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Wednesday, February 25th, 2015 8:30 – 9:30 a.m.

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TOPICS

Your Role in the Value Equation

Evolution of Contract Knowledge

Resources

Degrees of Contract Scrutiny

Parts of a Contract

Contract Disputes

On Your “Paper”

Drafting Tips and Traps

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THE VALUE EQUATION

Quality

Time

Price

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EVOLUTION OF CONTRACT KNOWLEDGE

Sign Vendor

Contract

Issue Spot

Contract Checklist

Alternative Language

Contract Template

Category-Specific Contracts Book (Various Authors)

Contracts: The Essential Desk Reference (Stim)

Black’s Law Dictionary (Garner)

Hornbook on Contracts (Perillo)

Contracts Law Outline (Emanuel)

Negotiating and Drafting Contract Boilerplate (Stark)

Drafting Contracts: How and Why Lawyers Do What They Do (Stark)

A Manual of Style for Contract Drafting (Adams)

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RESOURCES I USE (IN ORDER OF USAGE)

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DEGREES OF CONTRACT SCRUTINY

What Business People Focus On

What No One Cares About

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PARTS OF A CONTRACT

Preamble – Information about the contract (Parties, Date)

Recitals – Story or “theme” of the contract (“WHEREAS”)

Words of Agreement – “NOW THEREFORE, in consideration of the mutual promises and covenants contained herein, and for other good and valuable consideration, Supplier and Customer hereby agree as follows”

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PARTS OF A CONTRACT

Body of the Agreement

Representations and warranties

Covenants a/k/a “Terms and Conditions”

Condition – Obligation of a party

Term – Time period for a party to fulfill its obligations

Examples: Indemnification, LOL, Acceptance, Termination, Data Privacy

Remedies

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RECITALS

WHEREAS, Hotel has experience and expertise in the business of providing certain hospitality-related services that may include accommodations, housing, function space, and food and beverage (such services and similar services shall be individually and collectively referenced herein as the “Services”);

WHEREAS, Group conducts various events, conventions, and meetings (each, a “Meeting,” as further described in an Exhibit A attached or to be attached hereto) that are critical to the business operations of Group and its members;

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WHEREAS, Hotel acknowledges the importance to Group of the Services in support of a Meeting;

WHEREAS, Hotel acknowledges that non-performance of the Services may result in loss of revenue to Group, negative impact upon the credibility and good will of Group, and other financial and non-financial harm to Group; and,

WHEREAS, Hotel desires to supply Services to Group on the terms and conditions contained herein.

RECITALS

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Made at a point in time

One-time inducement to enter into contractual relationship

Breach if failure to be true

Remedy of rescission under claim of fraud if false representation is material (burden to prove materiality)

General Example: …a business duly incorporated, validly existing, and in good standing under the laws of its state of incorporation

Specific Example: …the lawful licensee or owner of the Services and has all the necessary rights in the Services to grant the use of the Services to Customer

REPRESENTATIONS

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Ongoing promise that a certain fact (or set of facts) will be true (set period or indefinite)

Can be express or implied (by UCC or common law)

Implied warranties reverse caveat emptor

Implied warranties can be disclaimed if express, specific conspicuous

Examples: Merchantability, Fitness for Particular Purpose, Non-Infringement, Workmanlike Performance

Breach if fact becomes untrue

Conclusively presumed to be material (no burden to prove materiality)

Remedy of money damages

WARRANTIES

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UCC Implied Warranties – Merchantability 2-314: Goods must conform to ordinary standards of

care and be of same average grade, quality, and value as similar goods sold under similar circumstances

Application: Goods must be something seller normally sells and must be used by buyer for good’s ordinary purpose

Rationale: Sellers are generally better suited than buyers to determine whether goods are proper

IMPLIED WARRANTIES

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UCC Implied Warranties – Fitness for Particular Purpose 2-315: Goods being sold are suitable for buyer’s specific

(non-ordinary) purpose

Application: Seller must know or have reason to know that buyer will be using goods for a specific purpose (unlike merchantability, goods don’t need to be something seller usually sells)

Rationale: Buyers rely on seller’s skill and expertise to help find goods meeting buyers’ specific need—unfair for seller to sell goods knowing they will not meet needs and later tell buyer it isn’t the seller’s fault that goods didn’t work

PARTS OF A CONTRACT: IMPLIED WARRANTIES

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UCC Implied Warranties – Of Title and Against Infringement 2-312: Seller must hold buyer harmless against any

rightful claim of infringement by third-party

Application: Goods must be something seller normally sells

Rationale: To deter sellers from selling goods they don’t have a right to sell or to profit from goods that infringe upon some third-party’s intellectual property rights

IMPLIED WARRANTIES

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Implied Warranties (Common Law) Example Implied warranty of “workmanlike” performance

Mostly applies to construction or related services

Should seller fail to deliver service that conforms with standards due to latent defects, the buyer has legal remedy

Rationale: Sophisticated seller is in better position than buyer, who is unable to control the service being provided, to recognize and assess latent problems before they arise

IMPLIED WARRANTIES

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“Third-party” or “contractual” [1] Words of promise

[2] Parties being indemnified (the “indemnitees”)

[3] Scope of indemnification

[4] Subject of indemnification

[5] Express exclusions from indemnification

Indemnification Procedures

INDEMNITY

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Vendor agrees to [1]indemnify, defend, and hold harmless [2]Customer and its officers, directors, agents, and employees (each, an “Indemnitee”) from and against [3]any and all liabilities, damages, losses, expenses, claims, demands, suits, fines, or judgments (each, a “Claim,” and collectively, the “Claims“), including reasonable attorneys’ fees, costs, and expenses incidental thereto, which may be suffered by, incurred by, accrued against, charged to, or recoverable from any Indemnitee, [4]by reason of any Claim…

INDEMNITY

[1] Words of promise, [2] Parties being indemnified, [3] Scope of indemnification, [4] Subject of indemnification, [5] Express exclusions from indemnification

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…arising out of or relating to any act, error or omission, negligence, or misconduct of Vendor, its officers, directors, agents, employees, and subcontractors, during the performance of this Agreement, including, without limitation, Claims arising out of or relating to: (a) XXXX; (c) any material misrepresentation or breach of warranty of any representation or warranty herein; or, (d) any material breach of any covenant herein; [5]provided, however, that the foregoing indemnity shall not apply to the extent that the applicable Claim resulted from the acts or omissions of an Indemnitee.

INDEMNITY

[1] Words of promise, [2] Parties being indemnified, [3] Scope of indemnification, [4] Subject of indemnification, [5] Express exclusions from indemnification

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[1] Exculpation from the LOL

[2] Exclusion to the exculpation

[3] LOL

[4] Exception to limitation

LIMITATION OF LIABILITY

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[1]NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT, SPECIAL, AND / OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT; PROVIDED, HOWEVER, THAT [2]THE FOREGOING EXCULPATION OF LIABILITY SHALL NOT APPLY WITH RESPECT TO DAMAGES INCURRED AS A RESULT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF A PARTY. [3]A PARTY SHALL BE LIABLE TO THE OTHER FOR ANY DIRECT DAMAGES ARISING OUT OF OR RELATING TO ITS PERFORMANCE OR FAILURE TO PERFORM UNDER THIS AGREEMENT; PROVIDED, HOWEVER, THAT THE LIABILITY OF A PARTY, WHETHER BASED ON AN ACTION OR CLAIM IN…

LIMITATION OF LIABILITY

[1] Exculpation from the LOL, [2] Exclusion to the exculpation, [3] LOL, [4] Exception to limitation

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…CONTRACT, EQUITY, NEGLIGENCE, TORT, OR OTHERWISE FOR ALL EVENTS, ACTS, OR OMISSIONS UNDER THIS AGREEMENT SHALL NOT EXCEED THE FEES PAID OR PAYABLE UNDER THIS AGREEMENT, AND PROVIDED, FURTHER, THAT THE [4]FOREGOING LIMITATION SHALL NOT APPLY TO: (A) A PARTY’S OBLIGATIONS OF INDEMNIFICATION, AS FURTHER DESCRIBED IN THIS AGREEMENT; (B) DAMAGES CAUSED BY A PARTY’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT; OR, (C) A PARTY’S BREACH OF ITS OBLIGATIONS OF CONFIDENTIALITY, AS FURTHER DESCRIBED IN THIS AGREEMENT.

LIMITATION OF LIABILITY

[1] Exculpation from the LOL, [2] Exclusion to the exculpation, [3] LOL, [4] Exception to limitation

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Representation and Warranty

Indemnification

Exclusion from Limitation of Liability

Insurance

TERMS AND CONDITIONS DEPENDENCIES

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CONTRACT DISPUTES

Contract disputes range from mundane disagreements to material breaches

What’s a breach (simple / technical or material)? Failure to perform the contract, without “legal excuse,” in

whole or in part

“Legal excuse” loosely includes force majeure, forbearance, and waiver

Remedies for breach? (Should be specified in the contract)

Compensatory damages

Liquidated damages

Specific damages

“Punitive” damages?

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VENUES FOR DISPUTE RESOLUTION

Negotiation

Informal meditation (specified in the agreement)

Watch out for items needing immediate remedies

Mediation Neutral third party steers disputing parties to

settlement (non-binding)

Arbitration Non-binding: Disputing parties obtain an advisory

opinion (“testing the waters of litigation”)

Binding = Binding

Litigation

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CHOICE OF LAW

Venue / Forum

Court will enforce choice of law unless No substantial relationship to transaction

No other reasonable basis exists to support choice

Application of governing law would violate public policy of forum state

Your state or NY, IL, DE

INSURANCE

How Much Coverage? What’s Covered? When Needed?

How Difficult

to Obtain?

What Does it

Cost per Year?

General Liability

$1M per occurrence / $2M aggregate

Property damage, injury, death ALWAYS

Easy--usually from auto carrier

~ $500

Automobile Liability

$500K per occurrence

Accidents resulting from vehicles used for business (personal insurance will not cover)

Needed if vendor, e.g., will be driving on company property

Easy

~ $500

Workers’ Comp / Employers’ Liability

Statutory limits; $500K per accident

EE: medical bills for work-related injuries, illnesses / ER: if EE sues ER

Depending on number of employees, not optional

Easy to Moderate

Varies based on payroll

Professional Liability

$1M per occurrence / aggregate

Errors and omissions

Highly recommended for software and research / materials being published

Easy to moderate to obtain

Approx. $2K annually

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Favorable Conditions!

Shifts Burden of Review

Avoids Use of “Weasel Words” Shall or Will Instead of

Assist, Help, Support

Use Your Structure “Unless Otherwise

Specified In Exhibit A,…”

Include as Part of RFx

P.S. PDF Files Are Poor Sport

ON YOUR

“PAPER”

DRAFTING TIPS AND TRICKS

1. Getting around the parol evidence rule

2. Express implied UCC warranties

3. A limited liability indemnification that’s really unlimited

4. Ambush!

5. Effect of no “no header” clause

6. Immediate termination without immediate termination

7. Non-solicit employee clause that’s really a mere recruiting fee