider making it a separate paragraph for easier discussion (and, if necessary, revision). Remember: Speed to signature (of agreed terms) is a primary goal. Examples of separate issues:
    • Recordkeeping requirement
    • Audit right
    • Advance notice period
    • Confidentiality (but the additional confidentiality-related sentences can stay with the paragraph)
    • True-up
    • Expense-shifting (but probably OK to keep with the true-up provision)
  3. Reminder: D.R.Y. for numbers — “two (2) days”
  4. Reminder: The convention is:
    • spell out numbers from one to ten
    • use digits from 11 on up — “twenty (20) 20 days” (another D.R.Y. example as well)

1.4.7. Homework review - preamble

(To be shown in class)

Signature block sample — what’s wrong with the MathWhiz signature block?

Gigunda-MathWhiz signature blocks sample

Some examples by students (anonymous, of course); see the notes below each:

EXAMPLE 1:

Retainer [0] Agreement
for Analyzing Seismic Data

This “Agreement” is between (i) MathWiz, LLC, a limited liability company organized under the laws of the State of Texas (“Service Provider”), with its principal place of business and its initial address for notice at [FILL IN ADDRESS FOR NOTICE] and (ii) Gigunda Energy [1], a global oil-and-gas company [2] organized under the laws of the State of California (“Retainer” [0]), with its principal place of business [3] and its initial address for notice at [FILL IN ADDRESS FOR NOTICE]. This agreement [4] is effective the last date written on the signature page.

Notes:

[0] “Retainer Agreement” is an unconventional title for this type of agreement, and “Retainer” is a head-scratcher abbreviation for Gigunda. (Try “Client” or “Customer.”)

[1] Need Gigunda’s full legal name.

[2] You wouldn’t say “global oil and gas company” in the preamble — in the Background, sure, but not in the preamble.

[3] The principal place of business is usually just the city and state — the initial address for notice might be different.

[4] At this spot in the preamble, you’d say “This Agreement” (capitalized), not “This agreement” (Ken Adams thinks otherwise), but in the other side’s draft it’s probably not worth fixing.

EXAMPLE 2:

Services Agreement [0]

This “Agreement” is between (i) Gigunda Energy [INSERT FULL LEGAL NAME], a [ENTITY TYPE] organized under the laws of the State of [STATE] (“Buyer” [1]), with its principal place of business and its initial address for notice at [BUYER ADDRESS]; and (ii) MathWhiz, LLC, a limited liability company organized under the laws of the State of [STATE], with its principle [2] place of business and its initial address for notice at [SELLER ADDRESS] (“Seller” [1]). This Agreement is effective the last date written on the signature page.

Notes:

[0] Good title.

[1] “Buyer” and “Seller” should probably be “Customer” and “Service Provider” (or perhaps “Contractor”).

[2] What’s the comment here?

EXAMPLE 3:

Service Agreement [0] [1]

This “Agreement” is between (i) MathWhiz LLC, a limited liability company organized under the laws of the State of [INSERT STATE OF MATHWHIZ ORGANIZATION] (“Service Provider”), with its principal place of business and its initial address for notice at [INSERT MATHWHIZ STREET ADDRESS], Houston, Texas [INSERT MATHWHIZ ZIP CODE]; and (ii) Gigunda Energy [INSERT ABBREVIATION OF GIGUNDA ENTITY TYPE], a [INSERT GIGUNDA ENTITY TYPE] organized under the laws of the State of [INSERT STATE OF GIGUNDA ORGANIZATION] (“Client”), with its principal place of business and its initial address for notice at [INSERT GIGUNDA STREET ADDRESS AND CITY], California [INSERT GIGUNDA ZIP CODE]. This Agreement is effective the last date written on the signature page.

Notes:

[0] Good title.

[1] This is just about perfect.

EXAMPLE 4:

SEISMIC DATA ANALYSIS AGREEMENT [0]

This “Agreement” is between (i) MathWhiz, a Limited Liability Company organized under the laws of the State of [Enter state] (“Vendor”), with its principal place of business and its initial address for notice at [Insert address here]; and (ii) Gigunda, a Corporation organized under the laws of the State of [Enter state] (“Recipient”), with its principal place of business and its initial address for notice at [Insert address here]. This Agreement is effective as of the last date written on the signature page.

Notes: [0] Good title.

QUESTION: What issues do we have here?

EXAMPLE 5:

Purchase and Sale of Seismic Exploration Services [0] [1]

This “Agreement” is between (i) MathWhiz LLC, a limited liability company organized under the laws of the State of [FILL IN LAWS OF INCORPORATION] (“Seller”), with its principal place of business and its initial address for notice at [FILL IN ADDRESS FOR NOTICE]; and (ii) Gigunda Energy, a global oil-and-gas company organized under the laws of the State of [FILL IN LAWS OF INCORPORATION] (“Buyer”), with it principal place of business in [FILL IN ADDRESS FOR NOTICE]. This agreement is effective the last date written on the signature page.

Notes:

[0] In an agreement title, “Purchase and Sale” customarily refers to a purchase and sale of assets, not of services. (But it’s not incorrect.)

[1] Normally you’d want the word “Agreement” in the title — so, for this, it’d be perhaps “Purchase and Sale Agreement for Seismic Exploration Services.”

QUESTION: What other issues do we have here?

EXAMPLE 6:

Independent Contractor Agreement
for MathWhiz’s seismic data analytic services

This “Agreement” is between (i) MathWhiz LLC (“Contractor”), a limited liability company organized under the laws of the State of Texas with its principal place of business in Houston, Texas; and (ii) Gigunda Energy (“Employer”), a corporation headquartered in California, with a significant campus located in Houston, Texas. This Agreement is effective the last date written on the signature page.

QUESTION: What issues do you see here?

EXAMPLE 7:

Independent Contractor Agreement
For MathWiz, LLC to analyze the seismic data for Gigunda [INSERT ENTITY] [0]

This “Agreement” [ADD: is] between (i) MathWiz, LLC, a limited liability company organized under the laws of the State of Texas (“Independent Contractor” [1]), with its principal place of business and its initial address for notice at [INSERT MATHWIZ ADDRESS] Houston, Texas [INSERT MATHWIZ ZIP]; and (ii) Gigunda [INSERT ENTITY], a [INSERT ENTITY] organized under the laws of the State of [INSERT STATE OF FORMATION] (“Hiring Firm”), with its principal place of business and its initial address for notice at [INSERT GIGUNDA ADDRESS]. This Agreement is effective as of the last date written on the below signature page.

Notes:

[0] The subtitle is a bit wordy.

[1] I’d use “Contractor” and “Client” (or perhaps “Customer”) as the parties’ nicknames.

EXAMPLE 8:

Service Provider Agreement
For seismic data analysis

This “Service Agreement” [0] is between (i) MathWhiz LLC, a limited liability company organized under the law of Texas (“Service Provider”), with its principal place of business and its initial address for notice [INSERT ADDRESS]; and (ii) Giguanda Energy (“Client”), with its principal place of business, and initial address for notice [INSERT ADDRESS]. This Service Agreement is effective the last date written on the signature page.

Notes:

[0] It’s customary to use the term “This Agreement” and not the (longer) “This Services Agreement.”

See also my other comments above.

EXAMPLE 9:

Employment Agreement [0]
for Analyzing Seismic Data

This “Agreement” is between (i) MathWhiz LLC, a limited liability company organized under the laws of the State of Texas (“Employee”), with its principal place of business and its initial address for notice at [FILL IN ADDRESS FOR NOTICE]; and (ii) Gigunda Energy, a company headquartered in [INSERT CITY, INSERT COUNTY] [1], California, whose initial address for notice is [FILL IN ADDRESS FOR NOTICE] (“Employer”). This Agreement is effective the last date written on the signature page.

Notes:

[0] What’s the objection here?

[1] Any guesses about why it’s not a bad idea to include the county?

See also my comments to the other examples above.

QUESTION: What other issues can you spot?

1.4.8. Reading review (part 1)

  1. QUESTION: If you wanted to have a separate document that listed exceptions to the representations in a contract, what would you (conventionally) call that document? (Hint: See here.)
  2. SCENARIO: (A) A representation in a contract is in section 5.8 of the contract. (B) In the document referred to in question 1 above, you’re listing an exception to that representation. QUESTION: How would you number that exception?
  3. QUESTION: When “redlining” another party’s contract draft, what could (should!) you do, in the Word document’s file name and in the running header, to: (A) avoid “version confusion,” and (B) make it easier to create a timeline later — e.g., in litigation?
  4. EXPLAIN IF FALSE: If parties disagree about the meaning of a term in a contract, that’s enough to require that the finder of fact (the jury, in a jury case), not the trial judge or appeals court, must determine the meaning of the term.
  5. EXPLAIN IF FALSE: Summary judgment (i.e., without a trial) is pretty much always improper when a contract term is ambiguous.
  6. TEXT: “Tenant will vacate the Premises no later than 12 midnight on December 15; Tenant’s failure to do so will be a material breach of this Agreement.” FACTS: Tenant moves out at 10:00 a.m on December 15. QUESTION: Is Tenant in material breach? EXPLAIN.
  7. QUESTION: What does contra preferentem mean — both as an English translation of the Latin, and what it means in “our world”?
  8. QUESTION: What does DCT’s mnemonic “A.T.A.R.I.” stand for?

1.4.9. Ambiguity exercise: Professor Lemley’s pants

From a Facebook post by Stanford law professor Mark Lemley:

Things I appear to like more than my Facebook friends:

1. Pants

EXERCISE: What are the two possible meanings here?

1.5. Class 05: Wed. Sep. 07

1.5.1. Housekeeping: Quiz 1 coming up

Reminder: Don’t forget — you have two chances, so if you get less than a perfect score the first time, you might want to review the answers before taking the quiz a second time.

1.5.2. In the news: Exclusive agency vs. exclusive right to deal

Just because someone is designated as the exclusive agent of a principal doesn’t preclude the principal from engaging the the activity in question, without having to compensate the agent. For example: In the 2022 USPLS v. Gaas case:

  • Two lawyers at Houston’s Coats Rose, P.C. firm were looking to find a law firm that would be “a better fit” for their growing practice.
  • The lawyers entered into an exclusive-agency agreement with a headhunting agency to look for a suitable firm.
  • The lawyers ended up switching to Kilpatrick Townsend & Stockton, without utilizing the headhunting agency — as is often the case, one of the lawyers approached someone he knew at Kilpatrick about getting a job there.
  • The headhunting agency sued the two lawyers for a commission.
  • But the trial court granted, and the appeals court affirmed, summary judgment in favor of the lawyers, citing Supreme Court of Texas authority about the distinction between an exclusive agency and an exclusive right to deal. USPLC, LC v. Gaas, No. 01-20-00604-CV, slip op. at part C (Tex. App.—Houston [1st Dist.] Aug. 30, 2022), citing Alba Tool & Supply Co. v. Indus. Contractors, Inc., 585 S.W.2d 662, 664 (Tex. 1979).

1.5.3. Housekeeping: Collaboration rules

During the past couple of spring semesters I’ve been teaching a half-semester course on intellectual property law for MBA students at Rice University’s Jones Graduate School of Business. Recently the administration circulated a document with definitions used by the school’s Honor Council; I’m providing the link to the document in case I want to use any of the definitions in the future.

1.5.4. Homework review: Tenant audit right rewrite

Homework review: Parallelism / consistency in subdivisions

From a student’s Tenant Audit Right break-up:

STUDENT VERSION:

Tenant, together with any representative of the Tenant, may audit the Operating Expenses and Real Estate Tax records to verify the records:

  • once in a 12-month period, with
  • at least twenty days’ written notice to the Landlord,
  • at a reasonable time that will not unduly disrupt the conduct of the Landlord’s business.

DCT comment: For syntactical consistency, at the end of the first bullet point, the word “with” should be moved to the beginning of the second bullet point.

DCT REVISION:

Tenant, together with any representative of the Tenant, may audit the Operating Expenses and Real Estate Tax records to verify the records:

  • once in a 12-month period, with [DCT note: I prefer semicolons instead of commas to set off list item]
  • with at least twenty days’ written notice to the Landlord,
  • at a reasonable time that will not unduly disrupt the conduct of the Landlord’s business.

Another example:

STUDENT VERSION:

Tenant is required to maintain the confidentiality of any information obtained during the audit, unless it is necessary to discuss the information with the tenant’s attorneys and advisors, and:

  • tenant informs such parties of the confidential nature of the information, and
  • uses good faith and diligent efforts to cause such parties to maintain the confidentiality

of the information.

DCT comment: The syntactical-consistency problem here is that there’s:

  • a noun (“tenant,” which should be capitalized) at the beginning of the first bullet point, but
  • a verb (“uses”) at the beginning of the second bullet point.

DCT REVISION:

Tenant is required to must (or “is to”?) maintain the confidentiality of any information obtained during the audit, unless:

1.  it is necessary to discuss the information with the tenant’s attorneys and advisors, and:

2.  Tenant informs such parties of the confidential nature of the information, and

3.  Tenant uses good faith and diligent efforts to cause such parties to maintain the confidentiality of the information.

Homework review: Each negotiation point gets its own paragraph

STUDENT VERSION:

6.5 Tenant’s Audit Rights. Landlord shall keep reasonably detailed records of all Operating Expenses and Real Estate Taxes for a period of at least two (2) years. [The next sentence is likely to be a separate negotiation point and so should get its own paragraph:] After at least twenty (20) days’ prior written notice to Landlord, Tenant together with any representative of Tenant shall be permitted to audit the records of the Operating Expenses and Real Estate Taxes annually.

DCT REVISION:

6.5 Tenant’s Audit Rights.

(a) Landlord shall keep reasonably detailed records of all Operating Expenses and Real Estate Taxes for a period of at least two (2) two years.

(b) After at least twenty (20) twenty days’ prior written notice to Landlord, Tenant together with any representative of Tenant shall be permitted to audit the records of the Operating Expenses and Real Estate Taxes annually.

QUESTION: In subdivision (b) above, could the phrase “together with” lead to trouble?

Homework review: Ambiguity alert

From a student’s rewrite:

STUDENT VERSION:

Tenant, together with any representative of Tenant, shall be permitted to audit the records of the Operating Expenses and Real Estate Taxes:

a.  once in every 12 months; and

b.  after providing at least twenty days’ written notice to Landlord.

QUESTION: Could Tenant audit the records weekly — as long as Tenant gives landlord 20 days notice of each audit?

DCT REVISION:

Tenant, together with any representative of Tenant, shall be permitted to may audit the records of the Operating Expenses and Real Estate Taxes no more often than once in every 12 months. ; and

Tenant must provide Landlord with at least twenty 20 days’ advance written notice of any proposed audit.

Homework review: Using “then” after a long “if” preface

From a student’s rewrite:

STUDENT VERSION:

If Tenant’s inspection of the records for any given year and/or partial year reveals that:

(i) Tenant was overcharged for Operating Expenses or Real Estate Taxes by an amount of greater than 6%, or

(ii) Tenant paid such overage and such overage was not otherwise adjusted pursuant to the terms of this Lease,

Landlord shall reimburse Tenant for its reasonable, third party costs of the audit, up to an amount not to exceed $5,000.

DCT REVISION:

If Tenant’s inspection of the records for any given year and/or partial year reveals that:

(i) Tenant was overcharged for Operating Expenses or Real Estate Taxes by an amount of greater than 6%, or

(ii) Tenant paid such overage and such overage was not otherwise adjusted pursuant to the terms of this Lease,

then Landlord shall reimburse Tenant for its reasonable, third party costs of the audit, up to an amount not to exceed $5,000.

ALTERNATIVE:

6.5.5 (a) This section applies if Tenant’s inspection of the records for any given year and/or partial year reveals that:

(i) Tenant was overcharged for Operating Expenses or Real Estate Taxes by an amount of greater than 6%, or

(ii) Tenant paid such overage and such overage was not otherwise adjusted pursuant to the terms of this Lease.

(b) Landlord shall reimburse Tenant for its reasonable, third party costs of the audit, up to an amount not to exceed $5,000.

1.5.5. Lightning round: Spaced repetition review (1)

  1. Which is it: “Class starts at X o’clock”: A) ten o’clock B) 10:00 a.m.
  2. Which is it: “More than X people voted to re-elect President Trump”:
    • 74,000,000
    • seventy-four million
    • 74 million
  3. Which is used to indicate permission: May, or might?
  4. Which is used to indicate possibility: May, or might?
  5. True or false: An oral contract that might be completely performed in a year is invalid under the Statute of Frauds if it turns out that the contract isn’t completely performed in a year.
  6. True or false: In the U.S., before parties can use electronic signatures, they must first sign a hard-copy preliminary agreement that they can use electronic signatures for subsequent agreements.
  7. True or false: Nowadays, most contracts get printed out in two copies, and each printed-out copy is signed by both parties, so that each party will have one, fully-signed original to keep.
  8. True or false: It’s a good idea to include language such as the following just before the signature blocks: “To evidence the parties’ agreement to this Agreement, each party has executed and delivered it on the date indicated under that party’s signature.”

1.5.6. Homework review Tenant audit rights rewrite (cont’d)

Homework review: Periods and parentheses

From a student’s rewrite:

STUDENT VERSION:

6.5 Tenant’s Audit Rights.

A.) Landlord will keep reasonably detailed records of all Operating Expenses and Real Estate Taxes for at least two years.

DCT REVISION:

6.5 Tenant’s Audit Rights.

A.) (a) Landlord will keep reasonably detailed records of all Operating Expenses and Real Estate Taxes for at least two years.

Homework review: A nice listing of prerequisites

From a student’s rewrite:

Tenant together with any representative may audit these records if: (a) audits are conducted at maximum once every 12 months, (b) Tenant provides at least 20 days’ prior written notice to Landlord, (c) audits occur at a reasonable time and reasonable manner to not disrupt Landlord’s business, and (d) the sole purpose of the audit is to verify the Operating Expenses and/or Real Estate Taxes.

DCT TWEAK

Tenant together with any representative may audit these records if: (a) (1) audits are conducted at maximum once every 12 months, (b) (2) Tenant provides at least 20 days’ prior written notice to Landlord, ….

Homework review: Capitalization of list items

From a student’s rewrite:

STUDENT VERSION:

  1. In this audit, the Tenant shall conduct any inspection:

a)  At a reasonable time;

b) In a manner so as not to unduly disrupt the conduct of Landlord’s business; and

c) Only for sole purpose of verifying the Operating Expenses and/or Real Estate Taxes.

1.5.7. Ambiguity exercise: Masks and signs on cars

From a tweet encouraging attendance at an anti-lockdown protest in Maine: “[T]here will be a caravan around the Capitol … Monday. … Remain in your vehicles but masks, bandanas, flags and signs on cars are encouraged.”

QUESTION: In your view, why are caravaners being encouraged to put masks and bandanas on cars?

QUESTION: How could this be clarified?

1.5.8. Aftermath of “The Big Chill 2021”: Texas AG sues Griddy

From the original petition (in Harris County):

11.  Griddy, unlike traditional electric retail providers, did not own power generation capability nor did it enter into long-term pricing contracts with power generators. Instead[:]

  • Griddy purchased electricity on the open, spot market.
  • Griddy charged customers a flat monthly rate, and then passed the price at which it purchased electricity directly on to the consumer.

During times of stability and low demand on the grid, Griddy was able to purchase electricity cheaply and pass those savings to consumers. But instability in the market can expose its customers to enormous risk, resulting in massive losses to consumers. Despite that very real risk, Griddy’s marketing persistently misled its customers about the nature and extent of this risk and the costs consumers could expect when utilizing Griddy’s services. * * * 

17.  One reason consumers have been surprised by the recent price spike to $9 per kWh is because Griddy’s advertising was misleading and failed to adequately disclose the risks of its pricing model to its customers.

The Griddy.com website offered: “For only $9.99 a month, get access to the wholesale price of electricity.” However, there is no officially indexed wholesale price of electricity in Texas. Instead, Griddy passed the price it pays on to the consumer along with its monthly $9.99 fee.

The Better Business Bureau issued a consumer alert in 2019 about Griddy’s advertising claims, writing that this usage of “wholesale” should not be used unless a business “actually owns and operates or directly and completely controls a wholesale or distribution facility which primarily sells products to retailers for resale,” which is not the case here. Their repeated representation of their prices as being the “wholesale” price was thus misleading.

18.  Griddy’s representations emphasized potential savings and downplayed the effects of fluctuations in the electricity market. . . .

(Emphasis and extra paragraphing added, footnotes omitted.)

This lawsuit illustrates the role of both “interveners” and “nature” in the T O P   S P I N diagram in section 19.3 of the Notes on Contract Drafting:

h-diagram

It’s no surprise that the case settled — but only after Griddy filed for bankruptcy protection to liquidate its business (in what one commentator referred to as an “off-label bankruptcy”).

And it’s certain that Griddy had to spend a lot of money — and management bandwidth — on defending against the lawsuit, including:

  • litigation holds for emails and other documents;
  • searching for, screening, and producing documents;
  • depositions of many, many Griddy people; and
  • motion practice.

We’ll take a quick look at the actual settlement agreement:

  • Paragraph 1: Why do you suppose this is in the agreement?
  • Paragraphs 5 and 9 use the defined term “the State,” but elsewhere the defined term is “Texas” — how do you think that happened? Is that a problem?
  • Paragraph 14: Does this surprise you?
  • Paragraph 15: Why do you suppose the last part of the provision is included?
  • Paragraph 16: Do you think this would be enforceable?
  • Paragraph 18: Note how the signatures were handled.

1.5.9. Spaced-repetition worksheet: Contract structure

Discuss in breakout rooms: Contract structure - part 1

1.6. Class 06: Mon. Sep. 12

1.6.1. From the pandemic: Best efforts to deliver vaccine doses

EU and AstraZeneca reach deal to end vaccine row - contract called for AZ to use “best efforts” to deliver specified number of COVID-19 vaccine doses.

(Concerning best efforts, we’ll be reading NCD § 22.20 later in the semester.)

1.6.2. Quickie writing exercise

TEXT 1: “The team held a meeting to give consideration to the issue.” (Shortened) TEXT 2: “The team considered the issue.” QUESTION: Is this “streamlining” safe? If not, why not?

1.6.3. Real life: Breach of oral contract for sale of business results in $1.92 million award

Vermillion State Bank v. Tennis Sanitation, LLC, 969 N.W.2d 610 (Minn. Feb. 2, 2022)

Facts:

  1. A bank loaned money to a trash-collection company (the “borrower”).
  2. The borrower’s business failed; the borrower filed for bankruptcy protection.
  3. The bank sought bidders for its borrower’s business assets (garbage trucks, etc.).
  4. The bank itself bought its borrower’s business assets.
  5. The bank entered into an oral “flip” agreement with another buyer, under which the other buyer would acquire the business assets from the bank for $6 million.
  6. The other buyer backed out of the oral agreement.
  7. The bank sold the business assets to another buyer, at a significantly lower price.

Trial: A jury found that the other borrower breached an oral agreement and awarded the bank $1.9 million in damages.

Appeal: Affirmed. The “predominant purpose” of the parties’ “hybrid” oral contract (involving both goods and intangible assets) was not for the sale of goods — “most witnesses testified to the primary value being the customer routes” (id. at 623) — and so the Statute of Frauds in UCC article 2 didn’t apply.

1.6.4. Addams Investments drafting exercise review

  1. Why might the Widgets sales rep be so eager to get the contract signed on March 31? (Hint: It has to do with the fact that Widgets, Inc. is a newly-public company.)
  2. What about just signing it on April 1 when the family gets back to Houston?
  3. Is it physically possible for you to “make it happen” for the contract to be signed and delivered to Widgets, Inc. today, March 31? If so, how might you go about it?
  4. If Wednesday Addams asks you to sign it as the company’s lawyer, how should you respond?
  5. The facts don’t indicate that Widgets is incorporated in Texas.
  6. For the Addams signature block, see the model sig. block at NOCD § 3.7.5.
  7. For the question whether an attorney for Addams Inv. L.P. would sign, a student writes: “I would tell her that there are issues with me signing the contract, such as raising the question as to whether I am acting as a lawyer or a business person.” DCT COMMENT: Good point!
  8. The same student writes: “I would also demand to be indemnified in case the contract ‘goes south.’” DCT COMMENT: That’s not something I’d normally ask a client to do — if I wasn’t comfortable signing without an indemnity, I just wouldn’t sign.
  9. The same student writes: “After that, I would want her [Wednesday Addams] to put in writing that I have authority to sign the contract ….” DCT COMMENT: Good point — but do it in a non-threatening, non-defensive manner.
  10. The same student writes: “I  would put in a personal signer representation, and then I would sign it.” The student’s draft included the following: “Each individual who signs this Agreement on behalf of an organizational party represents that he or she has been duly authorized to do so.” DCT COMMENT: I would not unilaterally do include such a representation, as it would put a target on my back — if the other side wants a representation like that from me, then let them ask for it.“
  11. A student writes, about Widgets Inc.’s motivation: “Because they want to be able to report the deal in their first quarter financial report and look good for investors.” (Emphasis added.) DCT COMMENT: The sale rep might be interested in closing the deal in Q1 so as to get a commission, or to be able to make his- or her sales quota.
  12. A student writes (I paraphrase): “Sign the deal on April 1 and recite that it confirms an oral agreement reached on March 31.” DCT COMMENT: That’s good, creative thinking — BUT: The Statute of Frauds would preclude enforcement of an oral agreement for the sale of goods for more than $500, and thus accounting standards might preclude Widgets from recognizing the revenue in Q1.
  13. Several students indicated that a “director” of Addams Operations, Inc. could sign on the company’s behalf. DCT COMMENT: That depends on what you mean by director: If it refers to an employee title (one level below VP, one level above manager), then yes. BUT: If it refers to a member of the corporation’s board of directors, then no — a board member, as such, has no management authority for the corporation.

1.6.5. (Re)writing exercise: A termination clause

Consider the following provision (from a real contract — this is one sentence):

12. TERMINATION

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

In the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4, take a stab at rewriting this provision to make it more readable and conform to the drafting style rules we’ve been reading about and discussing — especially:

  • BLUF
  • D.R.Y.
  • breaking up “walls of words.”

(Don’t try to “retrade the deal” by altering the substantive terms.)

I’ll show my own rewrite later.

1.6.6. DCT rewrite of the Termination redrafting exercise

BEFORE:

  1. TERMINATION

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

AFTER: Here’s one possible BLUF, “no Wall of Words” rewrite — which still has problems:

12.  TERMINATION

12.1 Licensor may terminate this Agreement if the royalties due hereunder have not been paid within the time allowed by this Licence Agreement. [DCT QUESTION: is there a notice-and-cure provision for this failure?]

12.2 Either party may terminate this Agreement by notice IF:

(1) (i) the other party breaches any of its promises, and/or (ii) any representation by the other party in this Agreement proves materially untrue; AND

(2) the other party does not remedy the breach or material untruth within 30 days after notice of breach from the terminating party.

12.3 Either party may terminate this Agreement if any of the following occurs:

(1) the other party has an examiner appointed over the whole or any part of its assets in accordance with law;

(2) a court of competent jurisdiction issues an order — or the other party’s board of directors adopts a resolution — for the winding up of the other party’s business, unless the order or resolution is part of an arrangement [NOT: scheme] for reconstruction or amalgamation of the other party.

12.4 Termination will be effective immediately upon notice of termination by the terminating party.

12.5 The terminating party need not give any other advance notice of termination except as set forth above.

12.5 Termination will be without prejudice to any other remedy available to the terminating party, at law or in equity.

ALTERNATIVE: Here’s another possible rewrite — which still has problems:

12.    TERMINATION.

(a)       A party may terminate this Agreement:

            (1) if the royalties due hereunder have not been paid within the time allowed by this Licence Agreement; or

            (2) if either party shall breach of breaches any of the its representations, warranties, covenants, or promises or undertakings +herein contained and on its part to be performed or observed in this License Agreement and shall not have has not remedied such breach within thirty (30) 30 days after notice is given to the breaching party by the non-breaching party the other party gives notice of breach to the breaching party; or

            (3)  either party shall have has an Examiner appointed over the whole or any part of its assets or an order is made or a resolution passed for winding up of such party,             unless such order is part of a scheme for reconstruction or amalgamation of such party.

(b)       The other party need not give any further advance notice of termination.

(c)       Termination will not affect any right the terminating party has:

            (1)  to recover any royalties then due; and

            (2)  to pursue any remedy in respect of any previous breach of any of the covenants or agreements contained in this Licence Agreement.

EXERCISE: In your breakout rooms, analyze what changes were made — and why. If you wish, use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4 to make notes. Pay particular attention to:

  • How is (a)(3) different from (a)(1) and (a)(2), and does it matter? (Hint: Try reading (a) as though (1) and (2) weren’t even there: Does the language make sense?)
  • In (a)(3): If Party A breaches the agreement, does that allow Party A to terminate the agreement?
  • Is the terminology consistent?
  • In (b), does “the other party” fit?

#+endcomment

1.6.7. Lightning round: Reading review

Procedure: I’ll start by calling on a group; Person A in that group is to answer. THEN, that person will call on another group, and Person B from that group is to answer. And so on and so forth.

  1. TEXT: “Alice says that Bob is cold.” QUESTION: Is this more likely to be considered vague, ambiguous, or both?
  2. FACTS: (A) Your client is located in Vancouver, Canada and The Other Side (which drafted the contract) is located in Houston. (B) The contract states that the amount your client must pay is $1 million.

    QUESTION: Is this an issue? If so, is it worth burning up negotiation time by asking The Other Side to fix it? EXPLAIN.

  3. QUESTION: When calling a partner’s or client’s attention to a problem, it’s best to have a recommended [BLANK] as well.
  4. QUESTION: When taking notes during a meeting, why is it useful to indicate whether one or more lawyers is participating?
  5. QUESTION: What does DCT’s mnemonic “S.t.R.” (or “S.T.R.”) stand for?

1.6.8. Homework review (continued): Tenant audit rights

NOTE: I’ve done individual comments on each student’s assignment – you can see the comments in Canvas.

(All bold-faced emphasis below is mine.)

  1. TEXT: “Tenant shall be permitted to disclose such information to its attorneys and advisors, provided *Tenant informs such parties of the confidential nature of such information and uses good faith and diligent efforts to cause such parties to maintain such information as confidential.”

    • DCT COMMENT 1: Better: “Tenant may disclose such information ….”
    • I HATE “provided ….”; instead, do a new sentence such as, e.g., “Tenant must inform each such recipient ….”
  2. TEXT: “(d) Any information obtained during such inspection shall be held by Tenant in confidence, except that Tenant may disclose such information to its attorneys and advisors. (i) If Tenant discloses such information to its attorneys or advisors, Tenant shall: (1) inform such parties of the information’s confidential nature; and (2) use good faith and diligent efforts to ensure such parties keep such information confidential.”
    • DCT COMMENT: If you don’t have a “(ii),” don’t do this as “(i)” — instead, start a new paragraph (e).
  3. TEXT: “f) If Tenant’s inspection of the records for any given period reveals that: (1) Landlord overcharged Tenant for Operating Expenses or Real Estate Taxes by an amount greater than 6%; (2) Tenant paid such overcharge; and (3) such overcharge was not otherwise adjusted pursuant to the terms of this Lease: (i) Landlord shall reimburse Tenant for its reasonable, third party costs of the audit, up to an amount not to exceed $5,000.” DCT COMMENTS:
    • Same as #2 above about not using “(i)” because there’s no “(ii)”; consider instead the following: “(f) IF: Tenant’s inspection of the records … ; THEN: Landlord shall reimburse ….”
  4. TEXT: “Tenant’s inspection of the records shall be held in confidence except ….” DCT COMMENT: Held in confidence by whom? (This is what’s known as a “false imperative.”)

1.7. Class 07: Wed. Sep. 14

1.7.1. In the news: Targa Channelview v. Vitol

The case: Targa Channelview LLC v. Vitol Americas Corp., No. 14-21-00048-CV, slip op. (Tex. App–Houston [14th Dist] Sept. 13, 2022) (Christopher, J.).

Facts:

  1. The contract was between Targa and Vitol.
  2. Vitol was to deliver crude oil to Targa.
  3. Targa was to buy the crude oil from Vitol and refine it into components – jet fuel, naphtha, etc.
  4. Vitol would then buy the refined components from Targa.
  5. Targa would build a “splitter” plant to do the refining — it’s unclear whether this was a contract requirement for Targa, or simply a contemplated action.
  6. IMPORTANT: Vitol was to pay Targa ~$43M per year for seven years – the money was to go into a “Noble Account” – and that money would be used to fund any net amounts owed by Vitol for buying refined products from Targa. (In effect, Vitol was prepaying Targa for refined products.)
  7. Vitol had the right to terminate right if, on or before a certain date, Targa failed to achieve “Startup” (a defined term) of the new splitter plant; the termination clause said that termination was Vitol’s “sole and exclusive remedy” for the failure to achieve Startup. (Slip op. at 4-5.)
  8. Targa failed to meet the Startup requirement, so Vitol sent a notice of termination. At that point the “Noble Account” had ~$129M in it.
  9. The contract also said: “At the conclusion of the Term, Targa shall remit to [Vitol] the remaining balance of the Noble Account, if any, pursuant to a final invoice prepared pursuant to Section 6.2(a).” Slip op. at 6 (emphasis by the court, footnote omitted).
  10. The “Term” was defined as follows:

The term of this Agreement shall commence on the Effective Date [i.e., December 27, 2015] and shall continue in full force and effect for eighty-four (84) months from Startup (the “Primary Term”). Upon expiration of the Primary Term, unless extended…, this Agreement shall automatically expire. [Vitol] may elect to extend the Agreement beyond the Primary Term for up to five (5) successive twelve (12) month periods (each, an “Extension Term” and collectively, the “Extension Terms”) by giving written notice to Targa no less than twelve (12) months prior to the expiration date of the Primary Term or the then-current Extension Term (the Primary Term, and Extension Terms, if any, the “Term”). . . .

Slip op. at 6.

QUESTION: Who was entitled to the $129M in the Noble Account? Targa claimed that it, Targa, was entitled to keep the money because “the Term” supposedly never had a “conclusion” due to Vitol’s termination of the Agreement.

Affirming (mostly) the trial court’s decision in favor of Vitol, the court said that “The termination of the Agreement [by Vitol] is included in the expression, ‘the conclusion of the Term’”:

But, Targa is reading words out of the contract, for by its plain language, “Term” is defined to describe “[t]he term of this Agreement.“

Because “term” is a characteristic of “this Agreement,” it has no independent existence and cannot outlive the Agreement itself.

Stated differently, “Term” refers to the Agreement’s lifespan, and that lifespan reaches its conclusion not only when it is passively allowed to “expire” on its own, but also when it is actively terminated.

The parties recognized that both were possible outcomes and used the words “expiration” or “termination” as applicable. For example, the parties agreed that, “[n]otwithstanding any expiration or termination of this Agreement, each of the Parties shall remain liable for any unpaid amounts due and owing under this Agreement as of the termination or expiration of the Agreement.”

Targa also takes issue with the word, “conclusion.” In arguing that the Agreement’s Term has never “concluded,” Targa implicitly assumes that the Agreement’s Term reaches a “conclusion” only when it is allowed to expire naturally. But “conclusion” is not contractually defined, so its common meaning applies. As Vitol points out, the common meaning of “conclusion” includes

Slip op. at 7.

DRAFTING LESSON:

  1. When using the term “Term,” think hard about the implications.
  2. Consider “roadblock” clauses to anticipate arguments that aggressive counsel will try to make. Example: Vitol cold have put, in the termination clause, that Targa would be required to comply with the Noble Account refund provisions — sure, that would technically violate D.R.Y., but it likely would have been work it.

1.7.2. Reading review

  1. QUESTION: When parties argue for opposing interpretations of a particular contract provision, what’s the court’s FIRST step in analyzing each of the proffered interpretations?
  2. QUESTION: In the context of contract drafting, what does BLUF stand for — and why might it be significant to a client?
  3. QUESTION: Of the rules for note-taking during contract negotiations — and during other meetings as well — what does your group think are the TWO most-important rules — and why?
  4. FACTS: “Alice” claims that a contract term means one thing, “Bob” claims that the term means something else.
    • QUESTION – TRUE OR FALSE: The fact that the parties are arguing for different interpretations means that a jury will have to decide the winner of their “he said, she said” dispute. EXPLAIN.

1.7.3. Homework review - Tenant audit rights (continued)

  1. STUDENT TEXT: “Any inspection by Tenant shall be for the sole purpose of verifying the OPEX and/or RE Taxes.”
    • COMMENT: I’d make this active voice, e.g., “Tenant may not conduct any inspection, nor use information obtained in an inspection, except for the sole purpose of verifying ….” (Emphasis added.)
  2. STUDENT TEXT: “a. Any shortfall or excess revealed by Tenant’s audit shall be paid to the applicable party within 30  days after: (i) Notification of party. (ii) Overage or shortfall has not been previously adjusted pursuant to this Lease.”
    • COMMENT: Item (i) is too terse; it doesn’t make for a complete sentence if read together with the beginning of (a).
    • COMMENT: Item (ii) has the same problem: If you were to read the beginning of (a), and then go straight to (ii) without (i), then it wouldn’t be a coherent sentence, and it’s supposed to be that.
  3. STUDENT TEXT: “(b) If Tenant’s inspection reveals that Tenant was: (i) Overcharged for OPEX or RE Taxes by an amount of greater than six percent, (ii) Tenant paid overage and, iii. Overage not adjusted pursuant to the terms of this Lease, (c) Then, Landlord shall reimburse Tenant for costs of the audit, up to an amount not to exceed $5,000.” COMMENTS:
    • Same incomplete-sentence problems as above.
    • You wouldn’t do a new subdivision c for the “THEN” part, because it’s not a new sentence or thought.
    • Don’t spell out “six percent.”
    • REWRITE (by DCT): “IF: Tenant’s inspection reveals that: (i) Tenant was overcharged for OPEX or RE Taxes by more than 6%; or (ii) Tenant paid Overage that was not adjusted as provided in this Lease; THEN: Landlord must reimburse Tenant ….”
  4. STUDENT TEXT: “(III) If Tenant exercises its audit rights, as provided above, Tenant must conduct any inspection at a reasonable time and in a manner so as not to unduly disrupt the conduct of Landlord’s business. Any such inspection by Tenant must be for the sole purpose of verifying the Operating Expenses and/or Real Estate Taxes. Tenant must hold any information obtained during any such inspection in confidence, except that Tenant is permitted to disclose such information to its attorneys and advisors, provided Tenant: (1) informs such parties of the confidential nature of such information, and (2) uses good faith and diligent efforts to cause such parties to maintain such information as confidential.”
    • COMMENT: This is good, but I’d break it up even further.
  5. STUDENT TEXT: “Tenant – or representatives of the Tenant – may audit the records once in a 12-month period. A written notice at least 20 days prior to the audit must be given to the Landlord. If Tenant exercises its audit rights, Tenant must conduct its inspection in a reasonable time and manner. Any audit conducted by Tenant may only be done for the sole purpose of verifying the records. Any information Tenant obtains through its audit is to remain confidential. Confidential information Tenant obtains may only be shared with Tenant’s attorneys and advisors.”
    • COMMENT: Nice job pointing out that Tenant might want an outside auditor to do the audit. (That brings up its own set of issues.)
    • COMMENT: I’d break this up a bit more; confidentiality is enough of a separate issue that it’s worth giving the reviewer some help by putting it in a separate paragraph.
  6. STUDENT TEXT: “If the audit reveals that Tenant paid an overcharge greater than 6% for Operating Expenses or Real Estate Taxes, Landlord may reimburse Tenant’s audit costs up to $5,000.” (Emphasis added.)
    • COMMENT: That won’t fly — Tenant will insist on being reimbursed in that situation; the discussion will be whether the threshold should be 6%, or something else.

1.7.4. Show & Tell: Guaranties: A wall-of-words example

See this guaranty:

1.  Guaranty. The Guarantor hereby absolutely and unconditionally guarantees, as a guaranty of payment and performance and not merely as a guaranty of collection, prompt payment when due, whether at stated maturity, by required prepayment, upon acceleration, demand or otherwise, and at all times thereafter, of any and all existing and future indebtedness and liabilities of every kind, nature and character, direct or indirect, absolute or contingent, liquidated or unliquidated, voluntary or involuntary and whether for principal, interest, premiums, fees indemnities, damages, costs, expenses or otherwise, of the Borrower to the Lender, which [sic; that] arise from or are in connection with that certain Credit Agreement dated as of March 24, 2009, among the Borrower, Heald Capital, LLC and the Lender (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”; capitalized terms used herein and not defined herein shall have the meanings ascribed such terms in the Credit Agreement) and/or the other Loans Documents (including, without limitation, any Secured Hedge Agreement), whether associated with any credit or other financial accommodation made to or for the benefit of the Borrower by the Lender or otherwise and whenever created, arising, evidenced or acquired (including all renewals, extensions, amendments, refinancings and other modifications thereof and all out-of-pocket costs, reasonable attorneys’ fees and expenses incurred by the Lender in connection with the collection or enforcement thereof), and whether recovery upon such indebtedness and liabilities under the Credit Agreement and the other Loan Documents may be or hereafter become unenforceable or shall be an allowed or disallowed claim under any proceeding or case commenced by or against the Guarantor or the Borrower under the Bankruptcy Code (Title 11, United States Code), any successor statute or any other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally (collectively, “Debtor Relief Laws”), and including interest that accrues after the commencement by or against the Borrower of any proceeding under any Debtor Relief Laws (collectively, the “Guaranteed Obligations”). The Lender’s books and records showing the amount of the Guaranteed Obligations shall be admissible in evidence in any action or proceeding, and shall be binding upon the Guarantor and conclusive, absent manifest error, for the purpose of establishing the amount of the Guaranteed Obligations. This Guaranty shall not be affected by the genuineness, validity, regularity or enforceability of the Guaranteed Obligations or any instrument or agreement evidencing any Guaranteed Obligations, or by the existence, validity, enforceability, perfection, non-perfection or extent of any collateral therefor, or by any fact or circumstance relating to the Guaranteed Obligations which might otherwise constitute a defense to the obligations of the Guarantor under this Guaranty, and the Guarantor hereby irrevocably waives any defenses it may now have or hereafter acquire in any way relating to any or all of the foregoing (other than the defense of final payment in full in cash and performance in full of the Guaranteed Obligations, except for contingent indemnification obligations for which no claim has been asserted). Anything contained herein to the contrary notwithstanding, the obligations of the Guarantor hereunder at any time shall be limited to an aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of the Bankruptcy Code (Title 11, United States Code) or any comparable provisions of any similar federal or state law

Here’s a possible rewrite:

1.  Guaranty. The Guarantor hereby absolutely and unconditionally guarantees prompt payment, when due, of any and all existing and future indebtedness and liabilities that arise from or are in connection with the “Credit Agreement,” defined below. Each such indebtedness and liability is referred to generically as a “Debt.”

The term “Credit Agreement” refers to the Credit Agreement dated as of March 24, 2009, among the Borrower; [I changed the comma after “Borrower” to a semi-colon] Heald Capital, LLC; [note that I added an “Oxford semi-colon”] and the Lender, as amended, restated, supplemented or otherwise modified from time to time.

Capitalized terms used herein but not defined in this Guaranty and not defined herein +shall have the meanings ascribed +such terms to them stated in the Credit Agreement).

This Guaranty is a guaranty of payment and performance and not merely a guaranty of collection.

This Guaranty applies to each Debt that is not paid when due, whether the due date arises at stated maturity; by required prepayment; because of acceleration; on demand (when callable); or otherwise. ; and at all times thereafter.

The Debts covered by this Guaranty are those of every kind, nature and character.

Such a Debt could be direct or indirect; absolute or contingent; liquidated or unliquidated; voluntary or involuntary.

Such a Debt could be for principal; interest; premiums; fees; indemnities; damages; costs; expenses or otherwise.

For purposes of this Guaranty, it does not matter:

  • whether a Debt is associated with any credit or other financial accommodation made to or for the benefit of the Borrower by the Lender or otherwise;
  • when a Debt is created; nor
  • whether a Debt may be (or hereafter becomes) unenforceable;
  • whether a Debt is an allowed or disallowed claim under any proceeding or case commenced by or against the Guarantor or the Borrower under a Debtor Relief Law (defined below).

The term Debt encompasses (without limitation) all out-of-pocket costs, reasonable attorneys’ fees and expenses incurred by the Lender in connection with the collection or enforcement of a Debt.

For purposes of this Guaranty, the term “Debtor Relief Law” refers to one or more of the following in effect at the relevant time:

  • the Bankruptcy Code (Title 11, United States Code) or any successor statute; and
  • any other law concening liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief,
  • of the United States (or any of its states) or other applicable jurisdictions,
  • affecting the rights of creditors generally.

The term Debt also encompasses (without limitation) any interest that accrues after the commencement by, or against, the Borrower of any proceeding under any Debtor Relief Laws.

The Lender’s books and records showing the amount of the Guaranteed Obligations [DCT note: Guaranties are not the best vehicle to guarantee performance of an obligation other than payment.] Debts shall be admissible in evidence in any action or proceeding.

Those books and records shall will be binding upon the Guarantor and conclusive, absent manifest error, for the purpose of establishing the amount of the Debts.

This Guaranty shall will not be affected by any of the following:

  • the genuineness, validity, regularity or enforceability of any Debt or any instrument or agreement evidencing any Debt; [This could be a BIG negotiation point, depending on the guarantor’s bargaining power.]
  • the existence, validity, enforceability, perfection, non-perfection or extent of any collateral therefor, or nor
  • any fact or circumstance relating to any Debt which that might otherwise constitute a defense to the obligations of the Guarantor under this Guaranty. [Another possible negotiation point.]

The Guarantor hereby irrevocably waives any defenses it may now have or hereafter acquire in any way relating to any or all of the foregoing (other than the defense of final payment in full in cash and performance in full of the Debts, except for contingent indemnification obligations for which no claim has been asserted).

Anything contained herein to the contrary notwithstanding, the obligations of the Guarantor hereunder at any time shall be limited to an aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of the Bankruptcy Code (Title 11, United States Code) or any comparable provisions of any similar federal or state law

1.7.5. Ambiguity: Father of a friend who is 96 years old

From a Facebook comment: “A father of a friend who just turned 96 is a lifelong reader ….”

QUESTION 1: Who just turned 96 — the friend, or the father of the friend?

QUESTION 2: Does this imply that the friend has more than one father?

QUESTION 3: How could this be rewritten — perhaps by moving some key words around and adding some punctuation?

1.7.6. Reading discussion: Expense reimbursment; interest charges

FACTS: Gigunda’s services agreement template says that MathWhiz must comply with Gigunda’s expense reimbursement policy. Mary Marvel, the MathWhiz CEO, asks what you think.

  • QUESTION 1: What advice do you have for her?

FACTS: Gigunda’s services agreement template also says that MathWhiz must submit its invoices no later than 15 days after the end of a calendar quarter.

  • QUESTION 2: What do you think Gigunda’s motivation is?
  • QUESTION 3: Will MathWhiz even care? Why or why not?
  • QUESTION 4: What do you advise Mary Marvel?

FACTS: MathWhiz wants to include, in its services agreement template, a provision for charging interest. • Mary says that she’s heard of something called a “usury-savings clause,” and asks whether such a clause should be included in the MathWhiz template.

  • QUESTION 5: From a purely-business perspective, what do we not know, that we might want to find out, before trying to advise Mary?

FACTS: For particular MathWhiz obligations, Mary wants the MathWhiz services agreement template to require only that MathWhiz use its “best efforts” to perform its obligations.

  • QUESTION 6: Is this a “safe” clause to include? Why or why not?

FACTS: Gigunda wants the MathWhiz contract to say that if MathWhiz doesn’t submit an invoice for work within ten days after the end of the calendar quarter in which the work is done, then MathWhiz will be deemed to have waived payment of the invoice.

  • QUESTION 7: Why might Gigunda want this?
  • QUESTION 8: How might you advise MathWhiz about this?
  1. QUESTION 9: What does “1% 15 days, net 30” mean?

FACTS: Assume that Gigunda is a Very Big Company, along the lines of ExxonMobil or Chevron.

  • QUESTION 10: Should you recommend that MathWhiz ask Gigunda to establish payment security?

FACTS: MathWhiz is asked, by a startup-company customer, to do a project that will require MathWhiz to invest a lot of time and resources. Mary Marvel asks you about options for payment security.

  • QUESTION 11: What might you advise Mary about payment security?
  • QUESTION 12: Would you want the startup-company customer to confirm itself that it has arranged for payment security? Or would it be better for MathWhiz to get more confirmation than that?

1.7.7. Rewriting exercise: “Gross up”

BEFORE: From this guaranty:

2. No Setoff or Deductions; Taxes; Payments. The Guarantor represents and warrants that it is organized in the United States of America. The Guarantor shall make all payments hereunder without setoff, counterclaim, restrictions or condition, and free and clear of and without deduction for any taxes, levies, imposts, duties, charges, fees, deductions or withholdings of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority therein unless the Guarantor is compelled by law to make such deduction or withholding. If any such obligation (other than one arising (i) with respect to taxes based on or measured by the net income or profits of the Lender, or (ii) with respect to any withholding tax to the extent that such withholding tax would have been imposed on the relevant payment to the Lender under the laws and treaties in effect at the time such Lender first became a party to this Agreement or otherwise became entitled to any rights hereunder) is imposed upon the Guarantor with respect to any amount payable by it hereunder, the Guarantor will pay to the Lender, on the date on which such amount is due and payable hereunder, such additional amount in U.S. dollars as shall be necessary to enable the Lender to receive the same net amount which the Lender would have received on such due date had no such obligation been imposed upon the Guarantor. The Guarantor will deliver promptly to the Lender certificates or other valid vouchers (to the extent available) for all taxes or other charges deducted from or paid with respect to payments made by the Guarantor hereunder. The obligations of the Guarantor under this paragraph shall survive the payment in full of the Guaranteed Obligations and termination of this Guaranty.

We’ll do the following:

  • Exercise 1 first;
  • Discussion of Exercise 1;
  • Exercise 2.

EXERCISE 1: Do the following in the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4: Play around with breaking up and simplifying the second sentence: “The Guarantor shall make all payments hereunder without setoff, counterclaim, restrictions or condition, and free and clear of and without deduction for any taxes, levies, imposts, duties, charges, fees, deductions or withholdings of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority therein unless the Guarantor is compelled by law to make such deduction or withholding.”

  • Consider breaking the sentence into two, or even three, paragraphs.
  • Think about creating one or more defined terms in their own paragraphs.
  • Think about spinning off the concluding exception into its own paragraph, then forward-referencing it in the “main” paragraph(s).
  • Don’t number your paragraphs yet.
  • QUESTION: Given the bold-faced heading of the “BEFORE” version, does the first sentence really belong in this provision?

DCT REWRITE:

(a) The Guarantor must make all payments under this Guaranty without “Setoff” or — except as provided in subdivision (d) below — deduction for “Taxes,” each as defined below.

(b) “Setoff” referes to any setoff, counterclaim, restrictions or condition.

(c) “Taxes” refers to any and all taxes, levies, imposts, duties, charges, fees, deductions or withholdings of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority.

(d) Guarantor may withhold Taxes from a payment only to the extent compelled by law.

EXERCISE 2: Rewrite just the italicized portion above (quoted below) to be much more reader-friendly — as though you were talking to a lay jury. (Hint: BLUF.)

If any such obligation (other than one arising (i) with respect to taxes based on or measured by the net income or profits of the Lender, or (ii) with respect to any withholding tax to the extent that such withholding tax would have been imposed on the relevant payment to the Lender under the laws and treaties in effect at the time such Lender first became a party to this Agreement or otherwise became entitled to any rights hereunder) is imposed upon the Guarantor with respect to any amount payable by it hereunder, the Guarantor will pay to the Lender, on the date on which such amount is due and payable hereunder, such additional amount in U.S. dollars as shall be necessary to enable the Lender to receive the same net amount which the Lender would have received on such due date had no such obligation been imposed upon the Guarantor.

1.7.8. Small-group session: In-the-practice issues

FACTS: An apartment lease states (in part): “The apartment shall be regularly serviced by a professional pest-control service.”

  • QUESTION 1: This is an example of what? (Two words — and the words are not “passive voice.”)
  • QUESTION 2: Is this an example of acceptable drafting? Why or why not?

FACTS: Same as the previous question.

  • QUESTION 3: Are there any circumstances in which the above-quoted apartment lease provision might be sort-of acceptable, in the sense of “hold your nose and go along with it”? (Hint: Consider the role that context plays in interpreting contract language.)

FACTS: You have graduated and are working as an associate for the law firm representing MathWhiz; you’ve just taken the bar exam. You’ve been asked to review a MathWhiz contract draft that has been prepared by a rising-2L summer associate.

The draft says: “Gigunda represents that it shall arrange to pay MathWhiz a deposit in the sum-total amount of $10 thousand dollars ($10,000.00) no later than 10 days after this Agreement has been executed.”

  • QUESTION 4: Could the wording of this provision be improved? How?

FACTS: Mary Marvel asks you to add, in the background of the MathWhiz agreement with Gigunda, the following sentence: “Gigunda acknowledges that MathWhiz’s data-processing algorithms are unique and MathWhiz’s extremely-valuable trade secret.”

  • QUESTION 5: What’s your response to Mary, and why?

1.7.9. From the practice

DCT to recount an address-for-notice provision in a contract reviewed for a client — the other side (a Gigunda-style company) insisted on a detailed notice provision with lots of “with a copy to …” subclauses.

1.8. Class 08: Mon. Sep. 19

1.8.1. Ambiguity: Wife Appreciation Day

A tweet from yesterday: “I just learned that today is Wife Appreciation Day. The wording is ambiguous. Does that mean you’re supposed to appreciate her or that she should appreciate you.”

(Most of the replies were in the vein of, for example, “You really want trouble, do you?”)

1.8.2. Housekeeping: Group reshuffling on Wednesday

As mentioned at the start of the semester: So that students will get a chance to work with others, on Wednesday we’ll reshuffle the groups, this time alphabetically by last name (but listed here by first name only, so that the full names won’t be on the Web for all to see):

6:00 p.m.:
GROUP 1: Jonathan, Ashley, Rachel, William
GROUP 2: Aaron, Alexis, Mallika, Caroline
GROUP 3: Mohammad, Zeb, Ryan, David
GROUP 4: P.J., Matthew, Lucy, Connor

7:30 p.m. class:
GROUP 1: Luke, Robert, Christopher, Roshni
GROUP 2: Marissa, Jason, Steven
GROUP 3: Monica, Jasim, Colleen, Matthew
GROUP 4: Kimberly, Farhad, Mitchell

(We’ll do one more reshuffling during the semester in late October.)

1.8.3. Not ambiguous: A terminating party shoots itself in the foot

From a 2021 Delaware chancery-court case:

FACTS:

  1. A merger agreement provided, in section 8.1, that if the merger was not “closed” by a specified date, then either party could pull the plug (so to speak), that is, terminate the merger agreement, as long as that party’s breach was not responsible for the failure to close.
  2. The merger agreement also stated in part as follows:

Section 8.2 Effect of Termination. In the event of any termination of this Agreement as provided in Section 8.1, the obligations of the parties shall terminate and there shall be no liability on the part of any party with respect thereto, except for … [list of surviving clauses omitted] … nothing contained herein shall relieve any party from liability for damages arising out of any fraud occurring prior to such termination ….

  1. For reasons not important here, one of the parties:
    • pulled the plug, i.e., terminated the merger agreement, as provided in the aforementioned section 8.1; and
    • sued the other parties in Delaware chancery court for breach.
  2. Citing section 8.2, the defendants filed a Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted, on grounds that section 8.2 precluded liability.
  3. The plaintiff (i.e., the party that pulled the plug under section 8.1) claimed that the “no liability … with respect thereto” in section 8.2 meant no liability with respect to the termination itself, as opposed to no liability with respect to breach of the obligations of the Agreement.

The Delaware chancery court disagreed: “Under the Merger Agreement’s plain terms, Yatra extinguished its breach of contract claims when it elected to terminate the Merger Agreement,”

Of course, an agreement is not ambiguous simply because the parties disagree about its interpretation.

Rather, a contract is ambiguous only when the provisions in controversy are reasonably or fairly susceptible of different interpretations or may have two or more different meanings.

By contrast, a contract is unambiguous when the agreement’s ordinary meaning leaves no room for uncertainty, and the plain, common, and ordinary meaning of the words lends itself to only one reasonable interpretation.

[Plaintiff’s] reading of the Effect of Termination provision stretches the words beyond their tolerance.

The comma following “Section 8.1” breaks the sentence, reading naturally to indicate the Merger Agreement’s drafters intended the phrase “with respect thereto” to modify “the obligations of the parties” as opposed to “any termination of this agreement.”

Further, [Plaintiff’s] position—that the provision only extinguishes liability arising from “any termination of this Agreement”—is inconsistent with the language immediately following “with respect thereto,” which “except[s]” certain obligations under the Merger Agreement, as specifically enumerated, from the effects of the contractual limitation of liability. That clause would be superfluous if the effect of the provision was to limit liability only arising from the act of terminating the Merger Agreement.

Moreover, contrary to Yatra’s contention that termination leaves claims for breach of contract based on prior acts unaffected, Section 8.2 expressly carves out only liability for “fraud occurring prior to such termination,” implying that liability for all other claims (including contract-based claims) for acts “occurring prior” to termination do no survive post-termination.

Yatra Online, Inc. v. Ebix, Inc., No. 2020-0440, slip op. at 23 (Del. Ch. Aug. 30, 2021) (quotation edited), aff’d w/o opinion, 276 A.3d 476 (Del. 2022).

1.8.4. (Re)drafting exercise

The excerpt below is another part of the gross-up provision we worked on last week.

QUESTION: Given the subheading of the excerpt below, does the first sentence even belong? How could that be fixed?

EXERCISE: In your groups and using the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4, rewrite the second sentence:

[BEGIN]

2.  No Setoff or Deductions; Taxes; Payments. The Guarantor represents and warrants that it is organized in the United States of America. … If any such obligation (other than one arising (i) with respect to taxes based on or measured by the net income or profits of the Lender, or (ii) with respect to any withholding tax to the extent that such withholding tax would have been imposed on the relevant payment to the Lender under the laws and treaties in effect at the time such Lender first became a party to this Agreement or otherwise became entitled to any rights hereunder) is imposed upon the Guarantor with respect to any amount payable by it hereunder, the Guarantor will pay to the Lender, on the date on which such amount is due and payable hereunder, such additional amount in U.S. dollars as shall be necessary to enable the Lender to receive the same net amount which the Lender would have received on such due date had no such obligation been imposed upon the Guarantor.

[END] p SUGGESTIONS:

– Consider breaking the second sentence into two, or even three, paragraphs.

– Think about creating one or more defined terms in their own paragraphs.

– Think about spinning off the “other than” exception into its own paragraph, then forward-referencing it in the “main” paragraph(s).

– Number your paragraphs in some way that will allow you to forward-reference the “other than” exception paragraph.

2.  No Setoff or Deductions; Taxes; Payments. The Guarantor represents and warrants that it is organized in the United States of America.

(a) Net-payment obligation: The Guarantor shall make all payments hereunder without “Deduction,” as defined in subdivision (b) below. unless the Guarantor is compelled by law to make such Deduction.

(b) Definition: Deduction: The term “Deduction” refers to one or more of the following:

          (1) any setoff, counterclaim, restriction, or condition, and

          (2)  any Tax Payment,” namely any tax, levy, impost, duty, charge, fee, deduction, or withholding, of any nature, now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority therein.

(c) Gross-up payment required:

          (1) This subdivision (c) will apply if, for any Guarantor payment to the Lender (“Guarantor Payment”), the Guarantor is compelled by law to pay part of that Guarantor Payment to a governmental authority as a Tax Payment (see subdivision (b)(2) above).

          (2)  In any such event, except as provided in subdivision (d) below, the Guarantor will pay to the Lender — on no later than the date on which such Guarantor Payment is due and payable to the Lender — a “Gross-Up Payment,namely an additional amount, in U.S. dollars, so that the Lender will receive the same net total amount as the Lender would have received, on that due date, if the Guarantor had not been compelled by law to pay paid the Tax Payment.

(d) Exception for Lender’s income taxes, etc.: The Guarantor need not pay the Lender a Gross-Up Payment if the Tax Payment was made in respect of:

          (1)  taxes based on or measured by the net income or profits of the Lender, or

          (2)  to any withholding tax to the extent that such withholding tax would have been imposed on the relevant payment to the Lender under the laws and treaties in effect at the time such Lender first became a party to this Agreement or otherwise became entitled to any rights hereunder.

(Bold-faced emphasis added for pedagogical purposes.)

Note my use of:

  • short, mostly-single-subject paragraphs;
  • more-conversational language;
  • in subdivision (c)(2), the back-reference to the definition of subdivision (b)(2) – but that could lead to editing mistakes;
  • italics in (c)(2) for “except”;
  • em-dashes in (c)(2)

1.8.5. Reading discussion

Feel free to use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4.

  1. QUESTION: What are some possible dangers of including “good faith” requirements in a contract?
  2. FACTS:

    • For a particular contract, MathWhiz and Gigunda exchange drafts by email, redlining changes as they go.
    • Gigunda’s lawyer emails you a PDF of the complete agreement, with the signature page signed by a Gigunda VP (let’s assume the VP has actual authority to sign).
    • You previously asked Gigunda’s lawyers to include a redlining representation but they declined; Mary Marvel (the MathWhiz CEO) said that she really wanted to get the contract signed, so she was going to hold her nose and sign despite this hint that Gigunda might not be the best of business partners.

    QUESTION: Before getting Mary Marvel to countersign for MathWhiz, how could you get comfortable that Gigunda didn’t surreptitously sneak in some changes to the document?

  3. QUESTION: Why include a status-conferences requirement?
  4. QUESTION: As a practical matter, is it worth bothering to state in a contract that the parties are “independent contractors”? EXPLAIN.
  5. FACTS:

    • MathWhiz and Gigunda are negotiating the data-crunching services agreement.
    • The MathWhiz CEO, Mary Marvel, asks you to insert a provision requiring Gigunda to obtain MathWhiz’s prior consent before displaying MathWhiz’s results on any non-Apple computer — that’s because Mary doesn’t trust the security features in other computers.

    QUESTION: How might you respond to Mary?

  6. FACTS: Same as in #5; Gigunda wants the amendments-in-writing provision to state that under Gigunda’s company policy, any amendments to either the contract or the statement of work must be signed by Gary Greenie, the VP of the division that is hiring MathWhiz.

    QUESTION: What kinds of “what if?” scenarios might you want to discuss with Mary?

  7. QUESTION: When drafting a contract with the possibility of future litigation in the back of your mind: What’s your guess as to what might provide “the biggest bang for the buck”?
  8. QUESTION: What is an “agency cost”? Give an example.

1.8.6. Ambiguity: Bingo

Spotted in a Facebook group: “My eight year old just asked me if Bingo is the name of the farmer or the dog. And now I am questioning everything I thought I knew about life.” (Credit: @whitneyhemsath.)

1.8.7. Exercise: Late payment

From a real-world contract clause: “(4) Penalty for late payments: Late payments are subject to a penalty of 5%.”

EXERCISE: Spot the issues.

(Be careful — as stated, the facts give rise to some hidden issues!)

1.8.8. Incentives & business planning: The Texas electrical grid

The Great Texas Blackout of February 2021 serves as a large-scale example of the importance of incentives. Recall the observation of Warren Buffett’s business partner Charlie Munger (section 11.7.3 in the readings): “Never a year passes but I get some surprise that pushes a little further my appreciation of incentive superpower. * * * Never, ever, think about something else when you should be thinking about the power of incentives.” (Emphasis added.)

The incentives available to Texas power generators appear to have played a major role in the blackout:

When it gets really cold, it can be hard to produce electricity, as customers in Texas and neighboring states are finding out. But it’s not impossible. Operators in Alaska, Canada, Maine, Norway and Siberia do it all the time.

What has sent Texas reeling is not an engineering problem, nor is it the frozen wind turbines blamed by prominent Republicans. It is a financial structure for power generation that offers no incentives to power plant operators to prepare for winter.

Will Englund, The Texas grid got crushed because its operators didn’t see the need to prepare for cold weather (WashingtonPost.com Feb. 16, 2021) (extra paragraphing added).

And from the NY Times:

One example of how Texas has gone it alone is its refusal to enforce a “reserve margin” of extra power available above expected demand, unlike all other power systems around North America. With no mandate, there is little incentive to invest in precautions for events, such as a Southern snowstorm, that are rare. Any company that took such precautions would put itself at a competitive disadvantage.

Clifford Krauss, Manny Fernandez, Ivan Penn and Rick Rojas, How Texas’ Drive for Energy Independence Set It Up for Disaster (NYTimes.com Feb. 21, 2021) (emphasis added).

1.8.9. Ambiguity in an obituary: Going to heaven

From an obituary: “Pamela went to heaven surrounded by family whom she loved ….” QUESTION: What possibilities does this line evoke in your minds?

1.9. Class 09: Wed. Sep. 21

1.9.1. Housekeeping: Group reshuffling

As mentioned on Monday, I’m reshuffling the groups; the alphabetical-order sorting resulted in less-than-optimal remixing, so I made a few adjustments to the groupings:

6:00 p.m.:
GROUP 1: Jonathan, Ashley, Mohammad, William
GROUP 2: Aaron, Connor, Mallika, Caroline
GROUP 3: Matthew, Zeb, Ryan, David
GROUP 4: P.J., Rachel, Lucy, Alexis,

7:30 p.m. class:
GROUP 1: Marissa, Robert, Christopher, Roshni
GROUP 2: Luke, Jason F., Mitchell
GROUP 3: Monica, Jason K., Colleen, Matthew
GROUP 4: Kimberly, Farhad, Steven

(We’ll do one more reshuffling during the semester in late October.)

1.9.2. Housekeeping: How I track attendance

Reminder: At the end of the semester I’ll be downloading an attendance-report spreadsheet from Canvas and counting the number of absences to determine how many points (if any) that each student will lose due to the “clawback.”

1.9.3. Ambiguity: Paul McCartney’s toothy, boyish grin

From this essay about the eight-hour Get Back documentary, referring in this quote to Paul McCartney:

We see a toothy, boyish, involuntary grin, different to [sic; from, or than] his practiced public smile, which lights up his face when John makes a joke or Billy Preston plays a ravishing lick on the keyboard.

QUESTION: Which of these “lights up [McCartney’s] face” — his involuntary grin? Or his practiced public smile? (The answer should be obvious, but the words themselves leave this open.)

QUESTION: How could this ambiguity be resolved with just a change of internal punctuation?

1.9.4. Preview: Texas Oilfield Anti-Indemnity Act

From a Fifth Circuit opinion:

The Texas Oilfield Anti-Indemnity Act (“TOAIA”) voids indemnity agreements that pertain to wells for oil, gas, or water or to mineral mines, unless the indemnity agreement is supported by, inter alia, liability insurance.

 * * *

When the parties agree to provide differing or unspecified amounts of coverage, the mutual indemnity obligations are limited to the lower amount of insurance.

 * * *

CP Well contended that it only agreed to maintain $1 million in general liability insurance and $2 million in excess liability insurance to meet its indemnification obligation under the MSA; the remaining coverage in its excess liability coverage was thus not for the benefit of Cimarex.

In response, Cimarex contended that because CP Well obtained a $1 million general liability policy and a $10 million excess liability policy, CP Well effectively agreed to maintain $11 million in indemnity coverage for Cimarex’s benefit.

 * * *

Enter TOAIA. The statute states that, “[w]ith respect to a mutual indemnity obligation, the indemnity obligation is limited to the extent of the coverage and dollar limits of insurance . . . each party as indemnitor has agreed to obtain for the benefit of the other party as indemnitee.” Tex. Civ. Prac. & Rem. Code Ann. § 127.005(b).

 * * *

The parties in this case agreed to indemnify each other, consistent with TOAIA, by setting a “floor” of required insurance coverage each was to obtain. They were free to procure more. CP Well obtained a policy that expressly set the “ceiling” of coverage “for the benefit [of Cimarex] as indemnitee” at the minimum “floor” provided by the parties’ contract. CP Well did not breach its contractual duties to Cimarex in doing so.

Cimarex Energy Co. v. CP Well Testing, L.L.C., 26 F.4th 683, passim (5th Cir. 2022) (cleaned up, emphasis and extra paragraphing added): The court affirmed summary judgment that CP Well owed no further indemnity than the contract’s minimum insurance requirement.

1.9.5. Employment agreement homework review (part 1)

I’m still working my way through the employment agreements that you drafted; here are some comments that I’ve harvested.

  1. General comment: It can be useful for executives to sign a “standard” employment agreement along with an addendum; see this blog post from 2015.
  2. TEXT: “This employment agreement is between you and MathWhiz regarding your position of Director of Business Development.”

    COMMENT: For a new hire, the letter would typically start as something like: “MathWhiz is pleased to offer you the position of Director of Business Development on the terms and conditions stated in this letter.”

  3. TEXT: “For the term of your employment, MathWhiz agrees to employ you in the position of Director of Business Development.”

    COMMENT: The italicized part of this sentence could be argued to imply that there’s a fixed term of employment (although the later “at will” language seemingly negates any such argument).

  4. TEXT: “MathWhiz agrees to employ you in the position of Director of Business Developer [sic; Development].”

    COMMENT: If this were a purchase-and-sale agreement, you’d want to say (in effect) BOTH that Seller agrees to sell AND Buyer agrees to buy — otherwise it’d be an option, exercisable at Buyer’s discretion.

  5. TEXT: “You will report to Mary Marvel (the “CEO”).”

    COMMENT: If Mary is the one who will be signing the letter, this will look a little funny.

  6. TEXT: “Your employment shall be “at will,” ….”

    COMMENT: I’m not fond of “shall be,” especially in letter agreements — use “is” or “will be” or (if imperative) “must be.”

  7. TEXT: “Your position will be full-time. You agree to work onsite at Company’s facility or on Company directed travel for at least 50% of your total working hours. For the first year of your employment, you may work remotely for up to 50% of your total working hours. After the first year, Company may, upon reasonable consultation with you, adjust your remote working hours at Company’s discretion.”

    COMMENT: Maybe a separate paragraph for this currently-significant topic (remote work)?

  8. TEXT: “Your annual salary will be [ADD: at an annual rate of] $[INSERT SALARY AMOUNT] ….”

    COMMENT: We want to rule out the employee claiming that s/he was entitled to a full year’s pay no matter how long she worked during the year.

1.9.6. Exercise: Employment agreement - bonus eligibility

In your groups, using the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4, break up the following, from an employment agreement for the vice-chairman of the board of The Men’s Wearhouse:

[BEGIN]

In addition to the Annual Salary, Employee shall have an opportunity to earn an annual cash bonus (the “Bonus”) in respect of each fiscal year of the Company in accordance with the terms of the Company’s annual cash bonus program for executive officers then existing for such fiscal year based on the achievement of performance objectives as may be established from time to time by the Board of Directors or a committee thereof; provided, however, that, except as otherwise provided herein, the Bonus for any fiscal year shall be payable to Employee only if Employee is employed by the Company on the date on which such Bonus is paid, except that if Employee remains employed by the Company through February 5, 2017 as contemplated hereunder, then Employee shall be entitled to receive any Bonus earned for the fiscal year ending January 30, 2017 notwithstanding the fact that Employee ceases to be an employee after February 5, 2017. In no event will such Bonus be paid later than the last day of the third month following the close of the Company’s fiscal year to which such Bonus relates. Employee’s target annual cash bonus opportunity shall be set from time to by the Board of Directors or a committee thereof, but such bonus opportunity shall not be less than 100% of Employee’s Annual Salary for any given year (the “Target Bonus”). The actual Bonus payable may be greater or lesser than the Target Bonus and shall be determined consistent with the criteria set for other senior management executives at the Company by the Board of Directors or a committee thereof, based on such factors as it shall determine.

[END]

1.9.7. (New:) A clause-expansion checklist

This is an experiment: When reviewing a contract drafted by someone else, do the following:

  1. Add a comment somewhere at the top to inform the (hypothetical) drafter that you’re expanding the formatting – and briefly explain why you’re doing so.
  2. Provisionally break each sentence into its own paragraph — don’t number or letter the paragraphs (yet).
  3. Stomp out “xxx; provided, that xxxx” — make it a separate paragraph (usually)
  4. Fix any examples of D.R.Y. for numbers.
  5. Look for things — e.g., in-sentence lists — that can be spun off into separate “defined terms” paragraphs.
  6. In a “scratchpad,” for each action sentence, fill out the A.T.E.D worksheet (just below).

1.9.8. A.T.E.D. worksheet: A structured approach to (re)drafting a complex provision

Comments and suggestions are welcome – I’m not convinced this is optimal yet.

For any long-ish provision, write out an answer to the following questions:

  1. Action: Which party must do (or refrain from doing) what?
  2. Trigger(s): Is this requirement an absolute one, or will it come into effect only if triggered, and if the latter what is/are the triggers?
  3. Exceptions: Are there any “escape clauses” for this required action (or non-action?
  4. Defined terms? Are there any defined terms whose definitions could be spun off into separate paragraphs?

EXAMPLE: Consider the gross-up language that we previously looked at and rewrote:

2. No Setoff or Deductions; Taxes; Payments. … If any such obligation (other than one arising (i) with respect to taxes based on or measured by the net income or profits of the Lender, or (ii) with respect to any withholding tax to the extent that such withholding tax would have been imposed on the relevant payment to the Lender under the laws and treaties in effect at the time such Lender first became a party to this Agreement or otherwise became entitled to any rights hereunder) is imposed upon the Guarantor with respect to any amount payable by it hereunder, the Guarantor will pay to the Lender, on the date on which such amount is due and payable hereunder, such additional amount in U.S. dollars as shall be necessary to enable the Lender to receive the same net amount which the Lender would have received on such due date had no such obligation been imposed upon the Guarantor. …

For each action or other requirement (including prohibitions), answer each question below with SHORT, complete sentences, in possibly executive-summary and bullet-point form — be aggressive about deferring details until subsequent subdivisions.

  1. Action: Which party must do (or refrain from doing) what?

    EXAMPLE: The Guarantor must pay a Gross-Up Amount (defined below) to the Lender.

  2. Trigger(s): Is this requirement an absolute one, or will it come into effect only if triggered, and if the latter what is/are the triggers?

    EXAMPLE: The Guarantor is required to pay the Gross-Up Amount only if the Guarantor is required by law to withhold an amount from a payment to the Lender.

  3. Exceptions: Are there any “escape clauses” for this requirement?

    EXAMPLE: The Guarantor need not pay the Gross-Up Amount if the required withholding is for any of the following:

    • taxes based on, or measured by, the net income or profits of the Lender, or
    • taxes that would have been imposed on the relevant payment to the Lender under the laws and treaties in effect at the time the Lender first became a party to this Agreement or otherwise became entitled to any rights hereunder
  4. Defined terms?

    The term “Gross-Up Amount” refers to an additional amount, in U.S. dollars, that would cause the Lender to receive the same net amount that the Lender would have received without withholding.

1.9.9. Small-group exercise & reading review: Notices

Feel free to use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4

  1. TEXT: “A copy of any notice required under this Agreement shall also be sent to the law firm representing the party to be noticed.”

    QUESTION: Thoughts? What disputes might arise?

  2. TEXT: “Notice will be effective … after two reasonable attempts at serving notice.”

    QUESTION: Thoughts? What disputes might arise?

  3. TEXT: “Notices are effective when (a) sent via certified mail and (b) upon receipt, refusal, or reasonable efforts at delivery.”

    QUESTION: Would notice by FedEx, with confirmed receipt, be effective under this provision?

  4. TEXT: “12.02. Mechanics. To be effective, notice must be: (i) in writing; (ii) addressed to the attention of the receiving party; (iii) accompanied by a copy to the legal department; and (iv) sent by Certified Mail.”

    QUESTION: Thoughts? What disputes might arise?

  5. TEXT: “Notices may be sent to either party’s registered agent.”

    QUESTION: Thoughts? Is this a good balancing of the risk of nondelivery versus the time it takes for notice to reach the right person?

    (Remember: By law in essentially all states, any corporation that does business in a state must have a registered agent in that state so that a plaintiff in that state will have a definite person or organization upon whom to effect service of process, e.g., a summons and complaint.)

  6. TEXT: “If either party changes their [sic] address during the duration of this Agreement, they [sic] shall promptly notify the other party of the address change via certified mail.”

    COMMENT: Should be “it shall promptly notify the other party ….” (Pronoun choice hasn’t made its way to the business-contract-drafting world yet.)

    QUESTION: Does this make sense?

  7. TEXT: A notice will be effective “five business days after the date it is sent by domestic registered or certified mail, with postage and charges prepaid, ….”

    QUESTION: Any thoughts?

  8. TEXT: “All notices required under this Agreement must be in writing and sent by any method with written verification of receipt. [¶] To reduce the chances of Notices going astray, any Notice to an organization must be addressed to the attention of the position of responsibility in the organization.”

    QUESTION: What happens in case of an undeliverable notice?

    QUESTION: Do we need a defined term for “Notices”?

1.9.10. Real-world R.O.O.F.: Citibank won’t will get back $500M after all

Background: Citi Can’t Get Back $500 Million It Accidentally Wired To Revlon Lenders, Federal Judge Rules (see also the court’s findings of fact and conclusions of law)

From the S.D.N.Y.’s findings of fact (slip op. at 11-16): Three different people misinterpreted the information displayed on the wire-transfer software.

Second Circuit on Sept. 8: Vacated and remanded; “[t]he traditional rule of New York law governing mistaken payments generally calls for restitution of the mistaken payment unless the recipient so significantly changed its position in reliance on the mistake that it would be unjust to require repayment. … The facts were sufficiently troublesome that a reasonably prudent investor would have made reasonable inquiry, and reasonable inquiry would have revealed that the payment was made in error.” (Emphasis added.)

LESSON: It took two years — and who knows how much in legal fees — for Citi to get the Second Circuit to rescue it from an employee [foul]-up. “You get what you INspect, not what you EXpect.” (And: Second-checking can be a lifesaver.)

1.9.11. Reading preview: Methodical business planning

[DCT to talk through chapter 19 in the readings, which is especially salient in view of the COVID-19 pandemic (with its supply-chain disruption); shipping delays due to traffic jams at ports (ditto); the Great Texas Blackout of 2021; and recent hurricanes.]

1.9.12. Travel tips: Hotel safety (from former “spook”)

See this article.

(The article is the subject of much discussion — often-sardonic and occasionally inane, but sometimes-useful — by techies; see Hacker News.)

1.10. Class 10: Mon. Sep. 26

1.10.1. In the news: “Amazon routinely hire dangerous trucking companies …”

See this article (paywalled). Excerpt:

Amazon.com has rapidly built a sprawling network to move merchandise around the nation’s highways. Many of the trucking companies it hired for all that driving are more dangerous than their peers, sometimes fatally so.

LESSON: This reinforces the lesson that just saying that parties are independent contracts won’t necessarily make it so. (The article doesn’t clearly indicate that Amazon itself has been sued for trucking accidents, but it wouldn’t be surprising.)

EXCERPT: “[Trucking Company A] was incorporated in the name of Mr. Izurieta’s then 21-year-old daughter three days after [Trucking Company B’s] safety rating was downgraded ….”

QUESTION: Any thoughts about what business incentives Amazon might have to hire relatively-unknown trucking companies?

QUESTION: What kind of provision(s) might a company in Amazon’s position perhaps want to include in its agreements with contractors of this general nature?

1.10.2. Ambiguity: “Only” and short-term trading

TEXT, from a Hacker News discussion: “You should only short term trade with your 401k.”

QUESTION: How can this sentence be clarified by simply moving words around? (There are two possible meanings.)

1.10.3. “Don’t sign blank checks” - article to read

This online article is by Kyle Mitchell, a (younger) lawyer friend of DCT in California.

1.10.4. Question: Readability of “line-item” approach

I’m toying with the idea of model contract terms in an operating-manual format.

Example: A payment-terms provision might be phrased along the following lines:

PAYEE – MUST DO:

Unless otherwise agreed in writing:

  1. Send an invoice for each payment.
    • In each invoice, itemize all taxes being charged.
    • Write each invoice in the contract language.
    • In each invoice, include a translation into any language required by law.
    • Exception: You need not send an invoice if the contract clearly states a specific amount to be paid on or before a specific date.

PAYEE – MUST NOT DO:

Unless otherwise agreed in writing:

  1. Do not invoice expenses.
  2. If the contract allows you to invoice expenses, do not mark them up.

[Then include line items for “May Do” and “Must Not Do”]

PAYER – MUST DO:

Unless otherwise agreed in writing:

  1. Pay each invoice net 30 days.
    • Raise any payment disputes before the payment due date.
    • Pay undisputed amounts no later than the payment due date.

PAYER – MAY DO:

  1. You may offset amounts due from you to the payer against amounts due to you from the payer.
    • You may offset only “liquidated” amounts already due.
    • You must provide the payee with a reasonably-detailed explanation and reasonable supporting documentation.

[Then include line items for “Must Not Do”]

1.10.5. Reading review: Developing a “tough” standard form

FACTS:

1.  MathWhiz asks you to develop a form of services agreement for where MathWhiz is the service provider. The agreement form will be posted on MathWhiz’s Web site so that MathWhiz’s customers can easily review the agreement form.

2.  MathWhiz’s business-development VP wants you to make the form as tough as you can, to give MathWhiz maximum legal advantage over its customers.

3.  You happen to know that MathWhiz also needs to engage another company to provide certain specialized services — that is, MathWhiz will itself be the customer.

QUESTION: Any thoughts?

1.10.6. Read-along: Reps and warranties

1.10.7. Homework review: Employment agreement

  1. TEXT: “Dear Dave Doright, ….” ANOTHER TEXT: “Dear Mr. Dave Doright, ….”

    DCT COMMENTS: For a business letter agreement, It’d be “Dear Dave:” (first name only, and with a colon, not a comma).

  2. TEXT: “The terms of this agreement can be subject to change.”

    DCT COMMENT: This shouldn’t be included — for “at will” employment, it’s a given, so there’s no need to rub Dave’s face in it.

  3. TEXT: “I have not relied upon any other verbal, oral, or written statements, other than the ones contained in this Employment Offer.”

    DCT COMMENT: Good thought, but I think I’d leave it out.

  4. TEXT: “The Company will pay you an annual salary of [$XXX,XXX.XX], payable in 24 semi-monthly payments.”

    DCT COMMENT: You’d want to say “a salary at a gross annual rate of ….” for reasons discussed in class — the “24 semi-monthly payments” language would arguably support Dave’s argument that he’d be entitled to a full year’s salary if he were to be let go without cause.

  5. TEXT: “This letter confirms our oral agreement ….”

    DCT COMMENT: You probably don’t want this — the offer letter is “it”; you don’t want to leave a paper trail helping Dave to prove up a claim that there was a (supposedly-binding) oral agreement that (according to Dave) differed from what’s stated in the offer letter.

  6. TEXT: “In consideration of your excellent qualifications and references, I look forward to you joining the MathWhiz team and have full confidence that you will make a significant contribution to our business development efforts.”

    DCT COMMENT: I wouldn’t say “In consideration of your excellent qualifications and references” — if litigation were ever to ensue between MathWhiz and Dave, the inclusion of “In consideration …” could be offered into evidence by Dave’s lawyer as evidence that MathWhiz had an opportunity to check Dave’s references and hired him after doing so.

  7. TEXT: “If these terms are agreeable, please countersign the enclosed copy of this letter and return it to me.”

    DCT COMMENT: The “enclosed copy” bit is really old-school (as in, creakily geriatric); it’s what I showed in my Tom Arnold NDA example, but that was in the early 1980s; I seriously doubt that many people use this approach in this day and age of email for pretty much everything.

  8. A couple of students’ submissions didn’t say anything about compensation — strictly speaking it’s not necessary, but it’s something that Dave likely will be very desirous of getting in writing.
  9. TEXT (in transmittal email to Mary): “I hope this Agreement is adequate ….”

    DCT COMMENT: I wouldn’t say this in an email to a client, even one I’d worked with for a long time — it doesn’t exactly bespeak confidence in one’s own work product ….

  10. TEXT: “Upon accepting this agreement, your employment by MathWhiz shall be in compliance by the following terms and conditions (this ‘Agreement’).”
    • DCT COMMENT 1: So it’s “your employment by MathWhiz” that will be accepting the agreement? (Look up “dangling participial phrase” – see, e.g., this article.)
    • DCT COMMENT 2: So who is obligated by this sentence?
    • DCT COMMENT 3: Also “shall be in compliance with the following” would not be the correct preposition; it’d be “shall be in compliance with the following ….”

1.10.8. Review: Reps & warranties

Discuss the following in your small groups:

  1. FACTS: Gigunda wants its contract with MathWhiz to include a representation that MathWhiz isn’t being sued by any of MathWhiz’s other clients.

    QUESTION: From MathWhiz’s perspective, which would be the better phrasing — and why?

    • OPTION 1: “To MathWhiz’s knowledge, there are no lawsuits or other claims pending or threatened by any MathWhiz client against MathWhiz.”
    • OPTION 2: “So far as MathWhiz’s officers at the vice-president level or higher are aware, there are no lawsuits or other claims pending or threatened by any MathWhiz client against MathWhiz.”

    EXPLAIN.

  2. FACTS:
    • (A) MathWhiz and Gigunda sign their contract for MathWhiz to perform services.
    • (B) The contract includes a MathWhiz warranty that MathWhiz will render the services in a “professional” manner.
    • (C) Later, Gigunda demands that MathWhiz reimburse Gigunda for damages allegedly arising out of MathWhiz’s professional malpractice.
    • QUESTION: If Gigunda were to sue MathWhiz for breach of warranty, would Gigunda be required to prove that Gigunda reasonably relied on MathWhiz’s warranty? EXPLAIN.
  3. QUESTION: Under English law, is it enough for a supplier to disclaim implied warranties? (Use the Yes or No button.) EXPLAIN.

1.10.9. Reading review: Various things

In small groups, be ready to discuss these:

  1. What happened to the Trump Organization when one of its contract clauses “boomeranged” on it? (This was in 2015 before Donald Trump announced his presidential candidacy.) (Hint: That part of the reading was here.)
  2. What’s DCT’s view of the term, “true and correct”? Do I have a preferred alternative? If so, why?
  3. In the Fail-Safe NDA case, what exactly went wrong for the plaintiff — as in, what did the plaintiff’s business people likely do, or not do, that caused problems for the plaintiff? (The reading: Here.)
  4. Any speculation about the historical basis for using “provided, however, that ….” (emphasis added) in wall-of-words contract provisions? (Hint: It’s been in past reading.)

1.11. Class 11: Wed. Sep. 28

1.11.1. Reading review

In small groups, be ready to discuss these:

  1. What does the reading material mean by the phrase, “hamburger for the guard dog”? Is there a good example to illustrate the point — maybe one that’s better than the one in the assigned reading? (The reading: Here.)
  2. In the Tilly’s case, how did the company’s contract language boomerang on the company? (The reading: Here.)
  3. Did Conan O’Brien’s lawyers do it right, or did they screw up, when he negotiated his Tonight Show hosting contract with NBC? (The reading: Here.)

1.11.2. In the news: Oracle gets hit with FCPA violation

1.11.3. Exercise: Contract interpretation - Latin maxims

QUESTION: If all else fails in trying to interpret a contract provision, what two-word Latin maxim about “against the drafter” will courts often follow?

QUESTION:

1.11.4. Exercise: Interest rate

FACTS: A partner in your firm sends you the following email: “Hey [your name], I’m heads-down on another matter — attached is a draft of a consulting-services agreement that I’m helping one of my clients negotiate; it has an interest clause in it, quoted below. Please make a recommendation about what I should say to the client about it.” The interest clause is the following:

Past-due amounts will bear interest at 5% per month, compounded monthly, beginning on the day after the due date until paid.

QUESTION (for breakout rooms): What are you going to recommend to the partner as far as what the partner should say to the client?

1.11.5. Exercise: Background check clause review & revision

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

EXERCISE: In the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4:

  1. Break up the “wall of words” in the provision below to make it more readable — think about whether a conversational style would work for some or all of it. Consider whether the ATED approach would be useful.
  2. Fix any drafting errors you see — including “style” errors, as though you were using the language below as a “go-by” in preparing your own first draft.
  3. As the attorney for Provider, build a list of substantive issues to discuss with Provider, e.g., whether Provider wants to offer up a particular term on the front end, or whether Provider instead wants to keep that term in reserve as a potential negotiation concession.

–BEGIN QUOTE–

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

–END QUOTE–

1.11.6. Exercise: Clause phrasing for yard work

FACTS:

  1. You are drafting a contract between your client Alice, and Bob, who owns a sole-proprietorship yard maintenance company that employs a number of workers.
  2. Under the contract, Bob’s workers are to replace the sod in Alice’s front yard.
  3. Bob won’t be personally doing any of that work — and the contract will be between Alice and Bob, not Alice and Bob’s workers.

QUESTION: How can you phrase this obligation so that it’s clear that Bob is responsible for making this happen, without making it a false imperative?

1.11.7. Small-group exercise: Selling Uncle Ed’s car

Feel free to use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4

FACTS: Your elderly, childless Uncle Ed is selling his car to a stranger and wants your help. He says he doesn’t know of any mechanical problems.

QUESTION 1: If the stranger asks Uncle Ed to represent and warrant in writing that the car has no problems, how might Uncle Ed respond as to the requested representation?

QUESTION 2: How might Uncle Ed respond as to the requested warranty?

1.11.8. Review - from real life: Business planning and the Paper Source bankruptcy

This goes into my SPP file, a.k.a. S**t People Pull:

A store chain, Paper Source:

  • ordered unusually-large quantities of merchandise from its small-business suppliers; and
  • shortly afterwards, filed for bankruptcy protection — which lets the chain (mostly) stiff the suppliers, likely paying them pennies on the dollar.

FTA: “Paper Source ordered more from The Card Bureau in a 60-day period than it had in all of 2020, according to Velencia.” Jeremy Hill, Paper Source Bankruptcy Squeezes Small Greeting Card Sellers (WashingtonPost.com March 5, 2021).

Lesson: When drafting a contract for a supplier, consider recommending that the client:

1.11.9. Employment agreement - Holy Hand Grenade

From an employment agreement for the vice-chairman of the board (!) of The Men’s Wearhouse:

… In the event of termination of Employee’s employment, other than for “cause”, as described in Section 7, or by reason of voluntary termination as described in Section 8, a number of unvested shares of Restricted Stock shall immediately vest equal to 19,360 times a fraction the numerator of which shall be the sum of (i) the number of days from and including the most recent February 6 to and including the Termination Date (as defined below) and (ii) the lesser of 730 or the number of days from the Termination Date to and including the second following February 5, and the denominator of which shall be 365; any other unvested shares of Restricted Stock shall immediately terminate and be of no further force or effect.

(Emphasis added.)

This brought to mind Monty Python’s Holy Hand Grenade of Antioch scene from Monty Python and the Holy Grail:

And the Lord spake, saying, “First shalt thou take out the Holy Pin. Then shalt thou count to three, no more, no less. Three shall be the number thou shalt count, and the number of the counting shall be three. Four shalt thou not count, neither count thou two, excepting that thou then proceed to three. Five is right out! Once the number three, being the third number, be reached, then lobbest thou thy Holy Hand Grenade of Antioch towards thy foe, who, being naughty in My sight, shall snuff it.

Here’s a possible rewrite, along the general lines of NCD § 7.11:

[x]. Accelerated vesting.

(a) This section will apply if either of the following occurs:

      (1) the Employee’s employment is terminated by the Company, other than for “cause”, as described in Section 7; or

      (2) the Employee resigns for “good reason” as set forth in Section 6.

(b) When this section applies, a certain number of previously-unvested shares of the Employee’s Restricted Stock will immediately vest as follows:

  • No. of shares vesting = 19,360 x Vesting Fraction (defined below)
  • Vesting Fraction = Additional Vesting Days (defined below) / 365
  • Additional Vesting Days = The sum of:

            (i) the number of days: (x) from and including the most recent February 6; (y) to and including the Termination Date (as defined below); and

            (ii)  the lesser of (x) 730, and (y) the number of days from the Termination Date to and including the second following February 5.

(c) Any other unvested shares of Restricted Stock will immediately terminate and be of no further force or effect [sic].

1.11.10. Reading review: Litigation prep (part 1)

  1. QUESTION: From a litigator’s perspective, what’s an advantage of litigating (or arbitrating) a contract that includes illustrative examples, charts, diagrams, etc.?
  2. QUESTION: Are there any disadvantages to including the items listed in #1 above?
  3. FACTS: (A) MathWhiz’s Mary Marvel asks you to review a contract form that’s provided by a prospective MathWhiz supplier. (B) The contract form includes a statute-of-limitations provision as follows: “Any action for breach of this Agreement must be brought within three months year after the date of execution of this Agreement.” QUESTION: Any issues here?
  4. SAME FACTS AS #3: The contract says: “Either party may terminate this Agreement if the other party materially breaches this Agreement and fails to cure the breach within ten (10) business days after the non-breaching party gives notice of the breach.” QUESTION: Any issues here?

1.11.11. Redrafting an ambiguity from President Trump

From a presidential tweet (by President Trump) of April 3, 2017: “Such amazing reporting on […] the crooked scheme against us by @foxandfriends. …” (Hat tip: Chris Richardson.)

QUESTION: How could this be rewritten to clarify?

2. Homework, week by week

2.1. Homework due Wed. Aug. 24: Signature blocks (5 pts P/F)

See the hypothetical facts at NCD § 1.2.

Draft the signature blocks for a Gigunda-MathWhiz agreement. Use the hypothetical facts given — and for those facts that aren’t given, either:

  • use placeholders such as “[INSERT FULL LEGAL NAME]” etc.; or
  • leave blank lines for the signer(s) to fill in the appropriate information, e.g., date signed.

IMPORTANT: Upload your Word document for this homework to Canvas — that allows me to quickly review and comment.

Be sure to review the examples and guidelines at NCD § 3.7.

2.2. Homework due Mon. Aug. 29: Preamble (5 pts P/F)

Draft a preamble for a services agreement between MathWhiz and Gigunda — use the hypothetical facts at NCD § 1.2 and leave placeholders — e.g., “[FILL IN ADDRESS FOR NOTICE]” — for anything else you think you need.

Be sure to review the examples and guidelines at NCD § 3.5.

2.3. Homework due Wed. Aug. 31: Tenant audit rights (5 pts P/F)

Rewrite the following, from this real-estate lease:

  • to break up the “wall of words”
  • to be more reader-friendly, as though you were talking to a lay jury; and
  • to correct any drafting-type “issues” that you see, such as:
    • passive voice;
    • D.R.Y. issues;
    • run-on sentences.

(Don’t worry about fixing the substance of the provision — yet.)

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

2.4. Homework due Mon. Sep. 12: Signatures - the Addams family (5 pts P/F)

FACTS:

  1. 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.
  2. 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.
  3. 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.)
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. One more thing, she says: In the interest of traveling as light as possible, no one in the group brought a laptop.

EXERCISE: Draft the signature block for Addams Investments, L.P.

QUESTIONS to answer in the Word document:

  1. Why might the Widgets sales rep be so eager to get the contract signed on March 31? (Hint: It has to do with the fact that Widgets, Inc. is a newly-public company.)
  2. What about just signing it on April 1 when the family gets back to Houston?
  3. Is it physically possible for you to “make it happen” for the contract to be signed and delivered to Widgets, Inc. today, March 31? If so, how might you go about it?
  4. If Wednesday Addams asks you to sign it as the company’s lawyer, how should you respond?

2.5. Homework due Mon. Sep. 19: Employment agreement (10 pts P/F)

See generally the hypothetical facts at NCD § 1.2.

FACTS:

• Mary Marvel (MathWhiz’s CEO) has told you that MathWhiz has agreed to hire a new director of business development, “Dave Doright,” who splits his time between his home in Houston and his second home in Boise, Idaho.

• Dave is someone whom Mary really wants to “get”; he has several other companies interested in him.

• Mary has known Dave for a few years; she believes he is smart, ambitious, and driven, but also an honorable guy who — out of concern for his professional reputation, if nothing else — would not try to take undue advantage of MathWhiz.

• Mary would like for you to put together a simple, letter-style employment agreement that covers just the absolute bare minimum of issues, to increase the chances that Dave will sign the letter without getting a lawyer involved, because that could delay things and possibly jeopardize her “closing the deal” to get Dave on board at MathWhiz.

• BUT: Mary still wants the letter to be enough that she could take Dave to court if necessary. (See also my Tom Arnold story from earlier in the semester).

HOMEWORK ASSIGNMENT:

1. In a Word document, draft such a letter agreement — feel free to look for issue ideas in the model employment agreement provisions and in Sheryl Sandberg’s employment agreement, BUT: Remember Mary’s concerns about having the letter agreement cover just the absolute bare minimum of issues.

(The letter agreement should refer to “you” for Dave and to “MathWhiz” as the company.)

2. At the end of the Word document, draft the text of an email to Mary: In the email, provide a list of no more than three omitted issues that:

(i) you think are sufficiently important that you would normally want such a letter agreement to address — and why that’s the case, i.e., what could go wrong if the issues aren’t addressed in the letter agreement, BUT:

(ii) given the circumstances and Mary’s expressed concerns, you think that in Dave’s case it’s likely an acceptable risk to omit those issues from the letter agreement.

Your draft email text should explain the above to Mary in matter-of-fact, nonjudgmental terms — DON’T write it in an accusatory tone implying that you don’t support Mary’s decision to proceed in this way.

(Remember: Our job as lawyers is to point out (i) possible what-if events; (ii) potential consequences if those events occur; and (iii) opportunities for avoiding or at least mitigating those risks. As long as we don’t veer into unethical- or illegal territory, it’s always the client’s decision what risks to take or not take.)

THEN: At the end of the email, invite Mary to contact you if there’s anything she’d like to discuss further.

2.6. Homework due Mon. Sep. 26: Earn-out computations (10 pts P/F)

For general background, see this video and article.

ASSIGNMENT: Simplify the following provision (NEW: see the guidelines below):

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

2.7. Homework due Mon. Oct. 03: Termination clause (10 pts.,  P/F)

This exercise concerns the agreement-termination provision below, from the agreement by which Verizon acquired Yahoo!.

FIRST: Look at the abomination that is subdivision (b)(i):

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

(a) [omitted]

(b) by either Seller or Purchaser, if:

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

[remaining subparagraphs omitted]

SECOND: Take a stab at rewriting the following subdivision b(ii) by breaking up the “wall of words” — each subparagraph should address one

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

(a) [omitted]

(b) by either Seller or Purchaser, if:

(i) [omitted - it’s shown under FIRST above]

(ii) any Governmental Authority of competent jurisdiction shall have issued or entered any Governmental Order or taken any other action permanently restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the Sale and the Reorganization Transactions, and such Governmental Order or action shall have become final and non-appealable; provided, however, that the party seeking to terminate this Agreement pursuant to this Section 6.01(b)(ii) shall have used its reasonable best efforts to remove such Governmental Order or other action; and provided, further, that the right to terminate this Agreement under this Section 6.01(b)(ii) shall not be available to a party whose failure to fulfill its obligations under this Agreement shall have been the primary cause of, or shall have resulted in, the issuance of such Governmental Order or taking of such action; or

[remaining subparagraphs omitted]

I’ll show my rewrite in due course.

2.8. Homework due Mon. Oct. 10: Contractor employee compensation provision (20 pts., NOT P/F)

TEXT: This 189-word sentence is from a customer’s 302-page master services agreement that I once had to review on behalf of a supplier:

[BEGIN QUOTE]

Contractor shall pay all salaries, fees, charges, taxes and contributions of all persons who at any time are engaged in the provision of Work and/or Services under or pursuant to the Agreement and without prejudice to the generality of the foregoing Contractor shall at all times fully and effectively indemnify keep indemnified and hold harmless Buyer and its officers employees and contractors from time to time (whose loss shall be deemed to be loss suffered or incurred by Buyer and on whose behalf Contractor hereby acknowledges Buyer shall be entitled to claim) from and against all costs, losses, damages, fees, expenses and charges (including without limitation legal fees) arising from any claim howsoever and whensoever arising (and including by way of example but not limitation any law or regulation relating to the transfer of all or any part of any undertaking business or contract) by or in relation to all or any of such persons connected in any manner with their contract of employment or their contract for the provision of services (in particular but without limitation any claim of a breach of contract redundancy or unfair dismissal).

[END QUOTE]

ASSIGNMENT: Assume that you represent Contractor.

  1. In a Word document, turn the above into something much-more readable.
  2. Use Word comment bubbles to flag any issues that you think should be discussed with the client.

2.8.1. Follow-up: “Gross-up” revision

A prior class had a nice “take” on the gross-up provision that we edited; I’ve reproduced it below with some minor tweaks:

Gross Up Provision

(a) Guarantor’s payments to Lender may could be subject to tax liabilities, as defined in subdivision (d), that must be paid by Lender.

(b) Except as provided in subdivision (c), in any situation described in subdivision (a), Guarantor will pay Lender amounts necessary to cover the tax liabilities owed by Lender so that Lender receives the net amount due in the Guaranty that it would have received absent the tax liabilities.

(c) Exception: Subdivision 2 does not apply to [LENDER’S INCOME TAXES].

(d) For this purpose, the term “tax liability” refers to all taxes, levies, imposts, duties, charges, fees, deductions or withholdings of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority therein.

COMMENT: Use the “nickname” defined terms consistently — for example, use either “Guarantor” OR “the Guarantor” but not both.

(Old version — we did this in class so it’s not assigned as homework)

TEXT: From this guaranty:

2. No Setoff or Deductions; Taxes; Payments. The Guarantor represents and warrants that it is organized in the United States of America. The Guarantor shall make all payments hereunder without setoff, counterclaim, restrictions or condition, and free and clear of and without deduction for any taxes, levies, imposts, duties, charges, fees, deductions or withholdings of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority therein unless the Guarantor is compelled by law to make such deduction or withholding. If any such obligation (other than one arising (i) with respect to taxes based on or measured by the net income or profits of the Lender, or (ii) with respect to any withholding tax to the extent that such withholding tax would have been imposed on the relevant payment to the Lender under the laws and treaties in effect at the time such Lender first became a party to this Agreement or otherwise became entitled to any rights hereunder) is imposed upon the Guarantor with respect to any amount payable by it hereunder, the Guarantor will pay to the Lender, on the date on which such amount is due and payable hereunder, such additional amount in U.S. dollars as shall be necessary to enable the Lender to receive the same net amount which the Lender would have received on such due date had no such obligation been imposed upon the Guarantor. The Guarantor will deliver promptly to the Lender certificates or other valid vouchers (to the extent available) for all taxes or other charges deducted from or paid with respect to payments made by the Guarantor hereunder. The obligations of the Guarantor under this paragraph shall survive the payment in full of the Guaranteed Obligations and termination of this Guaranty.

EXERCISE [already done]:

1.  Break up this provision. (Consider: Does the first sentence in this provision really belong here, given the subheading of the provision?)

2.  Rewrite just the italicized portion to be more reader-friendly, as though you were talking to a lay jury.

2.9. Homework due Mon. Oct. 24: Referral agreement (30 pts.  NOT P/F)

[CHANGE: I want to get my feedback to you sooner after you submit your assignment, so this is due at 5 p.m. on Saturday, vice the previous Monday; I plan to grade on Sunday and Monday.]

See the hypothetical facts at NCD § 1.2.

FACTS: MathWhiz wants to have a simple agreement template under which MathWhiz can pay a referral commission to individuals and/or organizations that refer business to it. The amount of the commission will be 5% of the first sale that MathWhiz makes to a given customer.

EXERCISE: Draft such a form — use this bare-bones contract template.

  • Don’t necessarily include all the bells and whistles of the Tango Terms referral provisions — remember, MathWhiz wants a simple agreement that ideally can get signed without the other side getting its lawyer(s) involved.
  • Consider putting key business details in a schedule at the beginning

3. Reading, by week (to be updated)

3.2. Reading for Mon. Aug. 29

3.3. Reading for Wed. Sep. 07

Skim the following except as otherwise indicated:

3.4. Reading for Mon. Sep. 12

NOTE: The definitions in the following clauses are not official; they can be included in contracts precisely because the law might not have uniformly-agreed definitions. (W.I.D.D. — When In Doubt, Define!)

Just skim the following except as otherwise indicated:

3.5. Reading for Mon. Sep. 19

3.6. Reading for Mon. Oct. 03

Skim the following to get a sense of the subjects except as otherwise indicated

3.7. Reading for Mon. Oct. 10

Read:

3.8. Reading for Mon. Oct. 17

Read:

3.10. Reading for Mon. Oct. 31

Skim the following except as otherwise indicated:

Skim the following except as otherwise indicated.

Optional reading: See this article at the Contract Nerds blog. Excerpt:

What we wish we could say: “Stop submitting last-minute contracts for legal review!”

What we actually say: “No problem, I’ll get right on that.”

This happens ALL the time and is one of the greatest challenges for in-house attorneys to overcome.

* * * 

[T]his issue should be equally frustrating to the entire organization because it is bad for business, too. A rushed contract review negatively impacts the entire deal, including commercial terms, and can cost the business thousands, if not millions, of dollars in economic loss.

* * * 

If you’re brought in to “review” a contract that has already been negotiated (or worse, already been agreed to by both parties), then you’ve already lost. And, arguably, so has your business client, even if they can’t see the repercussions just yet because they’re too distracted by the short-term glory of signing the contract. …

Optional reading for your future reference: In the course of starting a new client project, I ran across what seems to be a very-useful long CLE paper summarizing some nuances of Texas case law about noncompetition covenants. See Zach Wolfe, Wolfe on Texas Non-Compete Litigation, or, My Big Fat Texas Non-Compete Paper (2021). The author reviews:

  • the current Texas non-compete statute, starting at page 14 of the paper;
  • what he refers to as the Five Year Rule about what constitutes a reasonable time period;
  • case law concerning reasonable geographic- and operating scope.

3.11. Reading for Mon. Nov. 07

Look for the main takeaways in the following:

Selected defined terms:

3.13. Reading for Wed. Nov. 16

Read: David Frydlinger, Oliver Hart, and Kate Vitasek, A New Approach to Contracts – How to build better long-term strategic partnerships, Harv. Bus. Rev. vol. 97, no. 5, Sept.-Oct. 2019, pp. 116+.

3.14. Reading for Mon. Nov. 21