Post on 02-Aug-2020
transcript
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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