Contract Drafting (Toedt - Fall 2018)

Updated Thursday September 20, 2018 05:16 Houston time

TODAY'S CLASS: Wed. Sept. 19

NOTE: I'm posting this now so that students can get a jump on the reading, but I'm still working on the specific homework assignments.

1 Preface, quick links, key dates

Welcome. This Web page is the portal for Professor Toedt's fall 2018 Contract Drafting course. See the following quick links:

KEY DATES:


Wed. Aug. 29: Homework 1 due (peer review, pass-fail)


Mon. Sep. 03: NO CLASS — Labor Day holiday

Wed. Sep. 05: Homework 2 due (peer review, pass-fail)


Wed. Sep. 12: Quiz 1


Wed. Sep. 19: Assign Homework 3, due Wed. Sep. 26 (peer review, pass-fail)


Mon. Sep. 24: Reshuffle the groups (TBD)

Wed. Sep. 26: Homework 3 due (peer review, pass-fail)


Wed. Oct. 03: Quiz 2


Wed. Oct. 17: Homework 4 due (peer review, pass-fail)


Mon. Oct. 22: Homework 5 due (DCT grading, not pass-fail)

Wed. Oct. 24: Quiz 3


Wed. Nov. 07: Homework 6 due (peer review, pass-fail)


Mon. Nov. 12: Homework 7 due (DCT grading, not pass-fail)

Wed. Nov. 14: Quiz 4


Mon. Nov. 19: Last day of class if makeup day is not needed

Wed. Nov. 21: NO CLASS — Thanksgiving holiday


Mon. Nov. 26: Last day of class if makeup day is needed


Wed. Dec. 06: FINAL EXAM (6 p.m to 7 p.m., both sections)

2 General course information

2.1 Course materials

The main reading material will be:

On Contract Drafting, still very much a work in progress (especially as we shift to doing more rewriting). I intend to keep making it available at no charge; I'm trying to set it up to print out nicely for those who prefer hard copy. Students are encouraged to make suggestions and comments as the semester progresses;

• the Common Draft annotated catalog of contract terms, a side project of mine that I'm converting into a book; and

• a Supplement, consisting of several real-world contracts that I've annotated and printed to PDF. We'll study selected portions of these contracts.

2.2 This course's approach

2.2.1 Social proof: Past student comments

Following the sales-and-marketing principles of (i) using social proof, and (ii) "setting the hook," here are some representative student comments from official course evaluations in past semesters:

• "I liked the practical approach of the course – very effective teaching technique by using repetition and in class exercises."

• "You learn piece by piece the process throughout the semester to be able to effectively draft/redline contracts."

• "His course is different from the norm and his methods are re­freshing. … Professor Toedt's approach allows students to figure out the issue on their own but provides students with the tools necessary to reach an answer (which he then explains/corrects)."

• "… really enjoyed the approach to class and quizzes."

2.2.2 Course goals

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

2.2.3 A variation on Socratic method, with in‑class study groups

Don't assume that we will "cover the material" in class. Instead, we'll use a supposedly-new approach known as "flipping the classroom." This approach has become popular in educational circles, because it has been shown to be more effective than the trad­i­tion­al lecture format. See, e.g., Cyn­thia J. Brame, Flipping the Classroom (Vand­er­bilt.edu 2013: https://goo.gl/trS6e4).

But flipping the classroom is really just the same thing that law schools have been doing for years: The concept was pioneered by Harvard physics professor Eric Mazur, but he himself cites the law-school case study method as "one of the first implementations of the flipped classroom." The flipped classroom will redefine the role of educators (an interview with Eric Mazur) (Harvard.edu 2013: https://goo.gl/bSdh55).

2.2.4 More contract revising than drafting

In this course, we will practice good drafting skills by revising the work of others. Specifically:

  • Each week, in small groups during class, we will spend significant class time studying and rewriting selected "wall of words" contract provisions from publicly-available contracts.
  • As students do their rewriting, I will walk around and look over their shoulders, sometimes making (quiet) comments.
  • In some cases, you'll be asked to clean up your rewrites after class and submit them as (pass-fail) homework, which I'll mark up with comments.

The specific provisions that we rewrite will cover various substantive areas that are often encountered in contract drafting and -review.

This review-and-revise approach reflects what you're almost certain to see when you start out in practice: Contract drafters spend far less time drafting contracts than they do in reviewing and revising others' drafts. Even when you're the one who must prepare the first draft, whoever you're working for will almost always tell you to find a previous form of agreement and modify it, instead of starting from scratch with a blank screen. Our approach in this course reflects that fact as well.

Social proof: In a past semester, one student said:

At first, I was disappointed that the amount of writing was small. [That's no longer the case: We do a lot of REwriting.] I took the course to learn how to write a contract. What I could not see at the time, I was learning the fundamental building blocks individually. By the end of the course, all that was left was to put it together and step back.

2.2.5 Learning to spot and root out ambiguity

In the in-class exercises, we will do a lot of practice in spotting and fixing ambiguities. This is because in the real world, ambiguity might well be the #1 source of contract disputes. Many of the short practice exercises will be drawn from non-legal sources.

2.2.6 Repetition, repetition, repetition — and (some) jumping around

Some of the short exercises and quizzes will seem repetitive; they also will seem to jump around from topic to topic. This is a feature, not a bug, because:

  • It mirrors what you'll almost certainly see in practice; and
  • pedagogically it's been shown to be more effective at promoting long-term memory than lecture and repetitive reading. See generally Spaced retrieval (Wikipedia: https://goo.gl/4PRZTy).

This approach might strike a few students as disorganized. Over the years, though, most students seem to have come to appreciate the value of the approach.

Incidentally, you can do your own spaced-retrieval practice by using the online flashcards. The in-class quizzes and the non-essay portions of the final exam will be drawn very largely from these flashcard questions.

2.2.7 Subject to change

Portions of this syllabus are very likely to be revised in the course of the semester, because:

  • we will take advantage of recent news, court cases, etc. For example, when the Stormy Daniels story broke, I searched for and found her nondisclosure agreement with "David Dennison," and the class studied and critiqued it;
  • different class sections progress at different rates; and
  • sometimes I'll "call an audible" to try to get information across more effectively.

Occasionally a student won't like this, preferring that the course's content instead be set in stone for the semester. But in your law practice, you're highly unlikely to have your weeks or months set in stone, because clients, partners, and judges have a way of inconveniently barging in on your calendar. (The majority of students seem to be OK with the course's approach in this regard.)

2.2.8 Typical class session

Our typical class session will go generally as follows, with possible variations from time to time:

  1. Only on certain Mondays: a short Blackboard quiz;
  2. Sometimes, brief "in the news" discussions, to give students a sense of what kinds of situations they and their clients are likely to encounter;
  3. Sometimes, small-group and whole-class discussion of the reading;
  4. Review of the homework (if applicable);
  5. Two or three short exercises;
  6. One or more rewriting exercises and/or longer discussion exercises;
  7. Sometimes, a preview of upcoming exercises;
  8. Sometimes, group discussion of lessons learned.

2.3 Extra class time to avoid a makeup class

I'm a practicing attorney and arbitrator; I normally don't have to miss class, but it has been known to happen, e.g., when I've had out-of-town commitments. There have also been times when class has been canceled due to weather, such as what was supposed to have been the first day of class in January 2018. (And on the evening of Game 7 of the 2017 World Series, we canceled the evening class.)

The ABA requires 700 minutes of instruction for each credit hour; that means we need 2,100 minutes of instruction for our three-hour course. I'm planning on 26 scheduled class meetings — in case the Astros get to the World Series again, because Game 7 is on Wednesday, October  31 — and so we must achieve the needed minutes of instruction by either:

  1. meeting for 80 minutes per class;
  2. meeting on one of our scheduled makeup days, which will all be on Fridays at the same time as the regular class period;* and/or
  3. as permitted by ABA rules: doing a few classes (up to one-third) by online discussion group — I haven't figured that out yet, so more details will come later.

* Makeup Fridays for missed Monday classes, in the same time slot as Monday, are Aug. 31; Sept. 28; and Oct. 26. For missed Wednesday classes, the makeup Fridays are Sept 14; Oct. 12; and Nov. 9.

Very few students want to come to a makeup class on a Friday afternoon or ‑evening. So as an alternative to makeup classes, and as recommended by the Law Center's administration:

  • we will end each class session at 5:20 p.m. and 7:20 p.m., respectively; and
  • we will do some "asynchronous" instruction, e.g., by email and/or Blackboard.

2.4 Last-day agenda

The last day of class will generally include:

  • Pizza for the section (4:00 p.m. or 6:00 p.m.) that has the highest average for the quizzes; and
  • An overview of the final exam plan;
  • A collaborative review of key concepts, using the virtual whiteboards to create a master outline for each group — the virtual whiteboard ( 4:00 p.m. section | 6:00 p.m. section );
  • A group discussion of what would make the course and/or the materials more useful to next semester's students, and what didn't work so well, again using the virtual whiteboard;
  • Course evaluations, using the UH online system;
  • As one last review: a Jeopardy! game.

2.5 Contact information; computer use; email addresses

» I can be reached at dc@toedt.com or (713) 364-6545 (which forwards to my cell); see also my About page.

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

(You might, however, want to rethink whether to use laptops in your other classes; see, e.g., this article by a professor at the University of Michigan about how classroom laptop users not only do worse than those who take notes by hand, they also interfere with the learning of non-laptop users around them.)

» On the first class day I will be asking for your email addresses so that I can include it in a class Google Group. Please provide an email address that you check regularly.

2.6 Office hours

As an adjunct professor, I generally don't come to the school except to teach class. By appointment, I'm happy to meet with students:

  • in person before or after class;
  • by Skype or Zoom.us video; and/or
  • by phone.

I respond pretty quickly to email questions.

2.7 Recording my lectures

I don't make audio recordings of my lectures, but I have no objection to students doing so and sharing the recordings with other UHLC students.

2.8 Counseling available

Counseling and Psychological Services (CAPS) can help students who are having difficulties managing stress, adjusting to the demands of a professional program, or feeling sad and hopeless. You can reach CAPS (http://www.uh.edu/caps) by calling 713-743-5454 during and after business hours for routine appointments or if you or someone you know is in crisis. No appointment is necessary for the “Let's Talk” program, a drop-in consultation service at convenient locations and hours around campus. Go to http://www.uh.edu/caps/outreach/lets_talk.html for more information.

3 Small-group assignments

The first grouping is alphabetical. The groups will be reshuffled twice during the semester; the reshuffling will be more-or-less random, but with due regard for giving all students an opportunity to work with different people.

3.1 Starting Monday August 20

3.1.1 4:00 p.m. section

GROUP 1: Barham, Betancourt, Brook, Felton

GROUP 2: Francis, Gutierrez, Hays, Hynes

GROUP 3: Karim, Meltser, Mouer, Ortegon

3.1.2 6:00 p.m. section

GROUP 1: Amert, Baker, Bennett, Blackburn

GROUP 2: Fields, He, Hecht, Kuaiwa

GROUP 3: Pace, Rodriguez, Russell, Scott

3.2 Starting Monday Sept. 24

To be determined after adds and drops are complete.

3.3 Starting Monday Oct. 29

To be determined after adds and drops are complete.

4 Reading assignments

4.1 Flashcards as "reading assignments"

In addition to the reading assignments below, be sure to look through the flashcards to find the ones related to the reading assignment — because:

  • the midterm quizzes and part of the final exam will be based in large part on these and future flashcards; and
  • by having to scan through the flashcards, in search of the specific flashcards relating to the reading material, you'll get a preview of upcoming concepts and thus help you get yourself up to speed more quickly.

4.2 Reading for Week 1 (Mon. Aug. 20)

4.3 Reading for Week 2 (Mon. Aug. 27)

Ambiguity, the bane of contract drafter

Signature blocks

Serve the reader

Mnemonics

In the Supplement: "A Somewhat-Barebones Contract" — spend some time reading this, especially the notes, to start getting a feel for one possible contract format.

4.4 Reading for Week 3 (Mon. Sept. 3)

Getting paid

Key takeaways about reps and warranties

Differences between reps and warranties

Scan through the rest of the reps-and-warranties chapter

Look over, in the Verizon-Yahoo stock purchase agreement, just the following: Articles II and III (representations and warranties); section 8.16 (disclosure schedules). Note in particular how disclosure schedules tie in with reps and warranties.

Also in the Verizon-Yahoo stock purchase agreement, look over section 2.15, a set of reps and warranties about real estate; we'll rewrite that section in class next week.

4.5 Reading for Week 4 (Mon. Sept. 10)

Acknowledgments (not the notary-public kind)

Acknowledgements (yes, the notary-public kind)

Indemnities

Indemnity- and defense procedures (Common Draft provisions)

Standards — reasonable efforts, etc. Also: In this article, look over just (i) the part with the chart including "35 mph," and (ii) the paragraph immediately preceding the chart. Think about:

  • what might constitute "unreasonable" action such as, say, unreasonable withholding of consent to assignment of the agreement); and
  • how a drafter, representing a party that might seek consent, might try to negotiate a workable arrangement.

Stanford-Tesla lease agreement: Scan through it in the Supplement, especially the annotations.

4.6 Reading for Week 5 (Mon. Sept. 17)

Assignment of agreement

Acknowledgements (the notary-public kind)

Conspicuousness

Discretion

Section 1.8 of Getting a Workable Contract to Signature Sooner, which lays out a methodical approach to scenario identification and planning.

4.7 Reading for Week 6 (Mon. Sept. 17)

Scan through Writing, Briefly, by Paul Graham, noted essayist and multi-millionnaire co-founder of famed tech startup accelerator Y Combinator in Silicon Valley. His short essay breaks several rules but is worth reading.

Amendments / waivers must be in writing: Read Common Draft § 24.1.1 (amendments) and § 24.17 (waivers). What do you think is the most-important takeaway? What if anything can a drafter do about it?

Amendments by one party: Read Common Draft § 24.16 (unilateral amendments).

Entire agreement: Read Common Draft § 24.1.4 (entire agreement) and § 24.13 (reliance disclaimer).

4.8 Reading for Week 7 (Mon. Oct. 1)

Termination of agreement: Read:

And look through:

Walkaway rights (i.e., conditions to closing): Read Section 5.02(a) of the Verizon-Yahoo stock purchase agreement (conditions to Purchaser's obligation to close). We will use that as a vehicle for discussing some typical issues that can come up in M&A work.

Ross Guberman, Five Ways to Write Like Justice Kagan (LegalWritingPro.com Mar. 20, 2018)

4.9 Reading for Week 8 (Mon. Oct. 8)

Independent contractors

Audits

Background checks

Sheryl Sandberg employment agreement: Scan through it in the Supplement, especially the annotations.

4.11 Reading for Week 10 (Mon. Oct. 22)

Governing law

Confidential information

Letters of intent

Master agreements

Services: Read Common Draft §§ 14.1 through 14.4.4; look through §§ 14.4.5 through 14.4.11 as well as §§ 14.8 and 14.9.

4.12 Reading for Week 11 (Mon. Oct. 29)

4.13 Reading for Week 12 (Mon. Nov. 05)

5 Homework

5.1 Pass-fail & peer-reviewed homework: 50‑points

This is an experiment: Peer-reviewed homework, finishing up exercises that we started in class, will be due as follows:

Wed. Aug. 29: Stanford-Tesla lease agreement triple-net lease
Wed. Sept. 05: Consulting-agreement warranties
Wed. Sept. 26: Indemnity-provision breakup
Wed. Oct. 17: TBA
Wed. Nov. 7: TBA

Each of these five short writing assignments will be done as follows:

  1. The assignment will be started in small-group discussions in class.
  2. Each student is to finish up the assignment individually on his- or her own.
  3. Each student is to bring a hard copy of the finished assignment to the next class with their names on the papers.
  4. In that (next) class, the small groups will exchange papers, so that (for example) Group  3 will critique Group 2's papers, Group 2 will critique Group 1's papers, and Group 1 will critique Group 3's papers. Reviewers are to write their names on the papers they review.
  5. Students will turn in their hard-copy papers with their names on them.
  6. I will glance over the papers but won't necessarily review in detail. I will be looking at the reviewers' comments as well as at the writing assignments.
  7. The only ways to lose points for the assignment are (i) not to turn in a paper at all, and (ii) not to make at least a good faith effort at both writing and reviewing.

5.2 Homework (graded): 50 points total

Students will complete two major homework assignments and upload them (anonymously) to Blackboard for grading. This is a change from past semesters, so I'll post the assignments in due course. Due dates:

Mon. Oct. 22: TBA
Mon. Nov. 12: TBA

6 Grading: Quizzes, final exam, etc.

6.1 School-required average: 3.0 to 3.4

As required by law school policy for a writing class, raw grades will be adjusted pro­por­tion­al­ly to the extent necessary to make the average of the final class grades fall within the range specified in the heading of this section. (My usual practice — but not a guaranteed one — is to "move the curve" up or down as necessary so that the average is as close as practicable to the high end of the required range.)

6.2 Final grade based on 500 total points earned

Your course grade will be based on how many points you earn out of 500 total possible points, as explained below.

6.3 Class attendance: 50 point "starting bonus" — which can be lost for non‑attendance

The class attendance policy arises from the fact that we will be doing:

  • a significant amount of in-class discussion; and
  • a significant number of in-class exercises, in two- to four-person teams.*

* Notice how it’s a significant amount of discussion, versus a significant number of exercises, as explained in the Grammarist.com discussion.

Consequently, it's important for all students to attend each class, not just for their own benefit, but so that their teams won't be shorthanded.

ABA accreditation rules and school policy require attendance at 80% of the class meetings for each course. We will meet a total of 26 times; rounding to the nearest whole number of classes, a student therefore must attend at least 21 class periods to comply with the 80% rule.

Every student starts out with 50 "freebie" points for class attendance, but can lose points for missing class, as follows:

TOTAL CLASSES MISSED TOTAL POINTS LOST
1 0
2 5
3 15
4 30
5 or more all 50

This means, of course, that students who miss more than one class will have to do that much better on the final, the quizzes, and homework in order to keep up with their classmates on the school-required average.

Attendance exceptions:

  • I don't count absences for "official" law school travel, e.g., for moot-court competitions, etc., as long as I'm informed in advance.
  • I also don't count up to two absences for illness — if you're ill, please don't come to class and infect the rest of us. Please email me if you'll be absent for illness; I'll take your word for it without a doctor's note.
  • Other absences, e.g., for job interviews, office visits, work trips, etc., will be counted as missed classes and will lose points as set forth above; please schedule accordingly.

If I see that one or more students are missing, I will circulate an attendance sign-in sheet. If I see that everyone is present, I normally won't bother doing so.

For regular "classroom" sessions, I no longer let students attend remotely, because experience has shown that realistically, remote attenders don't participate in the class discussion.

6.4 Quizzes: Every third Wednesday; 200 points total

We will have an on-line quiz, administered via Blackboard, at the beginning of class on the following Wednesdays:

Wed. Sept. 12
Wed. Oct. 03
Wed. Oct. 24
Wed. Nov. 14

Each quiz will:

  • be timed for five- to ten minutes (people with accommodations can get extra time — ask Dean Tennessee to let me know if you're one of those people);
  • consist of up to 40 true-false, multiple-choice, fill-in-the-blank, and "micro-essay" (short answer) questions, and very likely more questions than most people can answer in the allotted time;
  • cover only the following:
    • the readings assigned up through and including the quiz date, whether or not we discuss any particular topic in class;
    • the associated online flashcards at https://goo.gl/o5gG5M; and
    • anything in the in-class and homework exercises that we have done to date — the quizzes themselves will thus serve as a reinforcing review that takes advantage of the testing effect;
  • be closed-book, closed-notes;
  • be graded largely anonymously:—
    • For "quizzes" in Blackboard, the Blackboard software shows me students' names. I can't do anything about that, but Blackboard also automatically grades the true-false, multiple-choice, and fill-in-the-blank ("FITB") questions.
    • In the Blackboard "quizzes," I review the fill-in-the-blank answers so that I can give credit for simple misspellings, which Blackboard can't always pick up. (I program the quizzes on Blackboard to accept as many misspellings as I can think of, but you'd be surprised how … creative students can be ….).
    • If a quiz includes any micro-essays, you'll submit it in the form of an "assignment" on Blackboard; I configure such assignments so that I don't see students' names until I've graded all of the assignments.

In past quizzes, a few students have gotten the right answer to every question on every quiz. In response, one student suggested that I should "[d]esign quizzes to have a wider score dis­tri­bu­tion." I continue to try to do so, but I'm far more interested in having as many students really learn as much as possible of what I regard as necessary material, than I am in sorting the students into a grade distribution; consequently, I'm not at all unhappy if lots of students get perfect scores on the quizzes.

6.5 Homework: 100 points

See here for the assignments and points

WARNING: In one past semester, a student failed the course — even though the student had received a (very-low) passing grade on the final exam — and therefore didn't graduate that semester as planned, because the student had turned in almost none of the pass-fail homework assignments.

6.6 Final exam: 100 points

The final exam will be December 5, 2018, 6 to 7 p.m. (both course sections). The exam will:

  • be one hour in length;
  • consist in large part of what amounts to a mid-term quiz on steroids, namely true-false, multiple-choice, fill-in-the-blank, and "micro-essay" (short answer) questions, administered via Blackboard, drawn or adapted mainly from the online flashcards at https://goo.gl/o5gG5M (I will be adding to these flashcards as the semester progresses);
  • take place in the to-be-designated final-exam room; and
  • be closed-book, closed-notes.

What's fair game for the final exam? Anything:—

  • in the reading materials;
  • in the homework, quizzes, and in-class exercises.

The honor code will of course apply.

6.7 Class participation bump-up

As permitted by law-school policy, I reserve the right:

  • to award discretionary increases in student grades by one-third of a grade level for excellent class participation, e.g., from a B to a B-plus, assuming that this doesn't cause the class average to exceed the maximum permitted; and
  • to reduce grades for sub-standard class participation. In the past I said I would not do that; in recent semesters, though, I've had a couple of students for whom it was like pulling teeth to get them to participate even minimally.

7 Detailed class plans: August

7.1 Class 1: Mon. Aug. 20

7.1.1 Small groups

See here

7.1.2 Ambiguity exercise: Lola, by The Kinks

From The Kinks' famous song Lola (YouTube):

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

(Emphasis added.)

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

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

7.1.3 Exercise: Streamlining sentences

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

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

After: ???

7.1.4 Course startup

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

7.1.5 Review questions about the course info

In your small groups, discuss the following — feel free to look up whatever you need to in the general course information.

1. QUESTION: How many points on your final grade can you earn for turning in all peer-critique homework? [1]

2. QUESTION: According to the syllabus, what could happen if you didn’t turn in any homework?
A. You could still pass the course, but you'd have to make up the missing points.
B. Your grade will be dropped by one letter, e.g., A- to B- etc.
C. No adverse consequences, other than not getting the benefit of the work.
D. You will not be able to accumulate enough points to pass the course. [2]

3. QUESTION: According to the syllabus, to what extent are you allowed to collaborate with classmates in doing homework, and what are you supposed to do if you do collaborate? [3]

4. QUESTION: In Microsoft Word, what's the best way to put space between paragraphs for improved readability?
A. Format the individual paragraph.
B. Format the style of the paragraph.
C. Include an extra blank line.
D. Indent the first line. [4]

7.1.6 Thumbsucker questions: Goals, etc.

For discussion, in small groups:

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

7.1.7 Preview question: Vagueness vs. ambiguituy

QUESTION: What is a "vague" term? What is an "ambiguous" term?

7.1.8 Exercise: Selling your laptop

FACTS: You are a new lawyer, licensed to practice in Texas. Here in Houston, "Alice"* is selling her 2012 Macbook Air laptop computer to "Bob" for USD $ 500. You represent Bob, who has asked you to draw up a  contract for the sale.

* In the tech world, communications protocols are often illustrated by using fictional characters Alice, Bob, Carol, Dave, Eve, Fred, etc.)

EXERCISE: In Microsoft Word, put together the simplest bare-bones contract you can think of for this transaction.

7.2 Class 2: Wed. Aug. 22

7.2.1 Exercise: Ten basic writing rules

INSTRUCTIONS:

  • Quickly review the ten basic writing rules (you've already looked them over once, right?)
  • In the virtual whiteboard ( 4:00 p.m. section | 6:00 p.m. section ), compile a list of what you regard as:
    • the two rules that, in your view, you're most likely to see others violate; and
    • the two rules that you think you're most likely to violate.

7.2.2 Short exercise: Drafting problems with a contract (1)

From a 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").

QUESTIONS:

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

ANSWERS: (DCT to show his version)

7.2.3 Short exercise: Streamlining sentences (2)

How can this be streamlined?

Before:   We will make a distribution of shares.

After:  

7.2.4 Read-along lecture: Rewriting a wall of words

7.2.5 Rewriting exercise

On your own computer (i.e., not in your virtual whiteboard), break up the following, which is from a Collaborative Research and License Agreement between Pfizer and Rigel Pharmaceuticals:

EDITED 1/29/18: We'll take this one step at a time.

9.2.12 PATENTS AND TRADEMARKS. To the best of its knowledge (but without having conducted any special investigation), Rigel owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, and proprietary rights and processes (including technology currently licensed from Stanford University) necessary for its business as now conducted and as proposed to be conducted without any conflict with, or infringement of the rights of, others. Rigel currently licenses certain technology from Stanford University (the "Licensed Technology") on an "as is" basis, with no representation or warranty from Stanford University that such technology does not infringe the proprietary rights of others. To Rigel's knowledge, Rigel has not, as of the date hereof, received any claims from any third party alleging that the use of the Licensed Technology infringes the proprietary rights of such party. Except for agreements with its own employees or consultants and standard end-user license agreements, there are no outstanding options, licenses, or agreements of any kind relating to the foregoing, nor is Rigel bound by or a party to any options, licenses, or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, and proprietary rights and processes of any other person or entity, other than the license agreements with Janssen Pharmaceutica N.V., Stanford University, SUNY, and BASF. Rigel has not received any communications alleging that Rigel has violated or, by conducting its business as proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights, trade secrets, or other proprietary rights or processes of any other person or entity. Rigel is not aware that any of its employees is obligated under any contract (including licenses, covenants, or commitments of any nature) or other agreement, or subject to any judgment, decree, or order of any court or administrative agency, that would interfere with the use of such employee's best efforts to promote the interests of Rigel or that would conflict with Rigel's business as proposed to be conducted. Neither the execution nor delivery of this Agreement, nor the carrying on of Rigel's business by the employees of Rigel, nor the conduct of Rigel's business as proposed, will, to the best of Rigel's knowledge, conflict with or result in a breach of the terms, conditions, or provisions of, or constitute a default under, any contract, covenant, or instrument under which any of such employees is now obligated. Rigel is not aware of any violation by a third party of any of Rigel's patents, licenses, trademarks, service marks, tradenames, copyrights, trade secrets or other proprietary rights.

7.3 Class 3: Mon. Aug. 27

7.3.1 Short exercise: Streamlining sentences (3)

Consider the following sentence — each student is to rewrite the sentence in Microsoft Word; we'll then compare notes. [EDIT 8/27: Just discuss with your group; don't rewrite]

Before:   We will provide appropriate information to shareholders.

After:

7.3.2 Short exercise: Carbolic acid and Queen Victoria

From this NPR piece:

[Joseph] Lister was the closest surgeon to [Queen Victoria's] residence in Scotland, Fitzharris says, so she directed Lister to come drain a large abscess growing under her armpit. Before the surgery, Lister's assistant sprayed carbolic acid with a machine Lister invented called the donkey engine all over the operation area, sterilizing it but also accidentally spraying the queen in the face.

QUESTION: How could the italicized text be rewritten to "flow" better? (Hint: Consider rewriting it so that it would sound more-natural if read aloud — which isn't bad advice for any writing.)

7.3.3 Continue last week's rewriting exercises (if necessary)

We'll continue the rewriting exercise that we started last Wednesday, one step at a time.

7.3.4 The Rigel wall of words: DCT's rewrite

Here's how I might rewrite the Rigel representations and warranties below, with selected revisions "redlined": [DCT to show on his computer]

Here it is again without the redlines: [DCT to show on his computer]

7.3.5 Ambiguity takeaways: A whiteboard exercise

Using the virtual whiteboard ( 4:00 p.m. section | 6:00 p.m. section ), compile a list of key takeaways from Ambiguity, the bane of contract drafter.

7.3.6 Ambiguity exercise: Success

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

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

7.3.7 Ambiguity exercise: An elephant takes a selfie?

From this tweet: "Man trampled to death by elephant trying to take a SELFIE"

EXERCISE: Rewrite.

7.3.8 Ambiguity and traffic signs

See this sign.

7.3.9 Step by step simplification

Start on this exercise.

7.4 Class 4: Wed. Aug. 29

7.4.1 News: A CarMax warranty limitation

TEXT: In California, an automobile sales contract disclaimed implied warranties beyond the remedies set forth in an express warranty, which stated: “The dealer will pay 100% of the labor and 100% of the parts for the covered systems that fail during the [30-day] warranty period." The contract also limited the customer's remedies to those stated in the contract. Gutierrez v. CarMax Auto Superstores California LLC, No. F073215, slip op. at 12 (Cal. App. Jan. 30, 2018).

FACTS: Gutierrez bought the car on May 5, 2013. The car started having transmission problems, including making a grinding noise and having trouble accelerating in traffic. Gutierrez took the car to the dealer for warranty work on June 7. See id., slip op. at 5.

QUESTION 1: Was the transmission trouble covered by the warranty?

QUESTION 2: If CarMax engaged you to review the warranty provision, what if any advice might you give about its wording? (Hint: Consider the problems of proof.)

7.4.2 Exercise: Preamble questions (Rick's Cabaret)

The provision below, at https://goo.gl/DRbLRw (edgar.sec.gov), is from a 2008 real-estate purchase agreement involving the parent company of "gentleman's club" Rick's Cabaret:

THIS REAL ESTATE PURCHASE AND SALE AGREEMENT (this "Agreement") is made and entered into by and between WIRE WAY, LLC, a Texas limited liability company ("Seller"), and RCI HOLDINGS, INC., a Texas corporation ("Purchaser"), pursuant to the terms and conditions set forth herein.

QUESTION: What if any other information might you want to include in this preamble?

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

COMMERCIAL LEASE

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

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

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

Term: Five (5) years

Scheduled Date for Delivery of Premises: August 1, 2007

Commencement Date: August 1, 2007

Expiration Date: July 31, 2012

Base Rent:

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

QUESTIONS FOR CLASS DISCUSSION:

  1. Is "Commercial Lease" the proper term, or should it be "Commercial Lease Agreement"? [5]
  2. Why state that the Lease is entered into "as of July 25, 2007"? [6]
  3. Why do you think the names of the parties are capitalized? [7]
  4. What might be some of the pros and cons of including this kind of "Basic Lease Information" at the beginning of the agreement document, instead of including it "in-line" in the appropriate section(s) of the agreement? [8]
  5. To what extent is the "Each item in this Article 1 incorporates …" worth including? [9]
  6. What could go wrong with the italicized portion, "to the extent there is any conflict …"? [10]
  7. Note the mention of the Glossary in the last sentence of the first paragraph — where are some other places to include definitions for defined terms? [11]
  8. Any comments about the way the "Term: Five (5) years" portion is stated? How about the way that the Base Rent amounts are stated? [12]

7.4.4 News: AAA accused of wage shorting

Source: L.M. Sixel, Tow driver says AAA shorts him and others on wages (HoustonChronicle.com Jan. 29, 2018)

Relevance: Just because a contract says, The parties are independent contractors, that doesn't mean a court will rule that way — especially if one of the parties claims to be an employee of the other.

Additional reading (optional for now): Here.

7.4.5 Exercise: Streamlining sentences (5)

How could the following be streamlined?

Before:   There is the possibility of prior Board approval of these investments.

After:

7.4.6 Grammar fail: Homosexuality and the Texas GOP's platform (2016)

From the Texas GOP platform of 2016: "Homosexuality is a chosen behavior that is contrary to the fundamental unchanging truths that has been ordained by God in the Bible, recognized by our nations founders, and shared by the majority of Texans." See, e.g., the NPR story.

7.4.7 Exercise: Title and preamble (consulting agreement)

Read:

The provision below comes from an agreement form used by a company in the oil and gas business:

Consulting Services Agreement

This Consulting Services Contract (the "Agreement") dated [omitted] is entered into by and between [omitted], a Delaware corporation, and its affiliate companies (collectively "Company") and [omitted], a Texas corporation ("Consultant"), sometimes referred to herein individually as a "Party" or collectively as "Parties". This Agreement shall be effective on the earlier of the date that the services commence or the date that both Parties have executed the Agreement (the "Effective Date"). This agreement is entered into solely between the Company and Consultant, and no third party beneficiaries are created, except as expressly otherwise provided herein. [Emphasis added.]

QUESTIONS FOR CLASS DISCUSSION:

  1. What if any other information might you want to include in the preamble?
  2. Any thoughts about "and its affiliate companies"?
  3. At the end of the first sentence, is the period where it should be for U.S. usage?

7.4.8 Recitals (Rick's Cabaret)

The provision below, at https://goo.gl/DRbLRw (edgar.sec.gov), is from a 2008 real-estate purchase agreement involving the parent company of "gentleman's club" Rick's Cabaret:

You're to redraft the "Whereas" clauses below (from an actual contract). First, some background about the transaction and the contract:

  • Wire Way LLC owned land and a building, in Dallas, that was home to an "adult entertainment club" (that is to say, a strip club) known as "Platinum Club II."
  • The club was apparently operated by another company, North by East Entertainment, Ltd.; it's not clear what relationship existed between North by East and Wire Way LLC, the owner of the land and building.
  • Rick's Cabaret wanted to buy out the club; under the agreement, it would do so with a semi-complicated transaction:
    • In a related transaction, North by East (the operator of the club) would sell the assets of the club business to RCI Entertainment (Northwest Highway) Inc. ("RCI Entertainment"), which was [and is] a subsidiary of Rick's Cabaret International ("Rick's") [now named RCI Hospitality Holdings Inc.];
    • In another related transaction, Wire Way LLC would lease the land and building to RCI Entertainment; and
    • In the agreement we're studying now, Wire Way LLC would sell the land and building to RCI Holdings, Inc., which also was [and is] a subsidiary of Rick's.

IN-CLASS ASSIGNMENT: Rewrite the "Whereas" provisions below as a "Background" section in plain English. Tell the story — not too informally, but not in a stilted, legalesey manner either.

WHEREAS, Seller is the owner of a certain real property consisting of approximately 4.637± acres of land, together with all rights, (excepting for mineral rights as set forth below), title and interests of Seller in and to any and all improvements and appurtenances exclusively belonging or pertaining thereto (the "Property") located at 10557 Wire Way, Dallas (the "City"), Dallas County, Texas, which Property is more particularly described on Exhibit A attached hereto and incorporated herein by reference; and

WHEREAS, contemporaneously with the execution of this Agreement, North by East Entertainment, Ltd., a Texas limited partnership ("North by East"), is entering into an agreement with RCI Entertainment (Northwest Highway), Inc., a Texas corporation ("RCI Entertainment"), a wholly owned subsidiary of Rick's Cabaret International, Inc., a Texas corporation ("Rick's") for the sale and purchase of the assets of the business more commonly known as "Platinum Club II" that operates from and at the Property ("Asset Purchase Agreement"); and

WHEREAS, subject to and simultaneously with the closing of the Asset Purchase Agreement, Seller will enter into a lease with RCI Entertainment, as Tenant, for the Property, dated to be effective as of the closing date, as defined in the Asset Purchase Agreement (the "Lease") attached hereto as Exhibit B and incorporated herein by reference; and

WHEREAS, subject to the closing of the Asset Purchase Agreement, the execution and acceptance by Seller of the Lease, and pursuant to the terms and provisions contained herein, Seller desires to sell and convey to Purchaser and Purchaser desires to purchase the Property.

NOW, THEREFORE, for and in consideration of the premises and mutual covenants and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

7.4.9 Start Homework #2 (peer review, pass-fail)

We'll get started on Consulting-agreement warranties.

8 Detailed class plans: September

8.1 Class 5: Wed. Sept. 5

8.1.1 Collect additional email addresses

If you didn't type your email address into the the virtual whiteboard ( 4:00 p.m. section | 6:00 p.m. section ), please email it to me at dc@toedt.com so I can add it to the class Google Group email list. If you're not on that email list, you'll miss important announcements.

8.1.2 Homework #2 markup (peer review)

First: DCT to show his markup (hidden):

Second: Exchange papers and discuss within your groups. (We won't be doing inter-group exchange, based on experience the first time.)

Third: Discuss:

  • any common errors; and
  • substantive issues.

8.1.3 Reps and warranties review: Differences (1)

In your groups, diagram the proof paths for misrepresentation claims involving the following representations:

  1. Consultant represents that, so far as Consultant is aware, Consultant's employees are skilled.
  2. Consultant represents that Consultant's employees are skilled.
  3. Consultant warrants that Consultant's employees are skilled.
  4. Consultant represents and warrants that Consultant's employees are skilled.

8.1.4 Exercise: Reps and warranties strategy

FACTS: You are selling a car to a stranger. You don't know of any mechanical problems.

QUESTION: If the stranger asks you to represent and warrant that the car has no problems, how might you respond?

8.1.5 Continue with Alice-Bob laptop sale contract

Now that you've had some exposure to representations and warranties, resume drafting the laptop-sale contract between Alice and Bob.

  • Remember that you're representing Bob, the buyer;
  • In asking for Alice to agree to provisions, consider the balance between:
    • protection against theoretical risks;
    • the harm that could result if one or more of those risks came to pass; and
    • Bob's (presumed) desire to get to signature quickly.

8.2 Class 6: Mon. Sept. 10

8.2.1 Dry-run quiz to test Blackboard (zero points)

Wednesday would not be the time to find out that you don't have access to this course on Blackboard ….

8.2.2 Reading review

In your groups, discuss:

  1. What are the two kinds of certificates that notaries public [cf. "attorneys general"] typically sign?
  2. What's a simpler term for "indemnify"?
  3. FACTS: A) Alice acknowledges that she had the opportunity to consult a lawyer before signing a contract with Bob. B) In a lawsuit against Bob under the contract, she claims that she wasn't able to consult a lawyer. QUESTION: What result (normally)?
  4. Suppose that Alice promises to indemnify Bob against third-party claims. Now suppose that Carol sues Bob. QUESTION: Must Alice pay for Bob's defense?
  5. FACTS: A) You represent Alice in negotiating a contract with Bob. B) Alice is unsure that she can actually perform one of her obligations, so Bob asks her to commit to making her "best efforts" to do so. QUESTION: What do you advise Alice, and why?
  6. Is there any significant difference between "reasonable efforts" and "commercially-reasonable efforts"?

8.2.3 Yahoo-Verizon real-estate reps and warranties

In class, we'll rewrite section 2.15 of the Verizon-Yahoo stock purchase agreement; this is a set of reps and warranties about real estate.

DCT's version follows. NOTE: I numbered the paragraphs as "(a1)" etc., for easier back-and-forth comparison with the original. A better way would have been (a), (b), etc. — or, perhaps even better still, as (1), (2), etc.

2.15 Real Property

(a1)     Except as provided below, the term "Lease" refers to a material lease (or a material sublease*) under which Seller —* to the extent related to the Business — or any of the Business Subsidiaries leases or subleases real property (the "Leased Real Property").

[Alternative: "Except as provided below, the term "Lease" refers to a material lease (or a material sublease*) under which real property (the "Leased Real Property") is leased or subleased* by Seller —* to the extent related to the Business — or any of the Business Subsidiaries."

(a2)     The term "Lease" does not include leases or subleases for data centers.

(a3)     The term "Default" refers to (i) a default under a contract or other obligation; and/or* (ii) the occurrence of one or more conditions or events that, after notice or the lapse of time or both, would constitute such a default.

(a4)     The "Material Default" refers to any Default other than one or more Defaults that, individually or in the aggregate, would not reasonably be expected to have a Business Material Adverse Effect.


(a5) Each Lease is in full force and effect.

(a6)     Seller or the applicable Business Subsidiary (each, a "Seller Tenant") has good and valid leasehold title in each parcel of the Leased Real Property pursuant to the relevant Lease or Leases.

(a7)     Each Seller Tenant's leasehold title* is free and clear of all Encumbrances other than Permitted Encumbrances, except in each case where such failure would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

(a8)     There are no Material Defaults by Seller, nor by any Business Subsidiary, under any Lease.

(a9)     To the Knowledge of Seller,* there are no Material Defaults, under any Lease,* by any other party to that Lease.


(b1)     Seller and/or* the Business Subsidiaries have good and marketable title to all of the real property owned in fee by Seller (to the extent related to the Business) or any of the Business Subsidiaries (the “Owned Real Property”).

(b2)     Each real-property title referred to in subdivision (b)(1) is free and clear of any Encumbrances other than Permitted Encumbrances.

(b3)     There are no leases, licenses or occupancy agreements pursuant to which any third party is granted the right to use the Owned Real Property.

(b4)     There are no outstanding options or rights of first refusal to purchase the Owned Real Property, except, in each case, as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

(b5)     Neither Seller nor any of the Business Subsidiaries has received written notice of any default,* under any restrictive covenants affecting the Owned Real Property and the Leased Real Property, that remains uncured.

(b6)     No event has occurred that, after notice or the lapse of time or both, would constitute a default referred to in subdivision (b5), except, in each case, as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.


(c1)     Section 2.15(c) of the Disclosure Schedules contains a complete and correct list of[:] the (i) [the] Owned Real Property[;] and (ii) [the] Leases.

(c2)     Seller has made available to Purchaser a true, correct* and complete copy of each Lease with respect thereto* (including all material amendments, modifications and supplements thereto).

8.3 Class 7: Wed. Sept. 12

8.3.1 DCT markup of Verizon-Yahoo language

I've unhidden my rewrite; it's here.

8.3.2 Quiz 1

On Blackboard.

8.3.3 "And" — in the gospels (Greek manuscripts), and in contracts

DCT to discuss the use of "Something something something; and something else something else something else."

See the Gospel of Mark 10:33-34, in an almost-literal, word-for-word translation from the Greek "original":

Lo, we go up to Jerusalem and the Son of Man shall be delivered to the chief priests and to the scribes and they shall condemn him to death and shall deliver him to the nations and they shall mock him and scourge him and spit on him and kill him and the third day he shall rise again.

(Emphasis added.) Cf. the original of Verizon-Yahoo stock purchase agreement, section 2.15, which we worked on last time — "my kingdom for a period!"

(a) (i) Each material lease or sublease (a “Lease”) pursuant to which Seller (to the extent related to the Business) or any of the Business Subsidiaries leases or subleases real property (excluding all leases or subleases for data centers) (the “Leased Real Property”) is in full force and effect and Seller or the applicable Business Subsidiary has good and valid leasehold title in each parcel of the Leased Real Property pursuant to such Lease, free and clear of all Encumbrances other than Permitted Encumbrances, except in each case where such failure would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect and (ii) there are no defaults by Seller or a Business Subsidiary (or any conditions or events that, after notice or the lapse of time or both, would constitute a default by Seller or a Business Subsidiary) and to the Knowledge of Seller, there are no defaults by any other party to such Lease (or any conditions or events that, after notice or the lapse of time or both, would constitute a default by such other party) under such Lease, except where such defaults would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect.

8.3.4 Exercise: Reps and warranties strategy

FACTS: You are selling a car to a stranger. You don't know of any mechanical problems.

QUESTION: If the stranger asks you to represent and warrant that the car has no problems, how might you respond?

8.3.5 Continue with Alice-Bob laptop sale contract

Now that you've had some exposure to representations and warranties, resume drafting the laptop-sale contract between Alice and Bob.

  • Remember that you're representing Bob, the buyer;
  • In asking for Alice to agree to provisions, consider the balance between:
    • protection against theoretical risks;
    • the harm that could result if one or more of those risks came to pass; and
    • Bob's (presumed) desire to get to signature quickly.

8.3.6 BLUF exercise: Doctor practice bylaws

EXERCISE: Break up the following provision — and put the bottom line up front (BLUF) — from Lynd v. Marshall County Pediatrics, P.C., No. 1160683, slip op. at 2-5 (Ala. Apr. 27, 2018):

If any shareholder of the corporation for any reason ceases to be duly licensed to practice medicine in the state of Alabama, accepts employment that, pursuant to law, places restrictions or limitations upon his continued rendering of professional services as a physician, or upon the death or adjudication of incompetency of a stockholder or upon the severance of a stockholder as an officer, agent, or employee of the corporation, or in the event any shareholder of the corporation, without first obtaining the written consent of all other shareholders of the corporation shall become a shareholder or an officer, director, agent or employee of another professional service corporation authorized to practice medicine in the State of Alabama, or if any shareholder makes an assignment for the benefit of creditors, or files a voluntary petition in bankruptcy or becomes the subject of an involuntary petition in bankruptcy, or attempts to sell, transfer, hypothecate, or pledge any shares of this corporation to any person or in any manner prohibited by law or by the By-Laws of the corporation or if any lien of any kind is imposed upon the shares of any shareholder and such lien is not removed within thirty days after its imposition, or upon the occurrence, with respect to a shareholder, of any other event hereafter provided for by amendment to the Certificates of Incorporation or these By-Laws, then and in any such event, the shares of this [c]orporation of such shareholder shall then and thereafter have no voting rights of any kind, and shall not be entitled to any dividend or rights to purchase shares of any kind which may be declared thereafter by the corporation and shall be forthwith transferred, sold, and purchased or redeemed pursuant to the agreement of the stockholders in [e]ffect at the time of such occurrence. The initial agreement of the stockholders is attached hereto and incorporated herein by reference[;] however, said agreement may from time to time be changed or amended by the stockholders without amendment of these By-Laws. The method provided in said agreement for the valuation of the shares of a deceased, retired or bankrupt stockholder shall be in lieu of the provisions of Title 10, Chapter 4, Section 228 of the Code of Alabama of 1975.

8.4 Class 8: Mon. Sept. 17

8.4.1 Ambiguity exercise: Plush carpets

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

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

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

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

8.4.2 In the news: Indemnity pays off, to the tune of $108.9 million

Jacobs Engineering Group Inc. v. ConAgra Foods,    N.W.2d   , 301 Neb. 28 (Sept. 14, 2018):

This case arises out of an explosion at a ConAgra Foods, Inc. (ConAgra), plant in Garner, North Carolina, which killed 3 ConAgra employees and injured more than 60 others.

When dozens of employees sued Jacobs Engineering Group Inc. (Jacobs) [which had essentially zero involvement], Jacobs sought contractual indemnification from ConAgra, but ConAgra declined, and Jacobs defended against and settled the claims.

Jacobs sued ConAgra for indemnification in the district court for Douglas County. Following a 4-week trial, the jury awarded Jacobs the full amount of the settlement payments, $108.9 million, and the court entered judgment on the verdict.

We affirm.

* * * 

Section 10 of the parties’ engineering agreement contained mutual indemnification provisions which provided that each party indemnify the other for “claims, losses, costs, penalties, damages and/or expenses” to the extent caused by the indemnifying party’s negligence or the negligence of others under that party’s control.

* * * 

The North Carolina Department of Labor conducted an investigation into the explosion and found multiple violations of North Carolina code. The department determined that ConAgra violated its duty to furnish conditions of employment “free from recognized hazards that were causing or likely to cause death or serious physical harm.” The department found multiple life-threatening conditions occurred in the presence of ConAgra management, including ConAgra’s failure to purge the 3-inch natural gasline used to supply gas to the vacuum pumproom and allowing the presence of numerous possible ignition sources while a natural gasline was being purged in an enclosed room.

In contrast, the North Carolina Department of Labor found Jacobs performed no work that could have contributed to the accident, did not have knowledge of the hazardous condition, and did not have a scope of work that would have permitted knowledge of the hazardous condition. ConAgra “accepted what the authorities determined” and did not conduct a separate investigation.

Thereafter, 67 individuals and ConAgra’s property insurers filed several lawsuits against Jacobs and Pottner; the total settlement demands exceeded $507 million. Shortly after the first suit was filed, Jacobs requested contractual indemnity from ConAgra and ConAgra denied that request and did not participate in the settlements.

(Extra paragraphing added.)

QUESTION (for small-group discussion): Why did the 67 ConAgra employees sue Jacobs and not ConAgra?

8.4.3 BLUF exercise: Doctor practice bylaws — DCT rewrite

EXERCISE (from last week): Break up the following provision — and put the bottom line up front (BLUF) — from Article VI, § 4, of the bylaws of a physicians' professional corporation, in Lynd v. Marshall County Pediatrics, P.C., No. 1160683, slip op. at 2-5 (Ala. Apr. 27, 2018):

DCT's first pass:

(a)     [DELETE: If] [ADD: This section will govern if] any shareholder [NOTE THE TERMINOLOGY] of the corporation[,] for any reason[,] ceases to be duly licensed to practice medicine in the state of Alabama[; VICE ,]

      or accepts employment that, pursuant to law, places restrictions or limitations upon his continued rendering of professional services as a physician[; , ]

      or upon the death or adjudication of incompetency of a stockholder

      or upon the severance [?] of a stockholder as an officer, agent, or employee of the corporation,

      or in the event any shareholder of the corporation, without first obtaining the written consent of all other shareholders of the corporation[,] shall become a shareholder or an officer, director, agent or employee of another professional service corporation authorized to practice medicine in the State of Alabama,

      or if any shareholder:

            makes an assignment for the benefit of creditors,

            or files a voluntary petition in bankruptcy

            or becomes the subject of an involuntary petition in bankruptcy,

            or attempts to sell, transfer, hypothecate, or pledge any shares of this corporation to any person or in any manner prohibited by law or by the By-Laws of the corporation

            or if any lien of any kind is imposed upon the shares of any shareholder and such lien is not removed within thirty days after its imposition,

            or upon the occurrence, with respect to a shareholder, of any other event hereafter provided for by amendment to the Certificates of Incorporation or these By-Laws,

(b)     [ADD: In any such event,] the shares of this [c]orporation of such shareholder:

      shall then and thereafter have no voting rights of any kind,

      and shall not be entitled to any dividend or rights to purchase shares of any kind which may be declared thereafter by the corporation

      and shall be forthwith transferred, sold, and purchased or redeemed pursuant to the agreement of the stockholders in [e]ffect at the time of such occurrence.

(c)     The initial agreement of the stockholders is attached hereto and incorporated herein by reference[;] however, said agreement may from time to time be changed or amended by the stockholders without amendment of these By-Laws. [DCT COMMENT: ???? Why is this provision buried here?]

(d)     The method provided in said agreement for the valuation of the shares of a deceased, retired or bankrupt stockholder shall be in lieu of the provisions of Title 10, Chapter 4, Section 228 of the Code of Alabama of 1975.

DCT's second pass:

(a)     A shareholder's relationship with the corporation will be terminated, as specified in more detail in subdivision (b), if any of the following Shareholder Termination Events occurs:

      (1) The shareholder, for any reason, ceases to be duly licensed to practice medicine in the state of Alabama.

      (2) The shareholder accepts employment that, pursuant to law, places restrictions or limitations upon his continued rendering of professional services as a physician.

      (3) The shareholder dies.

      (4) The shareholder is duly adjudged incompetent, by a court of competent jurisdiction, in a final judgment from which no further appeal is taken or possible.

      (5) The shareholder is severed [???] as an officer, agent, or employee of the corporation.

      (6) The shareholder, without first obtaining the written consent of all [???] other shareholders of the corporation[,] becomes a shareholder or an officer, director, agent or employee of another professional service corporation authorized to practice medicine in the State of Alabama.

      (7) The shareholder:

            (A) makes an assignment for the benefit of creditors;

            (B) files a voluntary petition in bankruptcy;

            (C) becomes the subject of an involuntary petition in bankruptcy;

            (D) attempts to sell, transfer, hypothecate, or pledge any shares of this corporation to any person or in any manner prohibited by law or by the By-Laws of the corporation;

      (8) Any lien, of any kind, is imposed upon the shareholder's shares and is not removed within thirty days after its imposition.

      (9) Any other event occurs, with respect to that shareholder, provided for by amendment to the Certificates [PLURAL?] of Incorporation or these By-Laws [???].


(b)     Immediately upon the occurence of any event described in subdivision (a), that shareholder's shares:

      (1) will have no voting rights of any kind [or perhaps "will have no voting rights"];

      (2) will not be entitled to any dividend or rights to purchase shares of any kind which may that might be declared thereafter by the corporation; and

      (3) will be forthwith transferred, sold, and purchased or redeemed pursuant to are to be transferred as provided in the agreement of the stockholders in [e]ffect at the time of such occurrence.


DELETE: The initial agreement of the stockholders is attached hereto and incorporated herein by reference[;] [WHY?] however, said agreement may from time to time be changed or amended by the stockholders without amendment of these By-Laws. [DCT COMMENT: WHY INCLUDE THIS IN THE BYLAWS???? ]

DELETE: The method provided in said agreement for the valuation of the shares of a deceased, retired or bankrupt stockholder shall be in lieu of the provisions of Title 10, Chapter 4, Section 228 of the Code of Alabama of 1975. [DITTO]

8.4.4 Ambiguity and the Midnight Hour

TEXT: "Tenant will vacate the Premises no later than 12 midnight on December 15, 2020; Tenant's failure to do so will be a material breach of this Agreement."

FACTS: At 10:00 a.m. on December 15, Tenant is still occupying the Premises.

QUESTION: Is Tenant in material breach?

EXERCISE: Rewrite.

8.4.5 Exercise: Indemnnity provision

FACTS: 1) You represent Seller, which is selling equipment to Buyer, which in turn is engaging Contractor to do some work (think: drilling an oil well) that is being financed by multiple Lenders. ¶ 2) Buyer wants Seller to sign a sales contract that contains the following indemnity language:

10.1. General Indemnity. Seller shall INDEMNIFY, DEFEND, RELEASE AND HOLD HARMLESS Buyer (and its affiliates, co-owners, co-venturers, and partners), its respective shareholders, officers, directors, administrators, managers, employees, servants and agents, successors and assigns, Contractor and Lenders (each, a “Buyer Indemnified Party”) from and against any and all damages (whether ordinary, direct, indirect, incidental, special, consequential, or exemplary), judgments, liabilities, fines, penalties, losses, obligations, settlements, claims, actions, demands, suits, costs and expenses (including, without limitation, reasonable attorneys’ fees, court, mediation and arbitration costs, and other costs of investigation or defense) (collectively, “Losses”) directly or indirectly arising from or relating to this Agreement (or any breach hereof by Seller), the Services (if any), or any Equipment or other personal property (whether rented, sold or incorporated) delivered or made available by Seller hereunder, including, without limitation, any such Losses arising from or relating to (a) the breach or violation of any applicable laws by Seller (or any of Seller’s subcontractors of any tier, or any of its or their employees, agents, consultants or representatives (“Seller’s Contractor Group”)), (b) any alleged infringement or violation of a third party’s patent, trade secret, copyright, trademark or intellectual property right, or (c) the negligence, willful misconduct or other breach or violation of this Agreement by Seller or any of Seller’s Contractor Group, REGARDLESS OF WHETHER ANY SUCH LOSSES ARE ATTRIBUTABLE (IN WHOLE OR IN PART) TO THE SOLE, JOINT OR CONCURRENT NEGLIGENCE (WHETHER ACTIVE, PASSIVE, SIMPLE OR GROSS NEGLIGENCE), STRICT LIABILITY OR ANY OTHER LEGAL FAULT OR RESPONSIBILITY OF BUYER, SELLER OR ANY OTHER PERSON, OR IMPERFECTION OF ANY MATERIALS; PROVIDED, HOWEVER, THAT SELLER SHALL NOT BE LIABLE FOR THE INDEMINFICATION OBLIGATIONS SET FORTH HEREIN FOR CLAIMS CAUSED BY THE SOLE NEGLIGENCE OR WILLFUL MISCONDUCT OF THE BUYER INDEMNIFIED PARTY.

EXERCISE:

  1. Break up this provision.
  2. In your groups, discuss:
    1. what you might advise Seller about the possible risks of agreeing to this provision;
    2. what if any changes you might ask Buyer to agree to; and
    3. how Seller might arrange its business affairs to support this provision if "forced" to agree to it.

8.5 Class 9: Wed. Sept. 19

8.5.1 Rewriting exercise: Assignment provision, etc.

The provision below comes from an agreement form used by a company in the oil and gas business:

16. Consultant's Engagement Team - Consultant shall not, without the prior written consent of Company, engage any subcontractor for performance of the Services or assign any rights arising under this Agreement, including but not limited to assignment of monies payable under this Agreement. In the event Company consents to the assignment of this Agreement or Consultant's use of a subcontractor, Consultant shall continue to be responsible for all obligations and liabilities under this Agreement. For a period of one (1) year from the date that a Consultant employee or subcontractor stops providing services to the Company under this agreement, neither the Company nor its affiliates or subsidiaries shall hire or solicit said individual without paying to Consultant a fee equal to the annual salary or annualized subcontractor revenue of such individual. The restrictions on solicitation or hiring set forth in this Section will not apply to any employee or subcontractor whose Consultant employment is terminated prior to solicitation by the Company, its affiliates or subsidiaries.

EXERCISE: Break up this provision.

QUESTION: If you were representing Consultant, what portions of this section (if any) might concern you?

8.5.2 Review: Notarizing a document

  1. In the U.S., what are the two basic forms of "notarizing" a document? [13]
  2. TRUE | FALSE | MAYBE: An affidavit to be used in court will normally require an acknowledgement certificate signed by a notary public or other authorized officer.  [14]
  3. TRUE | FALSE | MAYBE: In Texas, for a document to be accepted for recording in (for example) the county deed records, the document must contain language substantially similar to the following: "Sworn and subscribed to before me, the undersigned authority, on [DATE]." [15]]
  4. TRUE | FALSE | MAYBE: A notary public ordinarily is allowed to "notarize" something for him- or herself. [16]
  5. TRUE | FALSE | MAYBE: A notary public ordinarily is allowed to "notarize" something for a family member. [17]

8.5.3 Conspicuousness

DISCUSSION QUESTION: Under Texas law, what are some ways that you could you make an indemnity obligation "conspicuous"?

FACTS:

  1. Alice's attorney drafts a contract that requires Bob to indemnify Alice against certain events, even if Alice was at fault.
  2. During the parties' page-turn conference call to negotiate the contract, Bob's attorney objects to the own-fault indemnification provision and tries to talk Alice's attorney out of it.
  3. After discussion of the issue among the parties and their counsel, Bob decides he's willing to take the associated risk and tells his attorney to withdraw his objection to the provision.
  4. After all other objections are ironed out, the parties sign the contract.
  5. Everything relevant is happening in Texas.

QUESTION: If Alice were to be at fault for one of the indemnified events, would she be able to enforce Bob's putative obligation to indemnify her? Why or why not?

8.5.4 Drafting exercise: Assignment provision

The following comes from a software-development agreement in a new arbitration case that I'll be hearing (as the arbitrator):

9.7 Assignment. No Party may sell, transfer, assign, assume or subcontract any right nor obligation set forth in this Agreement by contract, operation of law or otherwise, except as expressly provided herein, without the prior written consent of the other Party; provided, however, upon providing the other Party written notice, any Party may without the consent of the other Party: (a) (i) assign any or all of its rights and interests hereunder to one or more of its Affiliates or (ii) designate one or more of its Affiliates to perform its obligations hereunder, in each case, so long as the assigning Party is not relieved of any liability hereunder and so long as any such Affiliate remains such Party's Affiliate; provided, however, that such Affiliate assignee(s) provide the other Party with written acknowledgement of and agreement to the assigning Party's obligations under the Agreement that were assigned to it; or (b) assign or transfer this Agreement as a whole to any Person that succeeds to all or substantially all of the business or assets of such Party related to the subject matter of this Agreement.

EXERCISE: Break this up into shorter, one-subject paragraphs.

8.5.5 Drafting exercise & HOMEWORK: Indemnity provision (continued)

Continue with the indemnity-provision breakup.

That provision will be due next Wednesday, Sept. 26, as one of the pass-fail / peer-review homeworks — bring a hard copy to class, with your name on it.

8.6 Class 10: Mon. Sept. 24

8.6.1 Homework due (peer review, pass-fail)

9 Detailed class plans: October (TBA)

10 Detailed class plans: November (TBA)

Footnotes:

[1]
Peer-critique homework is worth 50 points.
[2]
You could still pass the course, but you'd have to make up the missing points.
[3]
Mutual consultation on homework is encouraged, but (1) each student must do his or her own work, and (2) you should indicate in your homework whom you collaborated with.
[4]
B. Format the style of the paragraph.
[5]
"Commercial Lease" is appropriate — a lease is a contract that creates a leasehold interest. See Black's Law Dictionary, 10th ed.
[6]
A contract can state that it is effective as of an earlier- or later date if that's what the parties want. CAUTION: Signers should never backdate their signatures to make it appear that the contract was signed earlier- or later than it was; doing so sent a number of senior executives to prison.
[7]
Party names are sometimes capitalized in a preamble so as to make them easy for a skimming reader to spot.
[8]
Defining key "business" terms (e.g., "Base Rent") at the beginning of an agreement — and then consistently using those defined terms elsewhere in the agreement — makes it convenient for reviewers and safer for revisers, who need only revised the definitions.
[9]
Including "Each item in this Article 1 incorporates …" is probably unnecessary.
[10]
Including the italicized portion, "to the extent there is any conflict …" is dangerous because it could lead to inconsistencies during revision of the draft during negotiation.
[11]
Defined terms and their definitions are typically set forth (i) in a separate section at the beginning of the agreement; (ii) in a separate section at the end of the agreement; and/or (iii) "in-line" at the place in the agreement that the defined term is principally used.
[12]
Both "Term: Five (5) years" and "Year One: $60,000 ($5,000 per month)" violate the "[BROKEN LINK: DRY]" (Don't Repeat Yourself) rule, which can cause major problems if the words are changed but not the numerals, or vice versa; the linked section tells the sad tale of a bank that lost $693,000 because of such a drafting screw-up.
[13]
An acknowledgement and a jurat.
[14]
False — an affidavit would normally require a jurat\, not an acknowledgement.
[15]
False — the quoted language in the text would be for a jurat\, whereas recordation of the document will normally require an acknowledgment.
[16]
False.
[17]
Maybe — it will depend on whether the notary public has an interest in the thing being notarized.