Contract Drafting
2010-02-17
University of Houston Law Center
Spring 2010
D. C. Toedt III
Game plan
Recent developments
Ch. 7 – definitions & defined terms
Review Ex. 7-1, 7-2, 7-5
Five minutes: Start Ex. 7-7
Do Ex. 7-7 together, line by line
Homework for next time
Recent developments:
DeFontes v. Dell, Inc. (R.I. Dec. 14, 2009),
http://bit.ly/bHsnbo
T&C link on Web site: Too inconspic.
Arbitr. agrmt in order-confirmation & in box
“Layered contracting” can be OK
But: Insufficient notice of right to return
Held: Contract not enforceable
(so class action could proceed)
http://bit.ly/bHsnbohttp://bit.ly/bHsnbo
Chapter 7 –
Definitions and
defined terms
Why use a defined term?
Shorthand
For a list
For something specific – lake vs. Lake
Resolve ambiguity
Holidays, dollars – U.S. or Canada?
Tutorial – e.g., “capitalized lease”
Drafting concerns
Strategic – which side are you on?
Force majeure example – pp. 74-75
Practical
Keeping definitions consistent
Reuse of language
Where to put the definitions
Stand-alone definitions section
Good for long or multi-use definitions
Beginning of doc (traditional), end of doc
(Ken Adams pref.), or appendix (reusable)
In-context definitions
Easiest for quick-and-dirty drafting
Best for strictly-local use: Not as easy to find
Hard to read in context if long and complicated
Testing of definitions
Cross-check every use – use the search
function
Guidelines for definitions
1. Introduction to section – lead the reader
by the nose hand
2. Create a defined term for a single use?
2. Use the defined term every time
3. Multiple defined terms for a definition?
Guidelines for definitions
4. Alphabetical listing
5. Cross-refs to in-context definitions
6-7. Initial caps? (Either that or italics.)
Watch out for non-definitional use, e.g.,
Agreement versus agreement
8-11 “Means” or “refers to” versus
“includes” or “excludes”
Guidelines for definitions
12. Make defined terms intuitive, informative
13. Use adjectives if necessary – e.g.,
“Adjusted Balance”
14. Short and simple definitions better –
use to build more-complex definitions
if necessary
15. Orthogonality – one definition per clause
Guidelines for definitions
17, 19. Don’t simply restate the ordinary
meaning, or do a circular definition
18. Careful about mixing and matching
definitions and substantive provisions
20. Substantive provisions?
21. Careful about external definitions
In-context definitions
(Stark §§ 7.4 and 7.5.3)
Careful where to put the defined term
(Example: Stark pp. 76-77)
Better: Separate subparagraph
(Example: Stark pp 87 version 2)
Include a cross-ref in the Definitions &
Usages section
Usages (Stark § 7.6)
Explain to reader (i.e., judge) what’s
meant
Sections, exhibits, etc.
Including; examples
Person
Dollars
Exercise 7-4
. . . including, without limitation: … action of a
court or public authority, or work-to-rule action,
go-slow or similar labor difficulty, each on an
industry-wide, region-wide or nation-wide basis
or a strike on a region-wide or nation-wide basis.
Despite the provisions of the previous
sentence, a Force Majeure Event excludes a
strike on an industry-wide basis.
Exercise 7-5: What’s wrong?
From Stark App. A – definition of
Excluded Assets:
(iv) The Seller's books of account, but the
Seller agrees that it shall permit the Buyer
to inspect said books and make copies
thereof.
Exercise 7-6
Version 1
“Breach” means a misrepresentation, breach
of warranty, and breach of covenant.
Version 2
“Breach” includes any breach of warranty or
covenant.
Aircraft Purchase Agreement
AGREEMENT, dated as of September 18,
20XX by and among Supersonic Wings
Corp., a Delaware corporation, (the
"Seller") and Fly-by-Night Aviation, Inc., a
New York corporation having its principal
place of business at 987 East 48th Street,
New York, New York 12345 ("Buyer").
Preamble
WHEREAS, the Seller desires to sell to Buyer,
and Buyer desires to purchase from the Seller,
the Aircraft; and
WHEREAS, the Buyer hereby agrees to pay the
Seller $23,000,000 in immediately available
funds.
NOW, THEREFORE, in consideration of the
mutual promises herein set forth and subject to
the terms and conditions hereof, the parties
agree as follows:
1.1 Defined terms
1.1. Defined Terms. As used in this
Agreement, terms defined in the preamble and
recitals of this Agreement have the meanings set
forth therein, and the following terms have the
meanings set forth below:
"Agreement" means this Agreement of Sale and
all Schedules and Exhibits hereto, as the same
may be amended from time to time.
1.1 Defined terms
1.1. Defined Terms. As used in this
Agreement, terms defined in the preamble and
recitals of this Agreement have the meanings set
forth therein, and the following terms have the
meanings set forth below:
"Agreement" means this Agreement of Sale and
all Schedules and Exhibits hereto, as the same
may be amended from time to time.
"Aircraft" means the Airframe, equipped
with two Rolls-Royce Tay engines model
number MK611-8 bearing Serial Numbers
72725 and 72726, together with all
appliances, avionics, furnishings, and
other components, equipment, and
property incorporated in or otherwise
related to the Airframe or engines.
"Assigned Contracts" means the
Maintenance Agreement (as hereafter
defined) and the Pilot Agreement (as
hereafter defined).
"Assumed Liabilities" means,
collectively, all liabilities and obligations of
the Seller that arise under either (i) the
Maintenance Agreement on or after the
date hereof or (ii) the Pilot Agreement on
or after the date of the Closing.
"Aviation Fuel" means any gas or liquid
that is used to create power to propel an
aircraft. At the time of the Seller's delivery
of the Aircraft to Buyer, the fuel gauge of
the Aircraft shall register as full.
"Closing" means the closing of the sale of
the Aircraft contemplated by this
Agreement in New York, New York on the
Closing Date.
"Closing Date" has the meaning specified
in Section 2.4(a).
"Consent" shall mean any consent,
approval, authorization of, notice to, or
designation, registration, declaration or
filing with, any Person
"Contract" shall mean any contract,
lease, agreement, license, arrangement,
commitment or understanding to which the
Buyer or any Seller is a party or by which it
or any of its properties or assets may be
bound or affected.
"Maintenance Agreement" means that
certain Maintenance Agreement, dated as
of April 3, 20XX between Greasemonkeys,
Inc. and Seller, as the same may be
amended from time to time.
"Order": any judgment, award, order, writ,
injunction or decree issued by any Federal,
state, local or foreign authority, court, tribunal,
agency, or other governmental authority, or by
any arbitrator, to which any Seller or its assets
are subject, or to which the Buyer or its assets
are subject, as the case may be.
"Person" shall mean any individual,
partnership, joint venture, corporation,
trust, unincorporated organization,
government (and any department or
agency thereof) or other entity.
"Pilot Agreement" means that certain
Pilot Agreement between Seller and Ace
Pilots, Inc. dated as of May 12, 20XX, as
the same may be amended from time to
time.
Review: 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
Review:
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
http://bit.ly/9bPMbehttp://bit.ly/c3SUZh
Review – No reliance clause
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.
Coming up March 3:
Drafting and negotiating
real-estate transaction documents
Homework
Read: Ch. 8 – Action Sections
Skim: Appendix B, Website Development
Agreement) - §§ 2-5, 7-11.
Skim: Appendix C, Escrow Agreements
Do (graded): Ex. 8-3, versions 1 and 4
(do as Word markup / comments – a Word doc is
posted online)