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)

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

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)