Contract DraftingClass 10Thurs. Feb 16

University of Houston Law Center

D. C. Toedt III

Common contract screw-ups

Common contract screw-ups

“7. The contract that has additional signature blocks in [a schedule or exhibit, e.g., a form of deed], and these are signed as well as or instead of the main signature blocks of the contract.”

[From “Top 10 howlers when preparing contracts for signature,” by the IP Draughts blog at http://goo.gl/Km6Dw.]

Pretentiousness

Some pretentious expressions

How could these be improved? During such time as Customer needs help During the course of Provider’s work Provider will effectuate its obligations The parties will endeavor to agree Provider will forthwith notify Customer

Defined terms

Defined terms – where to put?

Team exercise: Write down six places

where you might find the definition of a

defined term in a contract (careful – try to

think “outside the box”)

Introducing a defined term

Stark p. 80: “Mechanical Failure” means [definition follows]

Adams, MSCD: Mechanical Failure refers to [definition follows]

Can Stark be improved on?

P. 82, # 15 P. 83, # 17 P. 84, # 19 (“Song” example)

Compare with p. 81, # 13 P. 84, # 20

Which do you like better, & why?

Stark p. 87, # 1 Version 1? Version 2

Dell Master Purcha-sing Agrmt (Z&B pp. 236 et seq.)

Representations and Warranties - preview

Buying a used car

Representation (Stark p. 12)

Statement of fact As of a moment in time Intended to induce reliance

Justifiable reliance is required for a cause of action

Warranty (Stark p. 13)

Technical definition A promise that a statement is true

Real world definition A promise that the maker of a statement will

pay damages to the recipient of the statement if the statement isn’t true and the recipient suffers damages

There is no reliance component, nor intent.

Warranty

The car is yellow.

Remedies for breach of warranty (Stark pp. 14-16)

Benefit of bargainDiminution in valueAlt: Cost of paint job?

Incidental damages?Rental cost, while car is in paint shop

Consequentials?UCC: If not disclaimed

Damages cap in contract? Attorneys’ fees?

Remedies for Misrepresentations

Honest or negligent, if material Avoidance Restitutionary Recovery

Fraud Choice between

Avoidance and Restitutionary Recovery and

Damages Out-of-pocket Benefit of the bargain Punitive

Trade-offs: Representations versus Warranties

Representations

AvoidancePunitive damages

Warranties

No reliance component

Benefit of the bargain damages

No need to prove defendant’s scienter

CBS v. Ziff-Davis – sale of magazine division

Rep/warranty re financial statements Due diligence: Accounting problems Lawsuit: Misrep. + breach of warranty (really: litigating the price afterwards) Holding:

No misrep.: Reliance not justifiedBUT: Warranty claim succeeded

Parties settled after appellate holding

British Sky Broadcasting v. EDS

Case: http://bit.ly/9bPMbe (468-page PDF) HTML: http://bit.ly/c3SUZh Entire-agreement clause £30MM damages cap

N/A to fraud. misrep. or negl. misrep. UK judge found EDS exec lied No contract liability finding

British Sky Broadcasting v. EDS ¶ 841: “Although it is not necessary to establish motive, motive

provides support. Joe Galloway was quite clearly anxious to further his career. He was ambitious and to achieve a successful bid with Sky for the CRM Project would provide him with an opportunity to demonstrate his abilities to those in EDS. It was that motive which led him to say that he could achieve the Sky CRM Project in the required timescale when he knew that he had no proper basis for doing so. EDS say that there can be no motive in obtaining a project on the basis of times which cannot be met. I do not think he took that type of long term view. His wish was to be awarded the CRM Project and use that for advancement.”

211 – No reliance

Representations outside this Agreement: None – the parties have specifically negotiated this section.

Each party represents and warrants that, in entering into this Agreement, it is not relying on any representation by the other party, other than those set forth herein or incorporated by reference.

Why include no-reliance clause?

Vendor: Avoid fraudulent-misrep. claims

Customer (silver lining if forced to agree): Identify problems BEFORE they arise

Discovery issues for eitherwarranty or misrep. claim

True value of asset sold InspectionsComparablesExpert testimony

Alt: Repair costsEstimatesExpert testimony

Extra discovery issuesfor misrepresentations

Standard of care (negligence claims):Past deals, practices, problems – interrog.,

document production, depositionsExpert witnesses – fees, report review,

depositions, trial props, trial prep

Intent (fraud claims):

Email trails, interrog., depositions

Net worth – for punitive damages

Negotiating risk allocation (Stark pp. 17-19)

See Stark’s examples Flat representation

Unequivocal Without wiggle room

Qualified representation Hedged

End of class