Contract Drafting Class 10 Thurs . Feb 16

1. Contract DraftingClass 10Thurs. Feb 16 University of Houston Law Center D. C. Toedt III

2. Common contract screw-ups

3. 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.]

4. Pretentiousness

5. 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

6. Defined terms

7. 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”)

8. Introducing a defined term Stark p. 80: “Mechanical Failure” means[definition follows] Adams, MSCD: Mechanical Failurerefers to[definition follows]

9. Can Stark be improved on? • P. 82, # 15 • P. 83, # 17 • P. 84, # 19 (“Song” example) • Compare with p. 81, # 13 • P. 84, # 20

10. Which do you like better, & why? Stark p. 87, # 1 Version 1? Version 2

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

12. Representations and Warranties - preview

13. Buying a used car

14. 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

15. 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.

16. Warranty The car is yellow.

17. Remedies for breach of warranty (Stark pp. 14-16) • Benefit of bargain • Diminution in value • Alt: 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?

18. 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

19. Representations Avoidance Punitive damages Warranties No reliance component Benefit of the bargain damages No need to prove defendant’s scienter Trade-offs: Representations versus Warranties

20. 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 justified • BUT: Warranty claim succeeded • Parties settled after appellate holding

21. 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

22. 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.”

23. 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.

24. Why include no-reliance clause? Vendor: Avoid fraudulent-misrep. claims Customer (silver lining if forced to agree): Identify problems BEFORE they arise

25. Discovery issues for eitherwarranty or misrep. claim • True value of asset sold • Inspections • Comparables • Expert testimony • Alt: Repair costs • Estimates • Expert testimony

26. Extra discovery issuesfor misrepresentations • Standard of care (negligence claims): • Past deals, practices, problems – interrog., document production, depositions • Expert witnesses – fees, report review, depositions, trial props, trial prep • Intent (fraud claims): • Email trails, interrog., depositions • Net worth – for punitive damages

27. Negotiating risk allocation (Stark pp. 17-19) • See Stark’s examples • Flat representation • Unequivocal • Without wiggle room • Qualified representation • Hedged

28. End of class