Flashcards: Contract Drafting, Fall 2018

QUESTION: According to Professor Toedt, in most circumstances, the best way to state the effective date of a contract that is different from the date(s) that the contract is signed is:

A.  In the preamble: "This Agreement is entered into on [DATE]."

B.  In the preamble: "This Agreement is entered into on the latest date signed as written in the signature blocks below, to be effective as of [DATE]."

C:  In the preamble: "This Agreement is entered into on [DATE]."

D.  None of the above.

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FACTS:

1. Your client ABC Inc. has asked you to review a contract drafted by XYZ Corporation.
2. The preamble of the contract states that the parties are (i) ABC Inc. and (ii) XYZ Corporation and its Affiliates.
3. In the definitions section, the contract defines the term Affiliate.

TRUE OR FALSE: This contract structure is unobjectionable.

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FACTS: (1) Customer Corporation negotiates a master purchase agreement with Vendor Inc. The agreement specifies the pricing that Vendor will honor, during the agreement term, for Customer's orders for particular goods and/or services.

2.  Customer wants its various "Affiliates" (defined in the agreement) to be able to place orders at the specified pricing.

QUESTION: To accommodate Customer's desire, which of the following would be the best drafting approach?

A.  In the preamble, recite that the parties are "(i) Vendor Inc. … and (ii) Customer Corporation … and its Affiliates (defined below)."

B.  In the preamble, recite that the parties are Vendor Inc. and Customer Corporation, but state in the body of the agreement that Customer's Affiliates are entitled to place orders at the agreed pricing.

C:  Both of the above.

D.  Neither of the above.

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QUESTION: According to Professor Toedt, in most circumstances, the best way to state the date of a contract is:

A.  In the preamble: "This Agreement is entered into on [DATE]."

B.  In the preamble: "This Agreement is entered into on the latest date signed as written in the signature blocks below."

C:  In or just before the signature blocks: "Date: [DATE]."

D.  None of the above.

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FACTS:

1. Your client Alice has been asked to sign a confidentiality agreement ("NDA") that was prepared by Bob ("The Other Side").
2. Neither Alice nor you have any past history with Bob.
3. The NDA's terms apply equally to the confidential information of both Alice and Bob, not just to the confidential information of only one party or the other.
4. Alice is in a hurry and asks if it's OK to just sign the NDA, given point 3 above.

TRUE OR FALSE: You can probably go ahead and tell Alice "yes, it's OK to sign this."

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FACTS: A draft NDA, prepared by the disclosing party, includes a injunctive-relief provision that states that if the receiving party breaches the NDA, then the disclosing party will be irreparably harmed and will be entitled to injunctive relief. You are reviewing the draft NDA for your client, which will be the receiving party.

TRUE OR FALSE: In these circumstances, there's probably no need to try to revise or delete this provision.

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FACTS: A draft NDA, prepared by the disclosing party, includes a injunctive-relief provision that states that the receiving party waives any requirement for the posting of a bond as a prerequisite to the granting of injunctive relief. You are reviewing the draft NDA for your client, which will be the receiving party.

TRUE OR FALSE: TRUE OR FALSE: In these circumstances, it'd be worthwhile to try to revise or delete this provision. (Be prepared to explain your answer.)

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TRUE OR FALSE: A contract provision can amount to a warranty even if the provision doesn't use the word warranty.

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FACTS: A contract states that "Alice warrants that the car is in good condition," but it is otherwise silent about what will happen if the car isn't in good condition.

TRUE OR FALSE: This contract provision isn't really a warranty because it doesn't specify a remedy if the warranty were to be breached.

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FACTS: Alice and Bob are entering into a contract, being drafted by Bob's lawyers. The "Notices" provision in the draft contract states: "Any notice required or permitted by this Agreement will be effective three days after being deposited in the U.S. Mail in a sealed envelope that has first-class postage affixed and is addressed to the notified party's address for notice as stated in this Agreement."

TRUE OR FALSE: TRUE OR FALSE: In these circumstances, it'd be worthwhile to try to revise or delete this provision. (Be prepared to explain your answer.)

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FACTS:

1.  The other side's lawyer has drafted a real-estate-related document for her client to sign and deliver to your client, which will then want you to have the document filed for recording in the deed records of a Texas county.

2.  The notary certificate after the signature line reads: "Sworn and subscribed to before me, the undersigned authority," with a blank line for the notary to fill in the date.

TRUE OR FALSE: TRUE OR FALSE: In these circumstances, it'd be worthwhile to try to revise or delete this provision. (Be prepared to explain your answer.)

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FACTS:

1.  A contract states that breach of a certain obligation will be considered a "material" breach that will allow the other party to terminate the contract by notice.

2.  The obligated party breaches the obligation, whereupon the other party duly terminates the contract and sues for damages.

3.  In court, the obligated party admits its breach, but it claims that the breach wasn't material and so the other party shouldn't have terminated the contract.

TRUE OR FALSE: The breaching party might have a very difficult time persuading a court that the breach wasn't material.

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FACTS: Alice and Bob are negotiating a contract. One provision in the draft contract obligates Alice to take Action A, but it doesn't state that Alice's obligation is "material."

QUESTION: In a lawsuit arising out of the contract, Bob could still try to prove that Alice's obligation to take Action A was in fact "material" and thus that her failure to take Action A constituted a "material breach."

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QUESTION: IF: You're drafting a contract for your client Alice; AND: As part of the deal, Bob is to warrant something to Alice; THEN: You'll normally want to use the phrase "Bob represents and warrants," instead of just "Bob represents."

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FACTS: Alice wants to sell her car to Bob. Bob wants the contract to include a representation by Alice that the car has no significant defects.

QUESTION:

QUESTION: In most circumstances, which language below for the representation would Alice prefer?

A.  Alice represents that, so far as she is aware, without any particular investigation, the car has no significant defects.

B.  Alice represents that, to her knowledge, the car has no significant defects.

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FACTS:

1.  Alice and Bob enter into a contract that requires Bob to deliver 1 million widgets (a generic product available from a wide variety of vendors) to Alice for a stated price at a specified time. The contract also states that time is of the essence for the delivery.

2.  Bob fails to deliver the widgets on time and tells Alice he just can't do it.

3.  Alice duly files suit against Bob, in a court having jurisdiction, and moves for a preliminary injunction ordering Bob to deliver the widgets.

QUESTION: Even if Alice can prove up irreparable harm and a balance of the equities in her favor, the court is unlikely to grant Alice's motion.

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FACTS: You are reviewing a contract (the "Agreement") that contains a section on termination of the Agreement.

QUESTION: You should consider whether the Agreement should also include a|an [BLANK] provision to keep alive any provisions that your client might want to continue in effect even after termination of the Agreement, such as (for example) choice of forum, disclaimers of implied warranties, and limitations of liability.

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QUESTION: In an employment agreement for an executive, the exective's annual salary is preferably stated as follows:

A.  $X per year.

B.  A rate of $X per year.

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FACTS:

1.  You're reviewing a draft contract for a client, Alice. The contract was drafted by Bob's lawyer. Alice is in a hurry to get the contract signed.

2.  Among other things, the contract requires Alice to pay Bob for consulting services, with interest on past-due amounts at 5% until paid.

TRUE OR FALSE: In these circumstances, it'd be worthwhile to try to revise or delete this provision. (Be prepared to explain your answer.)

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FACTS:

1. Alice sends Bob — both in Texas — a purchase order for dry-erase pens; the purchase order states in part that Alice has all rights and remedies available by law in case of any defect in the pens.

2. Bob doesn't sign the purchase order, but he returns a confirmation of the order, which says in part that all implied warranties are disclaimed, including the implied warranties of merchantability and fitness for particular purpose.

3. Bob ships what are supposedly dry-erase pens, together with an invoice; Alice timely pays the invoice.

4. Shortly thereafter, Alice discovers that the pens have been mislabeled and are actually permanent markers that ruin Alice's expensive whiteboard.

5. Alice sues Bob for breach of the implied warranty of merchantability.

6. Bob moves to dismiss, citing the implied-warranty disclaimer in his order confirmation.

QUESTION: How will the court likely rule on Bob's motion?

A.  Granted, because under the last-shot rule, Bob's order confirmation knocked out Alice's purchase-order terms.

B.  Denied, because both parties are "merchants" and Alice sent the first document.

C:  Denied, because the conflicting terms in the parties' documents will drop out under the "knock-out rule."

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FACTS:

1.  Alice and Bob, both living and working in the U.S., are negotiating a contract. They've agreed on all the major terms, but they can't quite reach agreement on the interest rate that is to be charged on past-due payments. They decide to "kick the can down the road" by stating in the contract that, starting 90 days later, each party will negotiate in good faith to attempt to reach agreement on the interest rate.

2.  When the 90-day period is over, Bob contacts Alice to reopen negotiations about the interest rate, but Alice adamantly refuses even to discuss the matter, even after Bob threatens her with a lawsuit.

TRUE OR FALSE: Bob can recover his foreseeable, non-speculative damages resulting from Alice's breach of her agreement to negotiate in good faith. (Be prepared to explain your answer.)

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TRUE OR FALSE: In the U.S., an agreement to agree on something in the future will generally be enforceable.

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QUESTION: In the U.S., which portions of a signed letter of intent ("LOI") will be binding — if any?

A.  None

B.  Only those provisions that the LOI clearly specifies are binding

C:  Possibly the entire LOI if the LOI does not clearly state otherwise

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QUESTION: [BLANK] is a colloquial, one-word synonym for "condition precedent":

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QUESTION: [BLANK] is a colloquial, one-word synonym for "condition subsequent":

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QUESTION: In the eyes of a court, for a long contract provision, which of the following might NOT suffice to satisfy a legal requirement that the provision be "conspicuous"?

A.  The provision is rendered in all-caps.

B.  The entire contract is only one page long, the provision is in bold-faced type, and the provision is relatively short.

C:  The parties' lawyers negotiated the provision in question.

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FACTS: Alice is hiring Bob to do some work in her factory. Her draft of the contract requires Bob to indemnify Alice for any harm that might occur to any of his employees while at Alice's factory.

FILL IN THE BLANK: Alice should also consider inserting a provision requiring Bob to enter into and maintain this type of ancillary contract to make sure there is a pot of money available if necessary to support Bob's indemnity obligation.

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FACTS:

1.  It's Tuesday, May 9, 2017. Your client Alice emails you the (unprotected) Word document of a draft contract that has been prepared by Bob's lawyer. Alice says that on Monday, May 1, she and Bob agreed to the major "deal points" in the draft contract. She has looked over the draft and is satisfied that those deal points are accurately set forth, but she's not sure about certain other provisions in the draft contract. She asks if she and Bob can meet in your office late this afternoon to sign the contract.

2.  The signature blocks of the contract include the term, "Date: May 1, 2017"; otherwise, you see no changes worth holding up the deal for.

QUESTION: Which of the following actions would you recommend to Alice as the MOST sensible for you to take to get the contract signed TODAY?

A.  Contact Bob's lawyer and ask that he change the date-signed term and resend the Word document to you.

B.  Open the Word document; change the date-signed term to May 9; print out hard copies for signature; and email Bob's lawyer to advise that you changed the date-signed term.

C:  Print out hard copies of Bob's Word document and make a pen-and-ink change to the date-signed term, then have Alice and Bob each initial and date the change.

D.  Have Alice sign the document with the May 1 date-signed term.

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FACTS:

1.  You represent Alice, a product vendor. Alice is negotiating a long-term sales agreement with Bob, a large customer—think, Tilman Fertita in the TV show "Billion Dollar Buyer."

2.  Bob's draft of the sales agreement includes a provision that: (i) represents and warrants that Alice has not given any other customer any better terms than those of the draft sales agreement, and (ii) requires Alice (x) to report to Bob any future deals in which she gives another customer better terms and (y) to give Bob, on a going-forward basis, the benefit of those better terms.

TRUE OR FALSE: In these circumstances, there's probably no need to try to revise or delete this provision.

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FACTS: Alice bought $1 million of widgets from Bob. She is suing him for breach of warranty and for misrepresentation because he allegedly statements about the widgets that allegedly turned out not to be true.

QUESTION:

QUESTION: Of the following causes of action, which (if any) require Alice to prove that she reasonably relied on Bob's alleged statements?

A.  Breach of warranty

B.  Misrepresentation

C:  Both A and B

D.  Neither A nor B

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Adapted from language in an actual contract: "Seller will notify Buyer at least 30 (THIRTY) days before the effective date of any price increase."

TRUE OR FALSE: This is an acceptable drafting style.

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TRUE OR FALSE: Under the Uniform Commercial Code, both buyers and sellers can be "merchants."

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QUESTION: Attorney malpractice insurance is an example of a type of coverage that, in the business-insurance context, is normally referred to by this name:

A.  Client liability coverage

B.  Professional liability coverage

C:  Commercial General Liability coverage

D.  Umbrella coverage

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FACTS: You represent Alice and are drafting a contract that she and Bob will enter into. The contract is to include an obligation for Bob to defend and indemnify Alice against certain third-party claims.

FILL IN THE BLANK: should also consider including, in the contract, a requirement that Bob acquire and maintain [BLANK] to increase the chances that enough money will be available to pay for Alice's defense and indemnity.

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QUESTION: Under the law in Texas (and some other places), if a contract provision requires Alice to indemnify Bob against the consequences of Bob's own negligence, that provision must be each of these two things or it will be unenforceable:

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QUESTION: An agreement can be amended by setting out the entire agreement anew, as modified; this is referred to as a|an [BLANK] agreement.

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TRUE OR FALSE: A company's offer letter to a prospective employee could become a binding contract, depending on how the letter was worded.

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TRUE OR FALSE: Most lawyers prefer to draft employment agreements in the form of a conventional-style contract; such lawyers regard letter agreements as being somewhat "bad form."

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QUESTION: In most U.S. jurisdictions, a contract drafted in the form of a letter agreement will be binding only if it meets certain specific requirements that don't apply to conventional-style contracts.

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QUESTION: A contract could be drafted in the form of a signed letter from one party to the other, to be countersigned by the other party.

QUESTION: For a contract provision to be considered "material," the contract normally must so state.

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FACTS: A contract between Alice and Bob states that Alice "acknowledges" Bob's Assertion X.

QUESTION: In court, Alice might not be allowed to contest Assertion X.

QUESTION: Name the two basic forms of "notarizing" a document in the U.S.

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QUESTION: An affidavit to be used in court will normally require an acknowledgement certificate signed by a notary public or other authorized officer.

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QUESTION: A notary public ordinarily is allowed to "notarize" a document in which he or she is also the signer of the document.

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QUESTION: Professor Toedt thinks it would normally be OK for outside counsel to sign contracts on behalf of a client.

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QUESTION: A general partner of a limited partnership has actual authority to sign a contract on behalf of the limited partnership. 

QUESTION: A limited partner of a limited partnership, acting in that capacity, has actual authority to sign a contract on behalf of the limited partnership. 

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QUESTION: An individual of legal age who holds a written power of attorney from a limited partnership, authorizing that individual to sign a specific contract (or contracts generally) on behalf of the limited partnership, has actual authority to bind the limited partnership to that contract.

QUESTION: A power of attorney, giving someone the authority to sign a contract on behalf of a limited partnership, can be signed by all of the limited partners in lieu of being signed by a general partner.

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QUESTION: Under Texas law, a limited partnership can have one or more officers, who might have at least apparent authority to bind the limited partnership to a contract.

QUESTION: An officer of a limited partnership who also owns a limited-partnership interest in the limited partnership can sign a contract on behalf of the limited partnership.

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QUESTION: Professor Toedt thinks it would normally be OK for an in-house counsel in a company's legal department to sign a contract on behalf of another department in the company.

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QUESTION: The terms warranty and representation are basically synonyms.

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FACTS: You're drafting a contract for your client Alice; AND: As part of the deal, Alice is to warrant something to Bob.

QUESTION: You'll normally want to use the phrase, "Alice represents and warrants," instead of just, "Alice represents."

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QUESTION: A contract provision can have the same legal effect as a warranty even if the provision doesn't use the word warranty.

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QUESTION: An apartment lease agreement states (in part): "The apartment shall be regularly serviced by a professional pest-control service." This is an example of a|an [TWO WORDS] (not "passive voice"):

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QUESTION: It's generally OK for a contract to provide for termination of specific rights and obligations instead of for termination of the contract itself.

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FACTS: You're drafting an employment agreement for a salaried employee. The parties have agreed on the starting salary, and you've been instructed to put that starting salary into the agreement.

QUESTION: You'll want to state that the salary will be paid:

A.  Monthly

B.  Biweekly

C:  Per the company's standard payroll procedures

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QUESTION: In nearly all U.S. jurisdictions — unless the employer and employee agree otherwise, or a statute provides otherwise — an employee's employment by a company will be:

A.  at will

B.  month-to-month

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QUESTION: You get what you [BLANK], not what you expect.

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QUESTION: This category of contract provision is a promise or commitment to do something, or possibly not to do something.

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QUESTION: In most U.S. jurisdictions "hold harmless" is treated as a synonym for this type of contract term.

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QUESTION: This archaic introductory section of a contract has been replaced, in modern drafting, by the "Background" section.

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QUESTION: This three-word phrase can be used to cause an external document to be treated as part of a contract.

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QUESTION: Under Texas law, when a plaintiff successfully asserts a contract claim against a  defendant, if the plaintiff wishes to recover its attorney fees under Tex. Civ. Prac. & Rem. Code sec. 38.001, the defendant must be a[n] [BLANK] or a[n] [BLANK].

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QUESTION: Under the so-called "American rule," this party can recover its attorney fees if it prevails in contract-related litigation if the contract does not say otherwise:

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QUESTION: Other things being equal: If a contract provision could be construed as either a covenant or a condition, a U.S. court will normally prefer to construe the provision:

A.  As a covenant

B.  As a condition

C:  No preference between covenant and condition—whichever is supported by the parol evidence

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QUESTION: Testimony and documents concerning the parties' course of dealing, offered in court to support a party's preferred interpretation of a contract provision, would be considered [BLANK] evidence.

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QUESTION: In the U.S., courts generally will look to parol evidence to interpret a contract provision only if the provision is [BLANK]:

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QUESTION: Which version of this forum-selection language would be the broadest?

A.  Any litigation arising out of this Agreement is to be brought in Houston, Texas.

B.  Any litigation arising out or relating to this Agreement is to be brought in Houston, Texas.

C:  Any litigation arising out of or relating to this Agreement or any transaction or relationship resulting from it is to be brought in Houston, Texas.

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FACTS: On behalf of your client Alice, you are reviewing a draft contract prepared by the attorney representing Bob. The draft includes the following provision: "Bob may terminate this Agreement if Alice files for protection under the bankruptcy laws."

QUESTION: This provision will generally not be enforceable in the United States.

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REVISED 2017-05-02

QUESTION: Unless the parties agree otherwise, mediation is normally binding.

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QUESTION: Unless the parties agree otherwise, arbitration is normally binding.

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QUESTION: What does Professor Toedt mean by "A.T.A.R.I."?

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QUESTION: What does Professor Toedt mean by "A.T.P."?

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QUESTION: What does Professor Toedt mean by "F.R.I.L.L."?

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QUESTION: What does Professor Toedt mean by "R.O.O.F."?

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QUESTION: What does Professor Toedt mean by "W.I.D.D."?

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QUESTION: If a contract provision gives Alice the right to unilaterally amend the contract but does not put certain limits on that right, then the entire contract might be unenforceable because it is "ill" in this way:

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QUESTION: An entire-agreement provision, by itself, won't preclude an aggrieved party from claiming misrepresentation unless the entire-agreement provision includes a disclaimer of this:

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QUESTION: A drafter whose client didn't have superior bargaining power might not want to include this type of provision, stating where any litigation may (or must) take place:

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QUESTION: This type of contract provision is a promise to reimburse a person for any harm the person might suffer from a stated event.

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QUESTION: If a drafter had is or her "thinking cap" on, he or she could draft this type of limitation of liability (A) as "one size fits all," or (B) as separate limitations for different categories of events.

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QUESTION: In some vendors' contract forms, the list of excluded damages will sometimes include (that is, exclude) this category of damages, of which one of the examples in UCC art. 2-715 is "commercially reasonable charges, expenses or commissions in connection with effecting cover …."

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QUESTION: A representation is a statement about facts in this time frame:

A.  Past only

B.  Present only

C.  Future only

D.  Past or present but not future

E.  Past, present, or future

F.  Present or future but not past

G.  Past or future but not present

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QUESTION: In a normal purchase-and-sale contract, this party will normally want to think about whether a particular statement should be a representation or a warranty (the other party will want it to be both).

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QUESTION: In a contract case, if Alice successfully proves the elements of misrepresentation, she might be entitled to one or both of these two remedies that might not otherwise be available to her:

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QUESTION: This remedy for breach of contract — seldom granted unless the contract itself provides for it — basically "unwinds the deal."

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QUESTION: The former CEO of software giant Computer Associates spent nearly ten years in federal prison for engaging in this "35-day month" contract-signing practice to falsify quarterly financial statements.

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QUESTION: Under the rule of contract interpretation known by this Latin phrase, an ambiguity in a provision is resolved against the party that drafted the provision — IF other rules of interpretation don't provide a resolution.

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QUESTION: Under the rule of contract interpretation known by this Latin phrase, if a contract term says "food, including apples, peaches, and pears" then a court might limit the term "food" to fruits.

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FACTS: For a client, you're reviewing a contract drafted by The Other Side. Your client does not have much bargaining power and would really like to see this contract signed. You see a provision that outrages you.

QUESTION: What should be your first action?

A.  Delete the provision.

B.  Put yourself in The Other Side's shoes and ask what problem they were trying to solve.

C:  Revise the provision to make it acceptable to your client.

D.  Accept the provision and advise your client about it.

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A.
Select this:
B.
Select this:
C.
Select this:
D.
Select this:
Commentary:

QUESTION: What connection does / did the Winklevoss twins have for Facebook?

A.  One of the twins is a member of Facebook's board of directors.

B.  They were the first two computer programmers hired by Facebook.

C:  They're connected to Google, not Facebook.

D.  Facebook paid them USD $65 million to settle their claim that company founder Mark Zuckerberg stole their ConnectU idea while all were students at Harvard.

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FACTS: Alice buys a professional-liability insurance policy for her new consulting business. Unfortuntely she is unable to attract enough work to support herself, so a few months later she shuts down the business; allows her insurance policy to lapse by not paying premiums; and takes a full-time job working for a company. ¶ Months later, but still within the relevant statute-of-limitations period, she is sued for malpractice by one of her former clients. The former client's claim would clearly have been covered by Alice's insurance policy if Alice had not allowed the policy to lapse.

QUESTION:

QUESTION: Of the two types of insurance policy — claims-made and occurrence — which would cover the claim against Alice even after cancellation of the policy?

A.  Only a claims-made policy.

B.  Only an occurrence policy.

C:  Neither.

D.  Both.

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You are drafting a contract between

1.  your client Alice, and

2.  Bob, who owns a sole-proprietorship yard maintenance company that employs a number of workers. Under the contract, Bob's workers are to replace the sod in Alice' front yard, but 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?

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FILL IN THE BLANK:
Answer:

A lease agreement states that

1.  Tenant must pay the rent by a means reasonably acceptable to Landlord, and

2.  Venmo is to be conclusively deemed an acceptable means of payment.

QUESTION: Subdivision (2) is an example of a xxxx-yyyyyy provision.

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FILL IN THE BLANK:
Answer:
Reading

QUESTION: A partnership can be created without the partners even knowing it.

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