Day-by-Day Class Plans: Contract Drafting Spring 2024

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

Updated Wednesday February 21, 2024 17:00 Houston time

1. Introduction

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.

  • Quizzes are due at 12:00 noon on: • Mon. Feb. 05; • Mon. Feb. 19; • Mon. Mar 18; • Mon. Mar 25 (one attempt only) • Mon. Apr. 29 (one attempt only); see the general notes about quizzes
  • Reading assignments
  • Homework assignment list
  • We will use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4 (caution: I will very likely "erase the whiteboards" after each class session, so be sure to copy anything you want to save.)
  • When I call on people, I'll often spin the wheel.
  • (Free) course materials: Notes on Contract Drafting, a work-in-progress of mine ("NCD"), including an interim draft of annotated contract provisions. IMPORTANT: As of this writing (Wednesday February 21, 2024 17:00 Houston time), I'm "almost finished" with a major update, so I strongly suggest that you not print out those materials yet either; I'll post the revised version when it's finished.
  • (Subject to change:) An extremely simple contract template to use for homework assignments

2. Detailed class plans

2.1. Class 01: Wed. Jan. 17

2.1.1. Group assignments (initial)

Group 1 sits to my left, other groups in order after that.

This grouping is alphabetical by last name, BUT only first names are used here for privacy.

NOTE: I will reshuffle the groups twice during the semester.

6:00 p.m. class:

Group 1: Jose, Annanya, Anna E., Nathan, Omar
Group 2: Taylor, Caleb M., Haekyong, Laura, Cole
Group 3: Madeline, Alexandra, Anna B., Caleb S., Roha
Group 4: Vivian, Santiago, Stanley, Erica, John

7:30 p.m. class:

Group 1: Celeste, Rachel, Mary, Sarah, Christian
Group 2: Lincy, Gabriela, Phillip, William, Quinn
Group 3: Kris, Katelynn, Anjali, Deborah, Spencer
Group 4: Andrew, Sean, Yu, Uma, Artu

2.1.2. Exercise: Selling a used computer (part 1)

In your small groups:

  1. Introduce yourselves.
  2. Be prepared to answer the questions in this worksheet. (Once you're in the worksheet, click on the table-of-contents link to get to your group.

2.1.3. 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?

QUESTION: How could this be rewritten to clarify?

2.1.4. Introductions

Please tell us a little bit about yourself:

  • Name (if you prefer a nickname on your name tent, please mark it up)
  • Class year (3L, 2L, LLM)
  • Undergrad school and major
  • Work experience?
  • Contract-related experience?
  • Something boring about yourself?

2.1.5. Lecture: DCT's variation of Socratic method

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

  • I pose a question — usually pre-positioned on this Web page, see this example from today's class plan — and ask you to discuss the question for a minute or two in your small groups.
  • Then, for that question, I spin a wheel to call on a student by number — see your assigned number below.
  • After each spin, I remove the number that came up, so that students won't be repeatedly cold-called in any one class session until everyone else has been called on.

That way:

  • Neither the students nor I know who will be cold-called to answer a question.
  • Each student must be ready to answer each question — but gets to discuss the question with his/her group before I cold-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; andn
  • that students get more out of it when each student prepares to answer each question.

Spinning-wheel number assignments – 6:00 p.m. class

  1. Alex
  2. Anna E.
  3. Anna S.
  4. Araceli
  5. Caleb M.
  6. Caleb S.
  7. Cole
  8. Erica
  9. Haekyong
  10. John
  11. Jose
  12. Laura
  13. Madeline
  14. Nathan
  15. Omar
  16. Rhylee
  17. Roha
  18. Santiago
  19. Stanley
  20. Taylor
  21. Vivian

Spinning-wheel number assignments – 7:30 p.m. class:

  1. Andrew
  2. Anjali
  3. Artur
  4. Celeste
  5. Christian
  6. Deborah
  7. Gabriela
  8. Katelynn
  9. Kris
  10. Lincy
  11. Mary
  12. Phillip
  13. Quinn
  14. Rachel
  15. Sarah
  16. Sean
  17. Spencer
  18. Umar
  19. William
  20. Yun

2.1.6. Check Canvas setup etc.

Canvas setup: Be sure you're enrolled; this course is H 20241 LAW 6364 15783

2.1.7. Canvas question: Favorite aspects?

Does Canvas have any features that students find useful?

2.1.8. DCT lecture: Some contract-drafting basics

[From a PowerPoint slide deck]

2.1.9. Exercise: Selling a used computer (part 2)

In your small groups:

3.  In the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4, draft a short contract for the sale — avoid "barf clauses," i.e., clauses that look as though the drafter vomited verbiage onto the page. (Use short, single-subject paragraphs, with the bottom line up front, or "BLUF.")

  • Groups 1 and 3: You represent the seller.
  • Groups 2 and 4: You represent the buyer (even though the fact sheet says otherwise).

4.  Then we'll compare notes and perhaps even do some negotiation.

2.1.10. 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.

2.1.11. Ambiguity: Dad's skull

2.1.12. Tales from the practice: Contract "signed" by email

2.1.13. Turn in your name tents, please

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

2.2. Class 02: Mon. Jan. 22

2.2.1. Ambiguity: Needing an AR-15?

From a Facebook post shared by one of my former law partners: "I made it through the day without needing an AR-15 again!"

QUESTION: Does "again" relate:

  • to "made it through the day"? or
  • to "needing an AR-15"?

Let's try again: "I made it through the day again without needing an AR-15 again !"

2.2.2. Introduction: MathWhiz & Gigunda

Reference: 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?

2.2.3. 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."

2.2.4. 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.  Suppose you didn't know Texas politics, and you also didn't know that this tweet came from the Texas Democratic Party — might you be confused about who was siding with whom?

2.  How could this be clarified?

Let's try again: "PRESS RELEASE: Chairman @HinojosaTX Releases Statement on about Texas Federal Judge in Texas Judge's Siding with AG Paxton, Against Texas Women"

2.2.5. Lecture: "The Rules"

See the Rules.

2.2.6. Demo of rewriting approach: Tenant audit rights

In the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4, DCT to show how to rewrite the following, from this real-estate lease:

  • to break up the "barf clause"
  • to be more reader-friendly, as though you were talking to a lay jury; and
  • to correct drafting-type "issues" such as:
    • passive voice;
    • D.R.Y. issues;
    • run-on sentences,

following the Rules.

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.

2.2.7. Read-along lecture [?????]

DCT to talk through some key points in the syllabus; BE SURE TO READ these materials.

2.2.8. 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?

2.2.9. Exercise: What kinds of contract documents?

From the Houston Chronicle (article by Katherine Feser): "Houston-based Fidelis Realty Partners acquired Shadow Creek Ranch, a 613,468-square-foot, H-E-B-anchored retail center at 2805 Business Center Drive in Pearland’s Shadow Ranch community. …."

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

QUESTION: What sorts of business- and legal issues might the different parties be concerned about? Think about:

  • What would the buyer primarily want? The seller?
  • What "what-if?" concerns might be on the buyer's mind? The seller?

Pro tip: Think about using the TOP SPIN tool, at NCD § 19.3, to help think of what-if scenarios that might need to be addressed. (You don't need to go into great detail about possible covenants, reps and warranties, etc. — here, we're just looking for what-ifs of possible concern.)

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

2.2.10. Exercises from Chapter 2 (part the first)

Do Exercises 1 through 5 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. I'll spin the wheel to call on people.

2.2.11. From the practice: Were the docs actually e-signed?

DCT to recount an episode for a wealthy individual client renegotiating his compensation package as CEO of a company.

2.2.12. 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, [BROKEN LINK: sc:] (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?

2.2.13. Exercises from Chapter 2 (part deux)

Do Exercises 9 through 13 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.

2.3. Class 03: Wed. Jan. 24

2.3.1. 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

2.3.2. New spinning-wheel assignments (post-adds & -drops)

Spinning-wheel number assignments – 6:00 p.m. class

1.  Alex
2.  Anna E. 
3.  Anna S. 
4.  Araceli
5.  Caleb M. 
6.  Caleb S
7.  Cole
8.  Erica
9.  Haekyong
10.  John
11.  Jose
12.  Laura
13.  Madeline
14.  Nathan
15.  Omar
16.  Rhylee
17.  Roha
18.  Santiago
19.  Stanley
20.  Taylor
21.  Vivian

Spinning-wheel number assignments – 7:30 p.m. class

1.  Andrew
2.  Artur
3.  Celeste
4.  Christian
5.  Colton
6.  Deborah
7.  Ellie
8.  Gabriela
9.  Graysen
10.  Kris
11.  Lincy
12.  Mary
13.  Phillip
14.  Quinn
15.  Rachel
16.  Sarah
17.  Sean
18.  Umar
19.  William
20.  Yun

2.3.3. The Dilbert lawyer cartoon

Here's an archive.org "Wayback Machine" link. (It'll take a few seconds to load.)

2.3.4. Homework discussion: Signature blocks

Some of the following questions will involve issues that are not in the reading for this week — that's intentional.

I'll spin the wheel to call on people.

QUESTIONS:

  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 included 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?

See below for an example of a signature block — note that this signature block is designed to go at the beginning of the contract — if it was at the end of the contract, then you wouldn't duplicate the "a [STATE] limited liability company" nor the addresses for notice:

MathWhiz-Gigunda-sig-block-example.png

2.3.5. Reading review: Invoicing; expense reimbursement

QUESTION 1: From the Invoicing reading assignment:

  • What if anything was new to you or surprised you?
  • 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

QUESTION 2: From the Expense reimbursement reading assignment: What if anything was new to you or surprised you?

2.3.6. Drafting exercise: MathWhiz-Gigunda LOI (part 1)

In this exercise:

  • Groups 1 and 3 represent MathWhiz
  • Groups 2 and 4 represent Gigunda.

Use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4 — in groups: Draft a short letter of intent between MathWhiz and Gigunda, including the following:

  1. Title
  2. Preamble
  3. Statement that the parties are negotiating for MathWhiz and Gigunda to enter into a ten-year (!) consulting agreement but haven't agreed on all the terms yet.
  4. A brief statement of:
    • what part of the LOI is binding
    • what's not binding but the parties are going in that direction — feel free to be creative from your client's point of view
    • what it would take for the final agreement to be binding
  5. Include a list of items that the parties expect to discuss but that aren't yet agreed to.
  6. Signature blocks — just do them one after another vertically, don't worry about table format (unless you're a whiz with Google Docs).

Go ahead and make up legal names, entity types, and jurisdictions as needed.

Optional: Skim through the LOI discussion in the course material to get ideas.

Just for grins, here's what ChatGPT came up with:

ChatGPT-LOI-MathWhiz-Gigunda.png

2.3.7. From last year: Permian Resources to acquire Earthstone

Lots of consolidation going on in "the oil patch." We'll look through the Agreement and Plan of Merger at the SEC.gov Website.

Some points to note from a 10,000-foot view:

  1. This is an all-stock deal.
  2. The definitions are both "inline" and in Annex A at the back, with Article I, "Definitions" being an index.
  3. There's a Section 2.4, "Effect of the Mergers," but also an Article III, "Effect of the Mergers; Exchange," addressing what happens to various stock- and equity classes — so the heading of Article III could have been better chosen.
  4. Sections 2.1 and 2.4: The initial merger seem to be planned as what's known as a "reverse triangular merger," which is generally done for tax reasons.
  5. Section 2.3 sets out how the "Closing" is to take place:
    • All "conditions" to closing (i.e., walkaway prerequisites) must have been either satisfied or waived (see Article VII)
    • Closing will happen electronically by PDF document exchange
    • The involved companies file "certificates" with the Secretary of State of Delaware.
    • All assets of the involved companies — inclucing any existing contracts — automatically "vest" in the "surviving" company; that might or might not result in an "assignment" of the assets of the other company.
  6. Article IV sets out the "reps and warranties": "Except as set forth in the disclosure letter dated as of the date of this Agreement and delivered …."
  7. Section 4.29 and 5.31 – "No Additional Representations": These are "roadblock" clauses.
  8. Article VI - "Covenants and Agreements" [sic]
    • Section 6.1 Conduct of the Company Business Pending the Mergers
    • Section 6.3 No Solicitation by the Company — a "no-shop clause" (with "fiduciary out")
    • Breakup fees of $87.5 million (if Earthstone terminates) or $175 million (if Permian terminates).
  9. Article VII: Conditions to Closing — these include:
    • shareholder approvals
    • regulatory approvals
    • no "Material Adverse Effect" (that would allow termination)
    • "bringdown certificates" about reps and warranties
  10. Section 9.2, Survival: "Except as otherwise provided in this Agreement, none of the representations, warranties, agreements and covenants contained in this Agreement will survive the Closing; …" (but with a lot of exceptions).
  11. Section 9.3, Notices: Includes names and addresses of outside counsel (Kirkland, V&E), thus making the representations a matter of public record (normally that'd be client confidential information).
  12. Section 9.7, Governing Law, etc.: Multi-topic "barf clauses" in all-caps.
  13. Section 9.13, Non-Recourse — no right of action against officers, directors, employees, etc.
  14. Section 9.14, Debt Financing Sources: Another barf clause.
  15. Exhibit D-1: "PERMIAN RESOURCES OPERATING, LLC || SEVENTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT || Dated as of [•]"

Of general interest: ChatGPT produced an interesting list of most-negotiated terms in a merger agreement.

(Try this link as well.)

A corporate-lawyer colleague once said that the only things really negotiated are:

  • the price;
  • the amount of the breakup fee; and
  • what constitutes a "material adverse effect" or "material adverse change" A.K.A. the MAC Clause, that would allow the buyer (or seller) to walk away.

2.3.8. Oops: Wrong party files suit — then SOL expires ….

Long story short:

  1. A Czech company enters into a contract with a Minnesota company.
  2. The MN company allegedly breaches the contract.
  3. A few months before the statute of limitation is about to expire for the breach, the Czech company's Kansas-based U.S. subsidiary files suit for breach, in Kansas, against the MN company.
  4. Problem:
    • The Czech company's U.S. subsidiary isn't a party to the contract, nor is it an intended third-party beneficiary.
    • So, the Czech company's U.S. subsidiary has no Article III standing to sue the MN company.
    • Thus, the Kansas district court has no subject-matter jurisdiction over the case.
  5. It gets weirder: In the Kansas lawsuit, the Czech parent company files a motion:
    • to amend the complaint to substitute itself in as the sole plaintiff; and
    • to transfer the case to MN — because without the Czech company's U.S. subsidiary, there was neither personal jurisdiction nor venue in Kansas.
  6. The Kansas court dismisses the Czech parent company's lawsuit on standing grounds.
  7. The Czech parent company re-files in MN — where the MN company moves to dismiss on limitation grounds.
  8. The MN court — which is in the 8th Circuit — stays the motion pending the outcome of the 10th Circuit appeal.
  9. The 10th Circuit affirms the Kansas district court's dismissal:

We affirm.

As a non-party, CZ Czech could not amend CZ USA’s complaint. Only a party may amend its complaint under Rule 15.

And because the only party—CZ USA—lacked an injury under the contract, it lacked standing to sue.

Accordingly, the district court lacked subject-matter jurisdiction and correctly dismissed the lawsuit.

Česká Zbrojovka Defence SE ("CZ") v. Vista Outdoor, Inc., 79 F.4th 1255, 1257 (10th Cir. 2023) (extra paragraphing added).

Lesson for contract drafters: When dealing with corporate "families," consider thinking ahead to which member of the "family" you might want to be a party to related litigation — and where the lawsuit might be desired.

2.3.9. Ambiguity in a headline: Private equity

Here's the Houston Chronicle headline for an op-ed by former Secretary of Labor Robert Reich: "Private investments are destroying things we do out of love and passion" (emphasis added).

So: Private equity's destructiveness is a result of the private-equity owners' love and passion?

2.3.10. Drafting exercise: MathWhiz-Gigunda LOI (part 2)

Negotiate the LOI:

  • Group 1 with Group 2
  • Group 3 with Group 4

2.3.11. Legalese in academic writing

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

See this post.

2.3.13. Exercises from Chapter 2 (continued)

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.

2.4. Class 04: Mon. Jan. 29

2.4.1. In-class drafting exercise: Buying a used laptop computer

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., in the Harris County part of Houston) 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 for a 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 simple background section (a.k.a. recitals).
  3. Put together a series of short, simple paragraphs with just the "mechanics" of getting the sale done: Pricing, delivery — the bare-bones requirements to make a contract. (Make up whatever information you think you need that isn't provided.)
  4. Then add whatever "representations and warranties" you think might be useful — but remember, one of your goals is to get Jane to sign the agreement quickly.

(Afterwards, I'll do one in real time.)

2.4.2. Reading review

In your groups, compile a list of "gouge" — things that a new lawyer should know — about the following. I'll spin the wheel to call on people.

  1. Tango Terms: Best Efforts Definition — why might agreeing to this be dangerous?
  2. Tango Terms: Entire agreement — in Texas, will an entire-agreement clause successfully keep a "fraudulent inducement" claim at bay (as in, a defendant could get rid of such a claim by filing a 12(b)(6) motion to dismiss)? (What IS a 12(b)(6) motion?) If not, what would be needed?
  3. Tango Terms: Independent contractors — why do parties say this in contracts, and is it worth the pixels?
  4. Tango Terms: Notices — what are the "Three Rs of Notice"?
  5. Tango Terms: Redlining representation — why include this?

2.4.3. From the practice: Two 100-page contract forms to review …

DCT to recount a "MathWhiz" client episode: A "Gigunda" customer sent two, 100-page master services agreement forms, purportedly "95% identical," for two "rush" projects in the Middle East and East Africa.

QUESTION: What to do without spending a ton of MathWhiz's money?

2.4.4. Ambiguity drill: Intimacy in an arena (Maureen Dowd)

(We'll be doing a lot of ambiguity drills.)

TEXT, from a Maureen Dowd column in the NY Times, March 5, 2016: "Like Bill Clinton, Trump talks and talks to crowds. … [H]e creates an intimacy even in an arena that leaves both sides awash in pleasure." (Emphasis added.)

QUESTION: What, exactly, leaves both sides awash in pleasure? How could this be clarified?

2.4.5. Exercises from Chapter 2 (continued)

FACTS: Two Houston companies, ABC Corp. and XYZ LLC, enter into a contract for XYZ to build a warehouse on ABC's property in northwest Houston for a stated price.

  • Before any work starts on the project at all, the on-the-ground managers for the two companies can't seem to get along. One day, ABC's manager angrily tells her boss that XYZ's construction supervisor told her, "that's it, we're done, find yourself another builder!"
  • ABC decides that yes, it'd be better for it to use another builder. So ABC signs a contract with MNOP LLC — at a significantly-higher price — and sues XYZ for breach of contract, asserting that XYZ's construction supervisor repudiated the contract and so XYZ should be liable for the extra cost that ABC would incur by switching to MNOP LLC.
  • At the jury trial, ABC's manager testifies under oath that XYZ's construction supervisor said what's described above; in his own testimony, XYZ's supervisor denies this, also under oath.

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

I'll spin the wheel to call on people.

QUESTION 1: What kinds of other evidence could ABC seek to adduce at trial to support its theory of the case — IF it had such evidence?

QUESTION 2: If the jury accepts one side's version of events, how easy would it be for the trial judge to overrule the jury's finding at the losing party's request? What about an appellate court? (Hint: See the Seventh Amendment and Fed. R. Civ. P. 50(a) concerning judgment as a matter of law.)

QUESTION 3: What does the above tell you about the importance of (i) putting things in writing, and (ii) keeping the writings?

2.4.6. Exercise: 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 1: When reviewing and revising the draft contract, do you change "twenty thousand dollars" to "$20,000.00"? Why or why not?

QUESTION 2: 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"?

2.4.7. Ambiguity: Traffic signs

Ambiguous: See this sign.

More clear: This sign

2.4.8. From the practice: Marking up an NDA

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

Note how the original is a bunch of "barf clauses" that look as though the drafter just vomited verbiage onto the page — in my markup, note the first comment 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.

2.4.9. IRL: A supplier gets stiffed

Product Solutions Int'l, Inc.. Aldez Containers, LLC, 46 F.4th 454 (6th Cir. 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 (the small company) discovers that the cosmetics bags it designed 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 (think: FedEx).
  • 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 (the designer that ordered the bags) had funding available — and backup funding? — before making a big financial commitment to the Chinese manufacturer on behalf of Orgo.

2.4.10. IRL: Bed Bath & Beyond ("BB&B")

See this WSJ story (free link). Some points of interest:

  • Banks cut off BB&B's lines of credit
  • Banks delivered notice of default to BB&B — which kicks up BB&B's interest rate by two percentage points
  • JPMC "called the loan" (demanded immediate repayment), but BB&B doesn't have the cash
  • BB&B has had trouble stocking its stores because it fell behind in payments to suppliers

2.4.11. 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 (let's say) section 5.8 of that 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.

2.4.12. IRL: NYSE computer problems caused by human error

From the NY Post:

Human error is to blame for the glitch that caused wild fluctuations in share prices at the start of trading on the New York Stock Exchange on Tuesday.

A NYSE employee who is based out of the exchange’s backup data center in Chicago failed to shut down the disaster-recovery system that is tested every day after the closing bell as part of routine maintenance, according to Bloomberg News.

Recall Murphy's Law ("anything that can go wrong, will go wrong"), which is why, in our little contract-drafting corner of the world, we try to R.O.O.F. (Root Out Opportunities for F[oul]-ups by users).

2.4.13. 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?

2.4.14. What was useful today?

Question: What did you find useful to you–

  • in class today
  • in the reading for this week?

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

2.5. Class 05: Wed. Jan. 31

2.5.1. Quick small-group discussion: Contract framework setup

FACTS: You're a new associate at a law firm. One of the partners wants you to draft a contract for one of her clients. She says that the deal is basically like one that another firm client just signed.

QUESTION 1: How much work should you put into preparing the draft — and why? Should you:

  • just change the names and deal details?
  • start from scratch, using the other client's signed deal as a source of ideas?
  • something in between?

QUESTION 2: On these facts alone, what don't you know that might be relevant?

2.5.2. Housekeeping: Quiz 1 coming up

Don't forget: You have two chances — for this quiz, but not for all of the others* — 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.

* Is this ambiguous?

2.5.3. Ambiguity: A New Yorker headline

Not "ripped from the headlines," but it could be — from The New Yorker: Listening to Taylor Swift in Prison

2.5.4. Ambiguity: The CDC and a new COVID-19 variant

From this CDC Web page: "

BA.2.86 [an emerging COVID-19 variant] may be more capable of causing infection in people who have previously had COVID-19 or who have received COVID-19 vaccines.

QUESTION: Does this mean —

1.  that if you've had a prior COVID vaccination, or if you've previously had COVID, then you're more susceptible to catching the new BA.2.86 variant than those who've neither been vaccinated nor contracted COVID?

Or:

2.  that even if you've been vaccinated or previously had COVID, you could still catch the new BA.2.86 variant, more so than the "old" variants?

2.5.5. Spaced repetition: Another version of a broken-up Tenant audit-rights clause

Here's another version of the real-time rewriting demo I did last week:

6.5 Tenant’s Audit Rights.

6.5.1 [or, "(a)"] 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 of any audit under section 6.5.2.

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 [or, is to] 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 ["up to" and "not to exceed" are redundant], 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 in fact paid such overage the 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 — alternatively, some partners might prefer the paragraphs to be "numbered" with (a), (b), etc.
  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, workable 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)

2.5.6. Real life: 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.com) (emphasis added).

UPDATE: See Rick Carroll, Text messages don’t make a contract, Souki lawyers argue (AspenTimes.com) (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.)

UPDATE 2: What little I could find online indicates that the case seemed to be going to trial.

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

2.5.7. Rewriting exercise: "Gross up" (Part 1)

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.

EXERCISE: Do the following in the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4: Play around with breaking up and simplifying just the second sentence, quoted again here: "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: [to be shown in class]

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.

2.5.8. Real life: 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 a local 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).

2.5.9. 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?

2.5.10. Rewriting exercise: "Gross up" (Part 2)

EXERCISE: From part 1, 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.)

Here's the italicized portion: "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."

DCT REWRITE: [to be shown in class]

Rewrite

2. No Setoff or Deductions; Taxes; Payments.

(a) through (c) omitted]

(d) Except as provided in subdivision (f): IF: The Guarantor is required by law to make any such Deduction; THEN: The Guarantor will “gross up” the payment as defined in subdivision (e).

(e) To "gross up" an amount, 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.

(f) [NEW:] The Guarantor need not gross up any deduction or withholding that is required by law:

(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)

(g) 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.

(h) The obligations of the Guarantor under this paragraph shall survive the payment in full of the Guaranteed Obligations and termination of this Guaranty.

2.5.11. Review: Signature blocks and preambles

(To be shown in class as a "spaced repetition" example)

EXAMPLE 1: What's wrong with the MathWhiz signature block?

Gigunda-MathWhiz signature blocks sample

Here are preambles drafted by students (anonymous, of course); see my [bracketed, numbered notes] below each:

EXAMPLE 2:

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 3:

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 4:

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 5:

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 6:

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

[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 7:

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 8:

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 9:

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 10:

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?

2.5.12. 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.

2.5.13. 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:

2.5.14. What was useful today?

Question: What did you find useful to you–

  • in class today
  • in the reading for this week?

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

2.5.15. Rewrite review: Tenant audit right

Parallelism / consistency in subdivisions

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

STUDENT VERSION W/DCT EDIT:

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
  • 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 comments:

  1. 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.
  2. A personal style preference: I prefer semicolons instead of commas to set off list items.

Another example:

STUDENT VERSION W/ DCT EDIT:

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

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

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.
Rewrite review: Each negotiation point gets its own paragraph

STUDENT VERSION W/DCT EDIT:

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) 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.

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

Rewrite 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.

Rewrite 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 DCT REVISION:

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.

2.5.16. Rewrite review: Tenant audit rights (cont'd)

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.

Rewrite 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, ….

Rewrite review: Capitalization of list items

From a student's rewrite:

STUDENT VERSION W/ DCT EDITS:

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

a)  At at a reasonable time;

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

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

2.6. Class 06: Mon. Feb. 05

2.6.1. High points of the reading?

Question: What did you find useful, or interesting, or surprising, in the reading for this week?

We'll go around the room (in groups) twice.

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

2.6.2. Review: Who are "the parties" – are "affiliates" included?

FACTS: You represent a supplier, ABC Corporation, whose customer, XYZ Inc., wants XYZ's "affiliates" to be listed in the preamble as parties to a master purchasing agreement with the following language: "This Master Purchasing Agreement is between ABC Corporation ('Supplier') and XYZ Inc. and its affiliates ('Customer')."

QUESTION 1: As ABC's lawyer:

  • Do you think this is OK?
  • If not, what do you think XYZ really wants?

QUESTION 2: As ABC's lawyer, how might you structure the contract to accommodate Customer's likely desires — and to protect Supplier?

2.6.3. Lightning round: Reading review

I'll spin the wheel to pick people; don't forget your numbers.

  1. QUESTION: What do you think about including tables, charts, drawings, etc., in a contract?
  2. QUESTION: Did Conan O'Brien's lawyers screw up when negotiating his NBC contract? Why or why not?
  3. QUESTION: What are the "Three Rs of Notice"?
  4. QUESTION: Should the "Mailbox Rule" be used for notices in a "B2B" (business-to-business) contract? Why or why not?
  5. QUESTION: If Gigunda wants its MathWhiz contract to require compliance with Gigunda's expense-reimbursement policy, should MathWhiz push back?
  6. QUESTION: What's better: To say that a contract was signed, or that it was executed?
  7. QUESTION: If Gigunda's contract form asks MathWhiz to "acknowledge" that MathWhiz has offices in Gigunda's headquarters city in California (even though that's not the case), is that safe for MathWhiz to agree to? Why or why not?
  8. QUESTION: What's one clause to consider including in a contract that could help the parties stay out of court?
  9. QUESTION: What is an "agency cost"?
  10. QUESTION: If a contract says that the contract can only be amended by a signed writing, will a court enforce that requirement?

2.6.4. (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:

(Don't try to "retrade the deal" by altering the substantive terms.)

I'll show my own rewrite in a few minutes.

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, without barf clauses but 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) One of both of the following is true: (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 on or before the date 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 groups, 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) and (a)(3) as though (a)(1) and (a)(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 term "the other party" fit? (Hint: Look at the beginning of (a).)

2.6.5. Lightning round: Reading review

I'll spin the wheel to pick people; don't forget your numbers.

  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?
  6. EXPLAIN IF FALSE: Summary judgment (i.e., without a trial) is pretty much always improper when a contract term is ambiguous.
  7. 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 — INCLUDING coming up with a clearer version.
  8. QUESTION: What does contra preferentem mean — both as an English translation of the Latin, and what it means in "our [contract-drafting] world"?
  9. QUESTION: What does DCT's mnemonic "A.T.A.R.I." stand for?

2.6.6. R.O.O.F. in the real world: Houston's ShotSpotter contract

From the Houston Chronicle:

Houston adjusted its contract with the controversial ShotSpotter program, a technology designed to detect gunshot sounds, on Wednesday to correct a clerical error and pay an overdue $700,000 bill to the company.

City Council voted unanimously to correct the issue from January 2022. The contract was meant to be for five years at a cost of $3.5 million, but a staff error meant council voted to authorize only $700,000. The true cost was listed for council members at the time, but it did not make it into the actual ordinance they passed.

The Houston Police Department went to renew its subscription for another year in December and realized there was no money to pay for it, according to the request for council action. The $700,000 invoice to ShotSpotter now is past due.

(Emphasis added.)

Note how the numbers "$3.5 million" and "$700,000" are written above.

2.6.7. Reading and the real world: 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.

QUESTION (group discussion, then open-mike): What are some pros and cons of agreeing to "best efforts" — and why do you think the EU and AstraZeneca might have agreed in this case?

(REMINDER: See the reading on best efforts.)

2.6.8. Lightning round: Spaced repetition review

I'll spin the wheel to pick people; don't forget your numbers.

  1. TEXT: "Class will start at precisely [blank]."
    • QUESTION 1A: In a contract, which is better: A) ten o'clock B) 10:00 a.m.
    • QUESTION 1B: If "The Other Side" sent you a draft with the lesser choice, would you change it if no change had to be made to the actual time stated?
  2. Which is it: "More than X people voted to re-elect President Trump":
    • A. 74,000,000
    • B. seventy-four million
    • C. 74 million
  3. Which is used to indicate permission: May, or might? (The other indicates possibility.)
  4. FACTS: Buyer and Seller enter into a contract for the sale of certain goods for the price of USD $1 million. The contract states: "Payment terms: "2% 10 days, net 30."
    • QUESTION: If Buyer pays by wire transfer, and the payment hits Seller's bank account on Day 5, how much is due? (Ignore for now the question when the clock starts — date of invoice, or date of receipt of invoice.)
  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."

2.6.9. Quickie writing nano-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?

2.6.10. Ambiguity exercise: Nestlé and Starbucks

From this BBC.com article: "Nestlé has announced that it will pay Starbucks $7.1bn (£5.2bn) to sell the company's coffee products."

QUESTION: Which company will sell the other company's coffee —

  • Will Nestlé sell Starbucks coffee? or
  • Will Starbucks sell Nestlé coffee?

(Which do you think is more likely?)

(Is it possible that Nestlé might pay Starbucks $7.1bn for the privilege of Nestlé selling Nestlé's own coffee?)

EXERCISE: Rewrite the above-quoted sentence twice — once for each possible interpretation.

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

Vermillion State Bank v. Tennis Sanitation, LLC:

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.

2.6.12. Real life: Breach of long-term oral exclusive-dealership agreement results in $5.8M award

Oral contracts can bite: Farm-machinery manufacturer's termination of oral exclusive reseller agreement results in $5.8M award against mfr. for breach of contract and violation of state good-cause dealership termination statute; 8th Cir. affirms. See S&H Farm Supply, Inc. v. Bad Boy, Inc., 25 F.4th 54 (8th Cir. 2021).

2.6.13. What was useful today?

Question: What did you find useful to you in class today?

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

2.7. Class 07: Wed. Feb. 07

2.7.1. Housekeeping: Group reshuffling next Wednesday

As mentioned at the start of the semester: So that students will get a chance to work with others, next Wednesday we'll reshuffle the groups; I'll post the reshuffled group memberships on Monday.

(We'll do one more reshuffling during the semester in late March.)

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

I'll spin the wheel to call on people.

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." (Emphasis added as "helper language.")

  • QUESTION 1: Could the wording of this provision be improved? How?

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

  • QUESTION 2: This is an example of what? (Two words — and the words are not "passive voice," although it is indeed an example of passive voice; I'm looking for two other words.)
  • QUESTION 3: Is this an example of acceptable drafting? Why or why not?

FACTS: Same as the previous question.

  • QUESTION 4: 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: 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?

2.7.3. Termination provision: DCT's other rewrite

Here's a simpler rewrite, written in procedural form:

12.    TERMINATION.

(a)       Either party may terminate this Agreement if all of the following are true:

            (1)  the other party [EDIT: probably want to add "materially"] breaches this Agreement;

            (2)  the terminating party gives the breaching party notice of the breach;

            (3)  the breaching party does not cure the breach (if curable) within 30 days after the effective date of the notice of breach; and

            (4)  the terminating party then gives notice of termination to the breaching party.

(b)       In case of doubt: No cure period is required under subdivision (a)(3) if the breach in question is not curable.

(c)       Termination under subdivision (a) will be effective as soon as the notice of termination in subdivision (a)(4) is effective. [DCT TO DISCUSS]

(d)       In addition, either party may terminate this Agreement if the other party 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. [DCT comment: This doesn't necessarily fit with bankruptcy law.]

(e)       In case of doubt: No termination under this section 12 will affect any right that the terminating party has:

            (1)  to recover any royalties then due from the breaching party; or

            (2)  to pursue any remedy in respect of any pre-termination breach of this Agreement.

2.7.4. Misunderstanding of business deal: $2MM malpractice suit

I ran across this article from 2017:

  • Buyer agrees to buy business from Seller.
  • The supposedly-agreed purchase price was 1 x Seller's 2013 revenue ($513K) minus fixed payment of $275K, capped at $730K = $238K
  • But the contract says the purchase price is 1 x Seller's 2013 revenue ($513K) plus fixed payment of $275K, again capped at $730K.
  • Buyer pays lower price. Seller sues for difference. Buyer — egged on by lawyer — claims "mutual mistake" and "ambiguity," litigates the matter, and rejects a Seller settlement offer.
  • Buyer's law firm's internal emails about Buyer's position are … bad
  • Court grants summary judgment for Seller
  • Buyer sues its lawyer and his firm for malpractice
  • Online search didn't reveal whether Buyer's malpractice suit was ever settled. Buyer's lawyer is still with his firm.

QUESTION (discuss in small groups): How might Buyer's lawyer have reduced the chances of such a "misunderstanding" between him and Buyer?

2.7.5. News: Contract interpretation – D.C. Circuit analysis of Impeachment Conviction Clause

In interpreting contracts, courts sometimes use the doctrine of expressio unius est exclusio alterius, which can be translated as, "to explicitly state one thing is to implicitly exclude another." Yesterday we saw the D.C. Circuit use the same doctrine (without using the Latin phrase) in affirming rejection of former President Trump's claim of immunity from prosecution for alleged crimes committed while he was in office:

The Framers knew how to explicitly grant criminal immunity in the Constitution, as they did to legislators in the Speech or Debate Clause. Yet they chose not to include a similar provision granting immunity to the President. …

United States v. Trump, No. 23-3228, slip op. at 43-44 (D.C. Cir. Feb. 6, 2024) (cleaned up, formatting revised, emphasis in original).

2.7.6. In the news: Boeing door plug QA problems

You get what you INspect, not what you EXpect ….

2.7.7. Exercise: Breaking up (part of) a barf-clause guaranty (1)

See this guaranty:

1.  Guaranty. [START FRAG 1:] 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”). [END FRAG 1] 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. [START FRAG 2:] 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). [END FRAG2] 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

EXERCISE 1: Break up just Fragment 1 — use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4. (Fragment 1 is one sentence!)

I'll show my rewrite in a few minutes.

DCT rewrite of Fragment 1

Here's a possible rewrite of Fragment 1, with some "redlining":

1.  Guaranty.

1.1  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.

(a)  Each such indebtedness and liability is referred to generically as a "Debt" (see also §§ 1.6 and 1.8 below). [Note the new "forward reference," to alert the reader that there's more involved here.]

(b)  The term "Credit Agreement" refers to the 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. [DCT comments: "Borrower" was defined elsewhere. I changed the comma after "Borrower" to a semi-colon and added an "Oxford semi-colon" before "Heald Capital, LLC."]

(c)  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).

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

1.3  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.

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

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

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

1.5  For purposes of this Guaranty, it does not matter:

(i)  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;

(ii)  when a Debt is created;

(iii)  whether a Debt may be (or hereafter becomes) unenforceable; nor

(iv)  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).

1.6  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.

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

(i)  the Bankruptcy Code (Title 11, United States Code) or any successor statute; and

(ii)  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.

1.8  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 Law. [DCT comment: I changed "Laws" to "Law" as a roadblock, in case someone ever tried to make the (extremely-aggressive) argument that the proceeding would have to arise under multiple Laws.]

2.7.8. 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.)

    DCT: To make his quarterly quota? To help Widgets "make the number" for what analysts are expecting?

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

    DCT: That wouldn't fly with Widgets' accountants, who will almost certainly want "ink on the signature line" (so to speak, and among other things) by March 31 or they won't let Widgets "book" (recognize) the revenue in Q1 — the term used is "persuasive evidence of an arrangement."

    AND: An oral contract by March 31 won't work either.

    AND: Don't backdate the "Date signed" date on the contract — that could amount to securities fraud.

  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?

    DCT: Try an electronic signature by email or text message — at a minimum, the Honolulu hotel probably has a business center with computers (or even a FAX machine!) that could be used.

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

    DCT: If it's a good and longstanding client relationship, I might do it, but I'd still be reluctant.

    If I did sign it, my handwritten signature would be something like the following: "D.C. Toedt III, attorney for Addams Investments LP, by permission"

  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: Good point!

  8. The same student writes: "I would also demand to be indemnified in case the contract 'goes south.'"

    DCT: 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 agree to 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: Good point — but do it in a non-threatening, non-defensive manner. Example email: "Hi Wednesday — great talking to you just now; hope you're all enjoying Hawai'i. Confirming part of our discussion: You've asked me to sign the Widgets contract on behalf of Addams Investments, which I'll be doing later today; if that's incorrect, please let me know ASAP. Hope you all have a great trip home. Regards, [name]."

  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: 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: 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: 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: 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.

2.7.9. 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?

2.7.10. Real life: Wiping out prior rights

Caution: If doing an "amended-and-restated agreement" (in this week's reading) you'll want to consider whether you could be wiping out a provision that your client might later want to rely on. Here's a real-world example:

–  In 2014, a business that sold historical tours entered into a merchant agreement with a payment-processing company;

–  The merchant agreement, drafted by the payment processor, included a personal guaranty signed by the owner of the tour business;

–  Then in 2019 the parties entered into a replacement agreement, also drafted by the payment processor;

–  The replacement agreement likewise included a personal guaranty – –  but this time, the guaranty was signed by another individual, not by the owner of the tour business;

–  The replacement agreement also included an entire-agreement clause.

–  For reasons not relevant here, the payment processor sued the owner of the tour business under the guaranty in the 2014 agreement.

–  The Sixth Circuit held that the 2019 agreement had terminated the 2014 guaranty — and thus the tour business's owner was not liable in respect of transactions governed by the 2019 agreement. See Electronic Merchant Systems LLC v. Gaal, 58 F.4th 877 (6th Cir. 2023) (affirming, in part, dismissal for failure to state a claim).

2.7.11. Ambiguity: Rhymes with orange

2.7.12. How the real world works: The Türkiye earthquake tragedy

From Asli Aydintasbas, Turkey’s earthquake death toll might be more than just a natural disaster (WashingtonPost.com):

The first earthquake, followed by a second one of almost equal magnitude, was massive by any standard. The collapse of buildings directly on the fault line was probably unavoidable.

Yet across the region, there were many structures that stood firm, saving the lives of their occupants, while others next door crumpled — pointing to sloppy construction practices as the main cause of death.

We will need time to fully understand the extent to which human failings may have contributed to the loss of life. But early indications certainly raise questions.

In 1999, we quickly learned that it wasn’t the earthquake itself but human-made concrete blocks that kill people. The blame went to contractors who used cheap materials, to the officials who failed to enforce Turkey’s relatively loose building codes, and, of course, to a government that has failed to develop a nationwide earthquake response strategy.

* * * 

Natural disaster is one aspect of the story. Turkey’s reliance on construction-driven economic growth, cronyism and willingness to ignore its own building standards is the other.

(Emphasis added.)

2.7.13. A Hall of Fame comma

Presumably apropos of Aaron Rodgers tearing his Achilles tendon on his fourth (!) play for the NY Jets: Here

2.7.14. New Yorker (?) cartoon on contract language

See here. (It looks like a New Yorker cartoon but I can't be sure.)

2.7.15. What was useful today?

Question: What did you find useful to you in class today?

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

2.8. Class 08: Mon. Feb. 12

2.8.1. 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 (pseudo-)randomly.

Again, the names are 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. class:

Group 1: Anna S., Araceli, Haekyong, Nathan, Vivian
Group 2: Alex, Cole, Laura, Santiago, Taylor
Group 3: Caleb M., John, Jose, Madeline, Rhylee
Group 4: Anna E., Caleb S., Erica, Omar, Roha, Stanley

7:30 p.m. class:

Group 1: Andrew, Celeste, Christian, Ellie, Quinn
Group 2: Artur, Graysen, Phillip, Rachel, Will
Group 3: Deborah, Kris, Sarah, Sean, Yun
Group 4: Colton, Gabriela, Lincy, Mary, Umar

2.8.2. Exercise: Breaking up (part of) a wall-of-words guaranty (2)

Break up just Fragment 2 from the above wall-of-words guaranty; use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4.

Here's the text of Fragment 2:

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).

I'll show my rewrite in a few minutes.

DCT's rewrite of Fragment 2

Here's a possible rewrite of Fragment 2 — it assumes arguendo that Fragment 1 ends up being "numbered" as subdivisions (a) through (d):

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

  • (1)  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.]
  • (2)  the existence, validity, enforceability, perfection, non-perfection or extent of any collateral therefor, or nor
  • (3)  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.]

(f)  The Guarantor hereby irrevocably waives 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.

(g)  Anything contained herein to the contrary notwithstanding No matter what else this Guaranty might say, the Guarantor's total, aggregate obligations of the Guarantor hereunder under this Guaranty at any time shall be are limited to an aggregate amount equal to the largest amount that would not render its those 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

2.8.3. Real life: "Water" emoji is ambiguous

Emojis can be susceptible to disagreements about their meaning — see, for example, the so-called "chocolate ice cream" emoji 💩.

And from a criminal case: "[W]hile water [emojis] may reference sexual relations, case law also confirms that water can also refer to methamphetamine in drug trafficking communications." United States v. Swanagan (W.D. Ky. 2023) (denying motion to suppress wiretap evidence; citation omitted).

As with the contra proferentem rule, if an emoji in a notice is ambiguous — that is, the emoji could plausibly have more than one meaning — and the ambiguity can't be resolved by the usual means, then the ambiguity should be resolved against the party that used the emoji in the notice, on the theory that that party could and should have been more clear.

For additional information about the legal effect of emojis, see the emoji-related blog entries of law professor Eric Goldman, such as Emoji Law Year-in-Review for 2021 (blog.ericgoldman.org).

2.8.4. Employment agreement homework pre-review

For the employment agreements due this week, here are some comments that I've harvested in previous semesters — in your groups, discuss:

  • which of the comments below are surprising;
  • which comments might be important for a rising-2L summer associate to know.
  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, a letter agreement 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 is [or, will 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.

  9. TEXT: "To the greatest extent not prohibited, you agree that you will be an "at-will" employee during the entire time of this Agreement.

    COMMENT: To the greatest extent not prohibit by what? By law? By some other agreement?

  10. TEXT: "I. Duties and Scope of Employment."

    COMMENT: Using Roman numerals isn't the best idea for agreements of this type, because they get unwieldy and can be hard to reference.

  11. TEXT: "For the term of your employment (“Employment”), the Company agrees to employ you …."

    COMMENT: This is dangerous, because it implies that there's a fixed and/or determinable term of employment, as opposed to "at will" employment as stated further in the student's draft (and we don't want to have to litigate whether one takes precedence over the other).

  12. TEXT: "The Company may unilaterally amend this Agreement by providing at least five days’ notice to the you."

    COMMENT: This would get pushback from Dave — and it's not necessary, given that employment is at will.

  13. TEXT: "“Employment relationship” means the contractual relationship between You and Company entered into under this Agreement and controlled by this Agreement.

    COMMENT: Hmm: This could arguably mean that terminating the employment relationship has the effect of terminating the employment agreement — and with it, the post-term noncompetition covenant, which would make your client MathWhiz very unhappy.

  14. TEXT: "Dear Mr. Dave Doright"

    COMMENT: "Mr. Dave Doright" would be in the inside address of a letter; you wouldn't use "Mr. Dave Doright" in the salutation. (For a business letter agreement, the salutation would be "Dear Dave:" — first name only, typically with a colon as opposed to a comma — or possibly "Dear Mr. Doright")

  15. TEXT: "We have agreed that you will continue to serve as an employee of MathWhiz until either you or MathWhiz terminates your employment."

    COMMENT: You'd want to explicitly say "at will" because it's a term of art that a judge would immediately understand.

  16. TEXT: "/ s / Dave Doright"

    COMMENT: "s" means that it's been signed by Dave Doright, so you wouldn't include it here.

  17. TEXT: Some students used bullets for their paragraphs.

    COMMENT: Numbering would be better than bullets, for easier referencing in the future.

  18. TEXT: "The terms of this agreement can be subject to change."

    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.

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

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

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

    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.

  21. TEXT: "This letter confirms our oral agreement …."

    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.

  22. 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."

    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.

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

    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.

  24. 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.
  25. TEXT (in transmittal email to Mary): "I hope this Agreement is adequate …."

    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 ….

  26. TEXT: "Upon accepting this agreement, your employment by MathWhiz shall be in compliance by the following terms and conditions (this 'Agreement')."
    • 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.)
    • COMMENT 2: So who is obligated by this sentence?
    • 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 …."

2.8.5. 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.)

2.8.6. Negotiation: Reseller agreement

BASIC FACTS:

  • MathWhiz has developed a software package, "GeeWhiz," that will let customers do a lot of the data-analytics that MathWhiz does in its consulting business.
  • Because MathWhiz doesn't yet have much of an internal sales force, MathWhiz asks you to develop a form of reseller agreement.
  • Under the reseller agreement as MathWhiz envisions it:
    • The reseller will buy licenses to use the new GeeWhiz software at a stated discount from MathWhiz's list price.
    • The reseller will try to resell the GeeWhiz licenses to customers identified by the reseller, at whatever price the reseller chooses.

1.  MORE FACTS: Mary Marvel asks you if MathWhiz can specify a minimum price at which the reseller may resell the GeeWhiz licenses.

QUESTION: What do you tell her — and how can you help her achieve her (likely) business objective? EXPLAIN.

2.  MORE FACTS: The reseller wants MathWhiz to agree that the reseller will have exclusive rights to resell the GeeWhiz licenses.

QUESTION: What if any legal and/or business issues does that raise in your mind? (Feel free to use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4)

3.  QUESTION: In #2, what business goals do you think the reseller is concerned about? How might you help the reseller accommodate the reseller's concern(s) — assuming that MathWhiz is OK with doing so?

4.  EXERCISE: Groups 1 and 3 represent the reseller; Groups 2 and 4 represent MathWhiz — in the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4, set up a "term sheet" of points to be covered in the contract. SKIM THROUGH Chapter 16 concerning getting to signature sooner.

Then we'll have the pairs of groups negotiate the terms.

2.8.7. (For outside of class:) Earn-outs - optional reading/viewing

In anticipation of the upcoming homework assignment, you might want to look at this video and article (on your own).

2.8.8. Ambiguity (and commas): How long was Mary Stuart the Queen of Scots?

From Mary, Queen of Scots prison letters finally decoded (TheGuardian.com Feb. 8, 2023): "Dr John Guy, a fellow in history The University of Cambridge who wrote the 2004 biography of Mary, Queen of Scots, said the findings are a 'literary and historical sensation' and mark the most important new find on Mary Stuart, Queen of Scots for more than 100 years." (Emphasis added.)

2.8.9. Word order: "really"

The other night our grand-cat was lying on the couch between us as we watched TV.

  • I needed to look for the TV's remote control to fast-forward through commercials.
  • But where was the remote — could the cat be lying on it?

Compare (me saying to my wife):

  • "I really didn't want to move the cat."
  • "I didn't really want to move the cat."
  • "I didn't want to really move the cat."

GENERAL QUESTION: Might a choice of word order cause problems in a contract?

2.8.10. Drafting fail: A terminating party shoots itself in the foot

FACTS – from a 2021 Delaware chancery-court case:

  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. [DCT comment: That would be a pretty-typical intent on the part of the parties.]

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" (emphasis added):

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).

2.8.11. Quick 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, including those from prior weeks' reading.

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

2.8.12. 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?

2.8.13. What was useful today?

Question: What did you find useful to you in class today?

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

2.9. Class 09: Wed. Feb. 14

2.9.1. Housekeeping: Group reshuffling TODAY

As mentioned at the start of the semester: So that students will get a chance to work with others, effective today we are reshuffling the groups, this time alphabetically by first name, with a few manual tweaks to get a better shuffle.

(Again, the names are 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. class:

Group 1: Anna S., Araceli, Haekyong, Nathan, Vivian
Group 2: Alex, Cole, Laura, Santiago, Taylor
Group 3: Caleb M., John, Jose, Madeline, Rhylee
Group 4: Anna E., Caleb S., Erica, Omar, Roha, Stanley

7:30 p.m. class:

Group 1: Andrew, Celeste, Christian, Ellie, Quinn
Group 2: Artur, Graysen, Phillip, Rachel, Will
Group 3: Deborah, Kris, Sarah, Sean, Yun
Group 4: Colton, Gabriela, Lincy, Mary, Umar

2.9.2. Valentine's Day ambiguity: Wife Appreciation Day

A tweet: "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?")

2.9.3. News: Handwriting, not typing, leads to widespread brain connectivity

See this piece:

Brain electrical activity was recorded in 36 university students as they were handwriting visually presented words using a digital pen and typewriting the words on a keyboard. Connectivity analyses were performed on EEG data recorded with a 256-channel sensor array.

When writing by hand, brain connectivity patterns were far more elaborate than when typewriting on a keyboard, as shown by widespread theta/alpha connectivity coherence patterns between network hubs and nodes in parietal and central brain regions.

Existing literature indicates that connectivity patterns in these brain areas and at such frequencies are crucial for memory formation and for encoding new information and, therefore, are beneficial for learning.

Our findings suggest that the spatiotemporal pattern from visual and proprioceptive information obtained through the precisely controlled hand movements when using a pen, contribute extensively to the brain’s connectivity patterns that promote learning.

We urge that children, from an early age, must be exposed to handwriting activities in school to establish the neuronal connectivity patterns that provide the brain with optimal conditions for learning.

Although it is vital to maintain handwriting practice at school, it is also important to keep up with continuously developing technological advances. Therefore, both teachers and students should be aware of which practice has the best learning effect in what context, for example when taking lecture notes or when writing an essay.

(Extra paragraphing added.) See also the Hacker News discussion.

2.9.4. Experiment: A clause-breakup protocol

This is an experiment — when reviewing a contract drafted by someone else, try doing the following:

1.  [If you're reviewing a Word document:] 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 "… provided, that …." — 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.  For any long-ish provision, answer each question below with SHORT, complete sentences, in possibly executive-summary form. Be aggressive about deferring details until subsequent subdivisions.

  • Action: Which party (the "Actor") must do (or refrain from doing) what?
  • Timing: Are there deadlines? Maximum- or minimum time periods? Earliest-allowable start date?
  • Trigger(s) / prerequisites / exceptions: Is this requirement an absolute one? Or will it come into effect only if triggered, and if so, what is/are the triggers? Are there any "escape clauses" that the Actor can use to get out of the requirement for this action (or non-action)?
  • Autonomy? Constraints? Standards? Is the Actor required to conform to any particular restrictions or standards, e.g., "in accordance with professional standards" or "in accordance with the Company's executive bonus plan"?
  • Other details / defined terms? Are there any definitions that could be spun off into separate paragraphs and replaced with an in-line defined term?

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. …

Here's a possible rewrite, using the above protocol — you wouldn't include the questions, just the answers:

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

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

2.  Timing:

Payment of the Gross-Up Amount is due when the underlying amount is due.

3.  Trigger(s) / prerequisite(s) / exceptions: Is this requirement an absolute one, or will it come into effect only if triggered, and if the latter what is/are the triggers? Any "escape clauses"?

The Guarantor must pay the Gross-Up Amount only if the Guarantor is required by law to withhold an amount from a payment to the Lender. [Later, we might consolidate this sentence with the previous one.]

The Guarantor need not pay the Gross-Up Amount if the required withholding is for any of the following: (i) taxes based on, or measured by, the net income or profits of the Lender, or (ii) 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.  Autonomy? Constraints? Standards? [Not applicable]

5.  Other details / defined terms:

For this purpose, 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.

Let's try this out:

2.9.5. 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]

I'll show one possible rewrite later.

DCT REWRITE 1

1.  Action:

(a)  The Company is to pay the Employee an annual cash bonus (the "Bonus"), if earned, for each fiscal year of the Company in which the Employee is employed by the Company, in an amount determined as set forth below. [Note the forward reference as an aid to the reader.]

2.  Timing:

(b)  The Company is to pay each earned Bonus (if any) no later than the last day of the third month following the close of the Company's relevant fiscal year. EXAMPLE: If the Company's fiscal year ends on January 30, then the Bonus (if any) is to be paid no later than April 30 of the same year. [Note the use of a "worked example," again to aid the reader.]

3.  Triggers / prerequisites / exceptions:

(c)  The Company need not pay a Bonus (if any) if — for any reason — the Employee is no longer employed by the Company on the date on which the Bonus would paid, except as provided in subdivision (d) below.

(d) If the Employee is still employed by the Company on February 5, 2017, then the Company is to pay the Employee any Bonus earned for the fiscal year ending January 30, 2017.

4.  Autonomy / constraints / standards:

(e) The Employee's target annual cash bonus opportunity (the "Target Bonus") shall be is to be set from time to by the Board of Directors of the Company (the "Board") or by one of the Board's committees.

(f)  Each Target Bonus is to be at least 100% of Employee's Annual Salary for any given year.

(g)  The Employee acknowledges that the actual Bonus payable in a given year could be greater or lesser than the Target Bonus.

(h) The Employee's eligibility for a Bonus is to be determined by the achievement of performance objectives established from time to time by the Board of Directors (or a committee of the Board), in a manner consistent with the criteria set for other senior management executives at the Company.

(i)  The Bonus (if any) for each year will be payable in accordance with the Company's annual cash bonus program for executive officers then existing for such fiscal year.

5.  Other details / defined terms: None.

Notes:

QUESTION: In subdivision (h), note that I kept the passive voice for "the achievement of performance objectives" and did not say "Employee's achievement of performance objectives …." Why might that be?

DCT REWRITE 2

Here's a more-"conventional" rewrite:

(a)  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.

(b)  The Bonus (if any) will be payable in accordance with the terms of the Company's annual cash bonus program for executive officers then existing for such fiscal year; and

(c)  The Bonus be payable to Employee only if Employee is employed by the Company on the date on which such that Bonus is paid, except as provided in subdivision (e) below.

(d) The amount of the Bonus will be based on the achievement of performance objectives as may be established from time to time by the Board of Directors or a committee thereof of the Board, [moved up:] in a manner consistent with the criteria set for other senior management executives at the Company.

(e) If Employee remains employed by the Company through February 5, 2017, as contemplated hereunder, then Employee shall will be entitled to receive any Bonus earned for the fiscal year ending January 30, 2017 notwithstanding the fact that even if Employee ceases to be an employee after February 5, 2017.

(f) In no event will any such Bonus Any Bonus is to be paid no later than the last day of the third month following the close of the Company's fiscal year to which such that Bonus relates. EXAMPLE: If the Company's fiscal year ends on January 30, then the Bonus (if any) is to be paid no later than April 30 of the same year.

(g) Employee's target annual cash bonus opportunity shall will be set from time to by the Board of Directors or a committee thereof of the Board.

(h) but such bonus opportunity shall not be less than Employee's target annual bonus opportunity will be at least 100% of Employee's Annual Salary for any given year (the "Target Bonus"); the actual Bonus payable may [or "might," but here, either works] be greater or lesser than the Target Bonus.

2.9.6. Flexibility of sound-bite clauses: A California AG lawsuit against Google

Illustrating the contract-negotiation advantages of using short, single-subject paragraphs, consider an analogous situation: Drafting a complaint in a lawsuit, where the defendant must review and respond to each allegation in the complaint.

1.  Background:

  • In U.S. litigation, a defendant must respond to allegations made in a complaint by admitting, denying, or pleading ignorance, generally on a paragraph-by-paragraph basis. See generally Fed. R. Civ. P. 8(b) concerning complaints and answers:

(b) … (3) General and Specific Denials. A party that intends in good faith to deny all the allegations of a pleading—including the jurisdictional grounds—may do so by a general denial. A party that does not intend to deny all the allegations must either specifically deny designated allegations or generally deny all except those specifically admitted.

(4) Denying Part of an Allegation. A party that intends in good faith to deny only part of an allegation must admit the part that is true and deny the rest.

(5) Lacking Knowledge or Information. A party that lacks knowledge or information sufficient to form a belief about the truth of an allegation must so state, and the statement has the effect of a denial.

  • A plaintiff need not prove up matters that a defendant admits. (See Fed. R. Civ. P. 36(b): "A matter admitted under this rule is conclusively established unless the court, on motion, permits the admission to be withdrawn or amended.")
  • But defendants' lawyers often look for reasons to simply deny an allegation — and they might well do just that for a long, wall-of-words paragraph that contains multiple factual allegations.

2. So: Consider the following paragraph from a State of California lawsuit against Google (which Google promptly settled for $93 million):

4.  Google’s primary source of revenue is advertising. Google’s parent company Alphabet Inc. reported that in 2022 it had revenues of over $280 billion, and over $220 billion of that was attributable to Google’s advertising. A critical feature of Google’s advertising platform is location-based (or geotargeted) advertising, as advertisers greatly prefer to precisely target users in narrow geographical locations. In addition to advertising to users based directly on their location, Google also uses their location data to build behavioral profiles of users, which can determine what ads are shown to users.

The state AG's office might profitably have rewritten this paragraph (and others) to increase the odds of Google's lawyers admitting to more things — for example, thusly:

4.  Google’s primary source of revenue is advertising. [The adjective "primary" is probably undeniable.]

[5.]  Google’s parent company Alphabet Inc. reported that in 2022 it had revenues of over $280 billion, and over $220 billion of that was attributable to Google’s advertising.

[6.]  A critical feature of Google’s advertising platform is location-based (or geotargeted) advertising.

[7.]  Advertisers greatly often [or, sometimes] prefer to precisely target users in narrow geographical locations.

[8.]  In addition to advertising to users based directly on their location, Google also uses their location data to build behavioral profiles of users, which can help to determine what ads are shown to users.

5.  To be sure: The state AG's office could readily prove up each of the above assertions, using depositions, documents, etc. But: The more of these matters that Google will admit right away, the more that will serve to pin Google down — thus simplifying matters for the AG's office as the case develops (to say nothing of reducing costs).

6.  Of course, by breaking up the factual allegations into bite-size chunks, you end up with more numbered paragraphs. Who cares?

7..  Note also how the state AG's office includes screen-grab images directly in the body of the complaint to help educate the judge and jury. Question: In a contract, could screen-grab images be judiciously used to help educate the parties' business people — and later readers such as a judge or jury? (That often won't be worth bothering with, but it's worth keeping in the back of your mind.)

2.9.7. Spaced-repetition review: Expense reimbursment; interest charges

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

FACTS:

  • MathWhiz and Gigunda have agreed (in part) that Gigunda will reimburse MathWhiz for MathWhiz's out-of-pocket expenses.
  • Gigunda's services agreement template says that MathWhiz must comply with Gigunda's expense reimbursement policy concerning what Gigunda will or won't reimburse (e.g., no first-class travel).
  • Mary Marvel, the MathWhiz CEO, asks what you think.

QUESTION 1: What advice do you have for Mary?

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? (Think not just legally but also from a business perspective — what might a MathWhiz customer think?)

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?

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 be the one to confirm that it has arranged for payment security? Or would it be better for MathWhiz to get more confirmation than that?

2.9.8. Arbitration (reading preview): Samsung must pay $3M in arbitration fees

Previewing the reading about arbitration: A federal district judge in Chicago has ordered consumer electronics company Samsung to pay American Arbitration Association ("AAA") arbitration fees — probably totaling around $3 million — for some 35,000 consumers who had demanded arbitration as required by their "agreements" with Samsung. The court noted that:

Alas, Samsung was hoist with its own petard. … [Samsung] made the business decision to preclude class, collective, or representative claims in its arbitration agreement with its consumers, and AAA’s fees are directly attributable to that decision.

(The Hamlet quote is part of a longer speech by Hamlet: "For 'tis the sport to have the engineer || Hoist with his own petard" — that is, for an army engineer, in charge of tunneling under an enemy fortress to plant explosives, to be blown up by his own bomb.)

2.9.9. Guaranties (reading review): A recent, short, survey article

This introductory article about tenant guaranties in commercial leases, by two Holland & Knight lawyers, was published recently.

2.9.10. Incentives & business planning: The Texas electrical grid

We're at three years (almost exactly to the day) since the Great Texas Blackout caused by Winter Storm Uri in February 2021, which 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.)

As has been reported and discussed at length in the ensuing two years, 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).

UPDATE: Debate still goes on about whether the Texas electricity grid is structured to provide incentives for maintaining reliable power. See, e.g., Shelby Webb, PUC to take next step on ERCOT market redesign (HoustonChronicle.com Jan. 19, 2023); Shelby Webb, Major PUC decision about Texas' power market won't be the end of debate (HoustonChronicle.com Jan. 9, 2023).

2.9.11. What was useful today?

Question: What did you find useful to you in class today?

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

Request: I'd like to call on someone to take notes in the Group 1 whiteboard — I'll copy and paste the notes into this class plan for future reference. I'll spin the wheel to call on people.

EDIT: Added:

  • Spaced repetition questions, esp. usury review
  • Methodical approach to rewriting barf clauses (popular)
    • White space is your friend for readability
    • Simple paragraphing, not a lot of indentation
  • Payment security questions
  • 1% net 15 example

2.10. Class 10: Mon. Feb. 19

2.10.1. Services: Discussion questions

Discuss in your groups — feel free to use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4

  1. QUESTION: What parts of the Services reading:
    • surprised you; and/or
    • struck you as worth mentioning to an inexperienced client?
  2. QUESTION: How much time should a lawyer spend reviewing the statement of work for a client?
  3. QUESTION: Should MathWhiz agree to obtain all permits and licenses needed related to its performance of services for Gigunda? Careful: Think broadly about what permits and/or licenses:
    • might be needed by someone; and
    • might be claimed — in hindsight — to have been "related to" MathWhiz's services.
  4. QUESTION: What could happen if a Provider failed to get required occupational licenses, e.g., construction-contractor licenses?
  5. QUESTION: (Facts:) A home builder finishes a new house and turns the keys over to a young couple, who move in with their new baby (and the wife's in-laws, visiting from out of town). BUT: The builder failed to get the final city inspection done, so the city orders the family to move out, and they have to spend three days in a hotel.
    • Q: Who pays the hotel bills?
  6. QUESTION: Why would a customer/client want to require a contractor to use people who are "competent and suitably trained for the task"? (Think: Litigation proof.)
  7. QUESTION: What does "workmanlike performance" mean? (Use Texas law as a typical version.) Why is that typically used as a standard of performance for services?
  8. QUESTION: Why might a customer want to state that the service provider is responsible for determining the "means and manner" of the work?
  9. QUESTION: What are DCT's "Three R's" for agreed ways of addressing defects in deliverables? (Note: This is different than DCT's "Three R's" for notices.)

2.10.2. Question: Readability of "operating-instructions" approach

I'm toying with the idea of converting the course materials' sample contract terms into an operating-rules format for easier reading by students and business people and easier negotiation.

Example: The course materials' invoicing terms (at § 22.88) and payment terms (at § 22.120) provision might be rephrased along the following lines:

Unless otherwise agreed in writing:

Rules for Billers:

  1. Send an invoice for each payment.
  2. Itemize all taxes being charged.
  3. Write each invoice in the contract language.
  4. Include a translation of each invoice into any language required by law.
  5. Exception: You need not send an invoice if the contract clearly states a specific amount to be paid on or before a specific date.
  6. Do not invoice your expenses unless the contract says you can do so.
  7. If the contract does allow you to invoice expenses, do not add a mark-up unless the contract says otherwise.

Rules for Payers:

  1. Pay each Biller invoice net 30 days.
  2. If you want to dispute a Biller charge, notify the Biller on or before the payment due date.
  3. Pay undisputed amounts no later than the payment due date.
  4. You may subtract amounts due to you (from the Biller) from amounts due from you to the Biller. (This is known as an "offset.")
  5. You may offset only "liquidated" amounts that are already due to you.
  6. If you do take an offset, provide the Biller with a reasonably-detailed explanation and reasonable supporting documentation.

Comments — especially from a business-reader perspective?

2.10.3. Reading preview: Indemnity language turns out to be crucial

From Nissan N. Am., Inc. v. Continental Auto. Sys. (6th Cir. Feb. 6, 2024):

  • Nissan's North America operation buys brake assemblies and parts from Continental.
  • A driver's brakes fail, apparently due in part to bad design choices by Nissan engineers (and a technical error in Continental-supplied software), and three people in another car are killed.
  • Nissan gets hit with a $24MM jury verdict; Nissan demands indemnity (reimbursement) from Continental.

The indemnity language in Nissan's purchase order says (in relevant part):

8.  … Seller’s liability shall also include … damages or cost arising from claims of personal injury or property damages caused directly or indirectly by defective parts supplied by Seller.

Nissan argued: "Paragraph 8 requires Continental to indemnify Nissan for expenses arising from claimed defects in Continental parts." (Emphasis in court's opinion.)

Continental responded that it would be liable under Section 8 for "actual—not alleged—defects in its products, and then only when the actual defect is to blame for the harm to Nissan." (Emphasis added.)

The Sixth Circuit ruled:

By the terms of the contract, the district court held, Continental must indemnify Nissan where Continental’s defective parts caused injury or property damage.

Nissan could establish this either by (1) showing a preclusive finding that a Continental defect caused a relevant injury or (2) litigating that issue in the first instance in the indemnification action.

We agree with this assessment of the contract. And we agree that because Nissan did neither, it cannot recover.

Slip op. at 7-8 (emphasis and extra paragraphing added).

2.10.4. Ambiguity: From Mr. & Mrs. Smith

From AdamsDrafting.com, some dialog from an episode of Mr. & Mrs. Smith on Amazon Prime Video:

[Husband:] You said last night that you weren’t going to work the whole day.

[Wife:] No, I didn’t. I said I wasn’t gonna work the whole day. I have to work some of the day.

Ken Adams describes this as "ambiguity of the part versus the whole!" concerning which he devotes 31 pages in his book.

2.10.5. Advance suggestions for homework: Earn-outs

For the upcoming homework: As before, I'm advance-posting some of my past comments about common mistakes in earn-out rewrites by students — use them as a guide in doing your own rewrite.

1.  In the event that If Seller shall timely reject timely rejects ….

2.  Seller shall have a period of has [or, will have ] 30 days ….

3.  In the event no Rejection Notice is received by Purchaser If Purchaser does not receive a Rejection Notice during such that 30-day period, then

COMMENT: Note how this 30-day "shot clock" is tied to Purchaser's receipt of a Rejection Notice — but what if Purchaser refuses the Rejection Notice?

4.  If Seller rejects an Earn-Out Calculation, such then the rejection notice (the “Rejection Notice”) [do we really need a defined term here?] shall is to set forth forth: (i) the reasons for such rejection in reasonable detail and set forth (ii) the amount of the requested adjustment.

5.  … and such The joint determination and any required adjustments resulting therefrom shall be final, conclusive, and binding on the Parties. [It's now a separate sentence, but it doesn't need to be its own separate paragraph.]

6.  … such the determination ….

7.  The Accounting Firm will is to allocate its fees and expenses between the Parties ….

8.  The Accounting Firm’s determination shall be is to be limited to resolving the disagreement set forth in the Rejection Notice.

Comment A: This should preferably be a separate paragraph.

Comment B: Consider instead: The Accounting Firm’s determination shall be authority is limited to resolving the disagreement set forth in the Rejection Notice. [This makes it clear that the Accounting Firm isn't intended to be a binding arbitrator for any other matter -— at least not under this clause.]

9.  (At the beginning of the assignment:) Within 60 days after the last day of an applicable Earn-Out Year, Purchaser shall shall: [note the added colon]

OR: … Purchaser shall is to:

OR: … Purchaser shall is to do the following: [the phrase, "the following" is a signal to the reader that the sentence will continue in the following subdivisions — theoretically the colon alone does that, but it might be missed by a skimming reader]

10.  Payment to Seller from Purchaser will be is to be by wire transfer ….

11.  In the event If Seller and Purchaser are unable to do not agree upon the Annual Earn-Out Payment ….

2.10.6. Negotiation exercise: Evergreen pricing

(This is one of the better exercises we'll be doing this semester: The discussions will help knit together a lot of business concepts with which companies often have to deal.)

For this exercise:

  • Groups 1 and 3 represent Gigunda;
  • Groups 2 and 4 represent MathWhiz.

FACTS:

1.  Gigunda wants MathWhiz to enter into a "long term" master-services agreement to provide data-crunching services "to order" (i.e., whenever Gigunda submits a purchase order).

2.  Gigunda wants any Gigunda "affiliate" — for this exercise, assume that the parties have agreed on a mutually-satisfactory definition of that term — to be able to place orders for MathWhiz services.

3.  Gigunda also wants to put some fences around MathWhiz's ability to increase prices.

4.  And, Gigunda would like an "evergreen" feature for the pricing-increase provisions, where the pricing would continue in place for an additional time period if neither party opts out within a specified time.

PART 1: Develop a list of term- (as in, duration) and pricing-related issues for your client (Gigunda or MathWhiz) to discuss with The Other Side. [Suggestion: Skim through the major headings of the relevant reading assignments of the past few weeks.] Feel free to use the group whiteboards (both classes):       • Group 1       • Group 2       •  Group 3       •  Group 4.

PART 2 (when I give the word): Together with The Other Side (Group 1 and Group 2, Group 3 and Group 4), see if you can come up with a "term sheet" on the above issues.

PART 3: Each pair of groups should designate a spokesperson to "report out" — one issue at a time, alternating between pairs — on:

  • points of agreement; and
  • (more importantly) points where you didn't get to agreement.

And you should feel free to ask questions about possible approaches and opportunities to compromise.

As usual, I'll walk around, answer questions, and perhaps offer a suggestion or two.

2.10.7. Quick exercise: Litigation prep – a straight-A report card

FACTS: You have a school-aged daughter (let's say). You want to bribe reward her if she makes straight-A grades for a given report-card period.

QUESTION: Which of the following would she prefer — and why:

  • Option A: "I'll pay you $100 at the end of the reporting period unless your report card has any grade less than an A."
  • Option B: "I'll pay you $100 at the end of the reporting period if you show me your report card and it has all A's."

2.10.8. What was useful today?

Question: What did you find useful to you in class today?

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

Request: I'd like to call on someone to take notes in the Group 1 whiteboard — I'll copy and paste the notes into this class plan for future reference. I'll spin the wheel to call on people.

EDIT: Added:

  • Spaced repetition questions, esp. usury review
  • Methodical approach to rewriting barf clauses (popular)
    • White space is your friend for readability
    • Simple paragraphing, not a lot of indentation
  • Payment security questions
  • 1% net 15 example

2.11. Class 11: Wed. Feb. 21

2.11.1. 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.)

2.11.2. Quiz 2 comments

Question 1: Conventionally, "net 10 days" uses digits, even though ordinarily "ten" is spelled out.

Question 1: We don't know whether net 10 days is "enough time" for payment because we don't know which side we represent — the payer, or the biller.

Question 2: The federal Fair Credit Reporting Act imposes advance-consent requirements in all states, including Texas.

Question 3: Invoices: "The phrase that pays" is internal controls. (Invoices also give the billing party a convenient way of tracking payments owed, a.k.a. "accounts receivable.")

2.11.3. Review exercise: Developing a "tough" standard form

(This is a review exercise for Chapter 16.)

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?

2.11.4. In the news: $30.7M verdict on oral contract

From TexasLawbook.net (Feb. 16, 2024) (login required, but a UH email address might work):

A case hinging on an alleged oral promise for compensation was recently decided in favor of a retired employee who alleged he had been defrauded by his former boss, who owned about 150 Popeyes restaurants across Texas, Oklahoma and Florida.

The panel of six Dallas County jurors heard eight days of testimony and deliberated for two hours before deciding Jerry “Scott” Stockton wasn’t lying when he told them his former employer, Guillermo Perales and his company Sun Holdings, had promised to pay him 5 percent of the annual operating profits of the restaurants he helped oversee. Stockton was awarded about $15.6 million in compensatory damages and $15.1 million in punitive damages. [DCT question: Punis for a breach-of-contract case?]

Stockton’s lead attorney, Daniel Charest of Burns Charest, said he told the jury during opening statements that deciding who was credible would decide the whole case.

“I said, ‘One person says a promise was made and one person said it never happened. But the good news is it’s not just a he said-she said. We have witnesses who corroborate our story and they don’t have anyone,’” Charest told The Lawbook. “I told them, “If you don’t believe [Stockton], don’t find for him. But when you hear from him, you will believe him.’”

Charest said he believes delivering on the promise of corroboration, plus having a client he described as “salt of the earth,” carried the day.

2.11.5. "Don't sign blank checks" - article to read (optional)

It'd be worth your while to read this online article by Kyle Mitchell, a (younger) lawyer friend of DCT in California. EXCERPT:

For example, many big companies’ form master procurement agreements obligate vendors to replace personnel the customer objects to, for any reason at all. If that person’s role happens to be account manager, and your company has a dozen of those, you might assume you’ll have a replacement to hand.

But even so, you’re betting that bad things won’t happen, and won’t happen at once. If they do, you’ll get stuck scrambling to train, recruit, or contract a new sub.

If you happen to be a small startup of three people without a reserve mountain of cash, you run a higher risk.

  • Any objection could mean hiring someone you did not intend to hire, or at least not hire yet.
  • You might accelerate plans and take that person on ahead of schedule … and get a termination notice soon after, or fail to renew the deal. After all, the customer’s already unhappy with at least part of the relationship. Now you’re firing someone you never really wanted to hire in the first place.

Solution?

  • Add a “reasonableness” limit on the customer’s veto, to your obligation to replace, or both.
  • Put a hard numeric limit on the number of people they can ding, like one per year, or tie it to fees paid.
  • Or just strike the whole concept of a designated, replaceable person.

(Emphasis, extra paragraphing, and bullets added.)

2.11.6. Coming up: Ambiguity of "and": SCOTUS will have to decide

See this AP article, the SCOTUS docket page, and the question presented:

The “safety valve” provision of the federal sentencing statute requires a district court to ignore any statutory mandatory minimum and instead follow the Sentencing Guidelines if a defendant was convicted of certain nonviolent drug crimes and can meet five sets of criteria. … designed to provide a second chance for nonviolent offenders.

A defendant satisfies [the second-chance criteria] if he “does not have—(A) more than 4 criminal history points, excluding any criminal history points resulting from a 1-point offense, as determined under the sentencing guidelines; (B) a prior 3-point offense, as determined under the sentencing guidelines; and (C) a prior 2-point violent offense, as determined under the sentencing guidelines.”

The question presented is

  • whether the “and” … means “and,” so that a defendant satisfies the provision so long as he does not have (A) more than 4 criminal history points, (B) a 3-point offense, and (C) a 2-point offense (as the Ninth Circuit holds), or
  • whether the “and” means “or,” so that a defendant satisfies the provision so long as he does not have (A) more than 4 criminal history points, (B) a 3- point offense, or (C) a 2-point violent offense (as the Seventh and Eighth Circuits hold).

(Cleaned up, formatting revised.)

2.11.7. Small-group exercise & spaced-rep review: Notices (Part 1)

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: Given the use of and here, 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?

2.11.8. Review: 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?

2.11.9. Reading preview: Reseller relationships deteriorate – indemnity clause is third-party only

Reseller relationships can be important for suppliers looking to grow their "sales channels." Reseller relationships can work well, but over time — and as the parties' management personnel and strategic plans change — even once-successful relationships can deteriorate and ultimately end into expensive, time-consuming litigation, as seen for example in ORP Surgical (10th Cir. 2024).

1.  First-party indemnity? In part III.B of its opinion, the ORP Surgical court had to untangle a barf-clause indemnity provision that the court found to be ambiguous about whether first-party claims were indemnified, or third-party claims only. The court looked to a New Jersey rule that "courts must construe ambiguous indemnification provisions against the indemnitee." ORP Surgical (10th Cir. 2024), slip op. at 42. The court therefore reversed an attorney-fee award in favor of ORP.

2.  Disclaimer of contra proferentem: The court also noted that: "All the typical canons [of contract construction] apply, except that, contrary to New Jersey’s convention to construe ambiguity against the drafter, … we will not automatically construe the ambiguity against Stryker because of the [contract's] Section 28: 'The Parties acknowledge that this Agreement is the result of negotiations so neither Party shall avail itself of any rule of construction that would resolve ambiguities against a drafting party.'" ORP Surgical (10th Cir. 2024), slip op. at 42 n.14.

2.11.10. D.R.Y. blog post from Ken Adams

On this issue Ken has the sensible view about D.R.Y.

Excerpt:

And using both words and digits violates a cardinal rule of drafting—that you shouldn’t say the same thing twice in a contract, because it introduces a potential source of inconsistency. Even if when you first state a words-and-digits number the words and digits are consistent, they might become inconsistent as a draft is revised. It’s easy to see how that can happen—digits are more eye-catching than words, so you might change the digits but forget to change the words. … So a convention that aims to catch an error in writing digits introduces the potential for an additional, and entirely different, and potentially broader, kind of mistake.

Furthermore, because it’s more likely that any inconsistency caused by revisions is due to changing digits and forgetting to change the words, rather than vice versa, applying in that context the principle of interpretation that words govern might result in a court choosing a meaning that’s contrary to what the drafter had intended.

But a commenter says:

I would add an internal interpretive rule to the effect that ‘when the digital version of a number clashes with the alphabetic version, the digital version prevails’.

2.11.11. Somewhat-recent: "Within X days of [date]" – before, or after?

Washington state's supreme court decided Nelson v. P.S.C., Inc., 535 P.3d 418 (2023), which turned on whether a state statute's reference to "within three years of the marriage" required a specified event to occur:

  • during the three years before the marriage; or
  • no later than the three years after the marriage.

The details aren't important, only that the case had to be litigated — thanks a lot, legislative drafters!

2.11.12. 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) Triggers: 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)  Calculation: 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. [DCT note: I didn't include a sample calculation here, but it's worth considering.] here

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

2.11.13. Drafting exercise: Most-favored customer

FACTS: In the negotiation of a master services agreement, Gigunda wants the agreement to contain a most-favored customer ("MFC") clause.

EXERCISE: Draft the MFC clause, as follows:

  • Groups 1 and 3: You represent Gigunda.
  • Groups 2 and 4: You represent MathWhiz.

BE SURE to address how the MFC clause will be administered as time goes on.

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

(The relevant reading was here.)

2.11.14. In the news: Meta (Facebook) scraping case - survival clauses

In Meta (N.D. Cal. 2024) (citing cases), the court noted that the law would likely invalidate perpetual confidentiality obligations for non-trade-secret confidential information.

2.11.15. Review 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: What are you going to recommend to the partner as far as what the partner should say to the client? Important: What do we not know from these facts?

2.11.16. Short review exercise: Drafting problems with a contract

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

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

PROBLEMS:

  1. "Within thirty (60) days …" is a mismatch, illustrating the reason for the D.R.Y. (Don't Repeat Yourself) principle.
  2. "Within 30 days of the close …" is ambiguous — it could mean within the 30 days preceding the end of the quarter (although in context it's pretty clear).
  3. In the first phrase, it should be "… days of the close of the previous quarter term [sic]."
  4. "Quarter term" is not a conventional phrase — consider "calendar quarter," or perhaps "fiscal quarter," instead.
  5. "ABC shall provide XYZ with a revenue report" is OK, and some practitioners prefer it, but "ABC will provide" would be softer and more collaborative-sounding — or perhaps "ABC is to provide XYZ with a revenue report …."
  6. Will XYZ want separate line items in the report for Data Revenue (and its costs) and Software Revenue (and its costs)?

DCT REWRITE:

(a) Each quarter, ABC is to provide XYZ with a "Revenue Report" for the previous quarter; each Revenue Report is to state the following:

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

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

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

2.11.17. Small-group exercise & reading review: Notices (Part 2)

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

  1. 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.)

  2. 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?

  3. 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?

  4. 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"?

2.11.18. 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?

2.11.19. 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:

2.11.20. 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?

2.11.21. 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?

2.11.22. You get what you INspect: Trafigura Group could lose USD $577M

From Joe Wallace, Swiss Trader Trafigura Hit by Suspected Nickel Fraud, Says It Could Lose $577 Million (WSJ.com):

Trafigura Group thought it was buying containers full of nickel. What showed up wasn’t nickel at all, the giant commodities trader said, describing itself as the victim of a “systematic fraud” that could cost it more than half a billion dollars. …

The trading house had dealt with Mr. Gupta’s companies for years without any problems, a spokesperson said. But in 2022 red flags began to emerge.

Cargoes purportedly containing nickel were taking longer to arrive at their destination than expected, a spokesperson said. They were also stopping off at more ports en route than expected, the spokesperson said, and the companies stalled on showing documentation. …

Trafigura started to inspect a small number of containers in Rotterdam, a person familiar with the matter said. When it opened them, they didn’t contain nickel, a silvery-looking metal that fetches around $30,000 a metric ton and whose price has shot up in line with demand for EVs.

Instead, the boxes had lower-value materials such as carbon steel, the person said. The financial charge Trafigura is taking reflects the hit from receiving less valuable, or in some cases potentially worthless, goods in place of the pricey nickel that it paid for.

2.11.23. 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: 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.)

2.11.24. What was useful today?

Question: What did you find useful to you in class today?

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

Request: I'd like to call on someone to take notes in the Group 1 whiteboard — I'll copy and paste the notes into this class plan for future reference. I'll spin the wheel to call on people.

EDIT: Added:

  • Spaced repetition questions, esp. usury review
  • Methodical approach to rewriting barf clauses (popular)
    • White space is your friend for readability
    • Simple paragraphing, not a lot of indentation
  • Payment security questions
  • 1% net 15 example

3. Homework, week by week

3.1. Homework due Mon. Jan. 22: 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.

Note that under the syllabus, unsatisfactory pass-fail assignments could get partial credit, in my sole discretion, instead of zero credit.

3.2. Homework due Wed. Jan. 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, do one of the following:

  • 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.

3.3. Homework due Wed. Jan. 31: Signatures - the Addams family (10 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 (5 pts): Draft the signature block for Addams Investments, L.P.

QUESTIONS to answer in the Word document (5 pts):

  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?

3.4. Homework due Wed. Feb. 14: 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.)

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.

Be sure to follow the Rules.

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.

3.5. Homework due Wed. Feb. 28: Earn-out computations (10 pts NOT P/F)

TIPS:

  • Consider using the systematic-rewriting protocol at [BROKEN LINK: sys-rewrite].
  • See my comments about previous semesters' submissions at 2.10.5.
  • For general background about earn-outs, see this video and article.

ASSIGNMENT: In a Word document that you upload to Canvas, simplify the following provision — see the tips immediately following it:

(Edit: Be sure to follow the Rules.)

(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.

I'll show my own rewrite in class after the submission date.

3.6. Homework due Wed. Mar 06: Termination clause (10 pts.,  NOT 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 "barf clause" — consider using the protocol we experimented with on [BROKEN LINK: sys-rewrite] (at [BROKEN LINK: sys-rewrite]):

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]

[The text to rewrite starts here:]

(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.

(Edit: Be sure to follow the Rules.)

Consider the following comments from previous semesters:

  1. TEXT: The party seeking to terminate this Agreement pursuant to this Section 6.01(b)(ii) shall have will have must have used its reasonable best efforts to remove such Governmental Order or other action.

    COMMENT: "Reasonable best efforts" seems to appear in contracts, but it's not entirely clear what it supposedly means. See the efforts-related reading assignments.

  2. TEXT: Termination of this Agreement pursuant to Section 6.01(b)(ii) is not available to … (a) A party a party ….

    COMMENT: I wouldn't capitalize the "A in "(a) A party," inasmuch as subdivision (a) is part of the previous sentence, and capitalizing the "A" could give the reader the (mis)impression that it's the beginning of a new sentence.

  3. TEXT: IF: the The Terminating Party seeks to terminate this Agreement, THEN: the The Terminating Party must use its reasonable best efforts to remove any Governmental Order or other action under Section 6.01(b)(ii)(1)-(2).

    COMMENT: This shouldn't be imposed as a positive obligation, but as merely a prerequisite — as in, "you're not obligated to use RBE, but you can't terminate if you didn't use your RBE …."

  4. BURDEN OF PROOF: One student's rewrite:

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

(b) by either Seller or Purchaser if …

(ii) a Governmental Order (“Order”) or action by a Governmental Authority (“Authority”) of competent jurisdiction becomes final or non-appealable and the terminating party used reasonable best efforts to remove the Order or action. [Emphasis added.]

QUESTION: In a case covered by (b)(ii) above:

  • Must the terminating party first establish that it used reasonable best efforts before it can terminate?
  • Or is it the other way around: To avoid termination, the non-terminating party must establish that the terminating party did not use reasonable best efforts?

Drafting lesson: Sometimes it's good to think about what your client might have to do.

So how about with this version?

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

(b) by either Seller or Purchaser if …

(ii) a Governmental Order (“Order”) or action by a Governmental Authority (“Authority”) of competent jurisdiction becomes final or non-appealable unless the terminating party failed to use its reasonable best efforts to remove the Order or action. [Emphasis added.]

  1. OBLIGATION VS. PREREQUISITE:

Option 1: "A party subjected to a Governmental Order must make reasonable efforts to remove such Governmental Order or other action."

versus:

Option 2: "A party subjected to a Governmental Order may not terminate this Agreement under Section 6.01(b)(ii) unless that party made reasonable best efforts to remove such Governmental Order or other action."

QUESTION: Suppose that Party A is subjected to a Governmental Order but doesn't use reasonable efforts — what are Party B's options? Can Party B sue Party A for breach of contract?

3.7. Homework due Wed. Mar 27: 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.

(Edit: Be sure to follow the Rules.)

2.  Use Word comment bubbles to flag any issues that you think should be discussed with the client.

3.8. Homework due Wed. Apr. 17: Referral agreement (30 pts.  NOT P/F)

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. [EDIT: And be sure to follow the Writing Rules].

(Edit: Be sure to follow the Rules.)

  • 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

4. Reading, by week (to be updated)

4.2. Reading for week of Mon. Jan. 22

Skim the following except as otherwise indicated:

4.3. Reading for week of Mon. Jan. 29

Skim the following except as indicated

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!)

4.4. Reading for week of Mon. Feb. 05

Skim the following except as indicated

4.5. Reading for week of Mon. Feb. 12

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

4.6. Reading for week of Mon. Feb. 19

Read:

4.7. Reading for week of Mon. Feb. 26

Read:

4.9. Reading for week of Mon. Mar 18

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.

4.10. Reading for week of Mon. Mar 25

Look for the main takeaways in the following:

Selected defined terms:

4.12. Reading for week of Mon. Apr. 15

5. Appendix: Contract Style Rules – A Checklist

The style rules in this checklist are certainly not the only possible way to write contract terms — but:

  • this style is generally acceptable in the legal community;
  • following these rules will help the reader; and
  • the rules provide a rubric for when I grade the non-pass-fail assignments.

In this course, you're to follow these style rules; the idea is that, by the end of the course, you'll be able to draft contract language that looks like it's been written by someone with experience.

In writing assignments I'll be deducting points for violation of these style rules. [But if you're working for a partner who prefers a different style, just do it that way …. And in another party's draft, don't revise just to fit one of these style rules unless the original is hard for your client to read.]

I'm posting a link to this checklist at the beginning of this document.

In no particular order:

Rule 1-A: No barf clauses

Write short, one-item paragraphs; see the before- and after examples at NOCD § 7.5.2

Rule 1-B: BLUF

Bottom Line Up Front: See the before- and after examples at NOCD § 7.6.2

Rule 2: "Provided, that …": No, no, NO!

Instead, break the provision into separate sentences (or even separate paragraphs). See NOCD § 11.8.3.

Example:

Alice will pay Bob USD $100 no later than December 25; provided, however, that if Alice pays Bob no later than December 21, the amount to be paid will be $75.

(1) Except as provided in subdivision (2) below, Alice is to pay Bob USD $100 no later than December 25.

(2) If Alice pays Bob no later than December 21, then the amount to be paid will be $75. [This is an exception to the active-voice rule because the sentence already says "Alice pays …." Consider also using a table.]

Rule 3: Abjure false imperatives

Example — consider an apartment lease that says:

The apartment shall be regularly serviced by a professional pest-control service.

Who is responsible for making sure this happens — the landlord, or the tenant? Either one seems plausible.

(To use a trite business expression: Whose throat do we choke if this doesn't happen?)

Rule 4: Ban "hereto," "hereunder," etc.:

Example:

… a party's failure to comply with its obligations hereunder under this Agreement ….

Rule 5: No "orphan" numbered paragraphs

In the Parallelism example above, note the "i) For example, following Earn-Out Year three …" — if there's no "ii)" then don't give that subdivision a "i)"; instead, just make it an unnumbered grammatical paragraph, perhaps in parentheses.

DCT REVISION (with the student's unconventional numbering scheme left alone):

c) Earn-Out Provision

i.  Within 60 days after the last day of an applicable Earn-Out Year, Purchaser shall :_ +a) prepare a statement reflecting its Calculation of the Annual Earn-Out Payment for each Earn-Out Year, for five years.

(For example, following Earn-Out Year three the Annual Earn-Out Payment Calculation would be applicable to year three only.)

b) ii. The year 5 statement must in addition include:

              i) (a) reasonable supporting documents, and

              ii) (b) a that years's Earn-Out Payment to Seller.

Rule 6: Active voice

Strive to use active voice where possible – see NOCD § 9.4.

Rule 7: Watch out for parallelism in lists

See NOCD § 9.2.

In the example below, from a student assignment, note how the b) subdivision below reads, in effect, "… Purchaser shall: … The year 5 statement …," which doesn't make sense as a sentence. (See my revision below.)

c) Earn-Out Provision [bad drafting]

          i. Within 60 days after the last day of an applicable Earn-Out Year, Purchaser shall:

                    a) prepare a statement reflecting its Calculation of the Annual Earn-Out Payment for each Earn-Out Year, for five years.

                          i) For example, following Earn-Out Year three the Annual Earn-Out Payment Calculation would be applicable to year three only.

                    b) The year 5 statement must in addition include:

                          i) reasonable supporting documents, and

                          ii) a Payment to Seller.

Rule 8: Don't capitalize the first words of list-item verbs

[Examples to be added later]

Rule 9: Don't use "1.1" etc. for list items

Example:

8.  Rent: Each month, Alice will pay Bob the following:

              8.1 (1) base rent of $100; and

              8.2 (2) percentage rent of 5% of Alice's gross sales for the previous month.

OR:

8.  Rent: Each month, Alice will pay Bob: (i) base rent of $100; and (ii) percentage rent of 5% of Alice's gross sales for the previous month.

Rule 10: D.R.Y.: Don't repeat yourself in numbers as words and digits

Example:

Each month, Alice will pay Bob base rent of ONE HUNDRED DOLLARS ($100.00) $100.

Rule 11: Numbering of paragraphs

Use the numbering scheme in this template Word document. (That's for paragraph numbering only; the table-style preamble and signature blocks in the Word document are for illustration purposes.)

Rule 12: Defined terms in bold and quotation marks

Put the definition label in bold-faced type and quotation marks (and possibly parentheses).

Examples:

This Agreement is between MathWhiz LLC ("MathWhiz") ….

This Agreement is between MathWhiz LLC ("MathWhiz") ….

The term "Affiliate" refers to ….

The term "Affiliate" refers to ….

But: Don't bold-face other uses of the defined term:

MathWhiz is to deliver the Deliverables to Gigunda no later than the time stated in the Statement of Work.

MathWhiz is to deliver the Deliverables to Gigunda no later than the time stated in the Statement of Work.

If using a defined term before the definition occurs, consider using a forward reference:

MathWhiz is to deliver the Deliverables (defined at Section XX) to Gigunda no later than the time stated in the Statement of Work.

Rule 13: "They"

In contracts, don't use "they" as a gender-neutral singular pronoun — if necessary, repeat the noun in question.

Example:

The Party seeking to terminate this Agreement under this Section must show that they it used its best efforts to remove the Order.

Rule 14: Don't overdo all-caps or bold-faced type

Rule 15: Numbers

Spell out the numbers one through ten.

Use digits for 11 and up, and for percentages, except at the start of a sentence.

Spell out millions, billions, trillions, etc.

(See also the other rules about numbers in NOCD § 9.1.)

Examples:

The Landlord will make repairs within 5 days five days after the Tenant reports the problem.

The Tenant will have fifteen 15 days to cure the default.

The Purchase Price will be USD $5,400,000.00 $5.4 million.

The Landlord will reimburse the Tenant for ninety percent 90% of the Tenant's out-of-pocket costs.

90% Ninety percent (approximately) of baseball salary disputes are resolved by settlement due to the arbitration process without having to actually go to arbitration.

Rule 16: Use all-caps for fill-in-the-blank items

Use square brackets and all-caps for fill-in items, to be more eye-catching for drafters (and thereby reduce the danger that a drafter will inadvertently leave a blank space).

Example:

This Agreement is between [Party 1 name] [PARTY 1 NAME] ….

Rule 17: Representations are by individual parties, not jointly

Conceivably, a "Both parties represent" phrasing could provide an opening for one of the representing parties to claim "mutual mistake" as an escape from liability for misrepresentation.

Example:

Both Parties represent that they are Each Party represents that it is not subject to any exclusion order barring it from federal-government contracts.