Contract DraftingClass 4 University of Houston Law Center D. C. Toedt III
Exercise 18-3: Legalese No later than 90 days after the end of each fiscal year, the Borrower shall provide the Bank a copy of the Borrower’s year-end financial statements. Such financial statements shall be certified by the Borrower’s chief financial officer to fairly present the financial condition of the Borrower.
Exercise 18-3: Legalese No later than 90 days after the end of each fiscal year, the Borrower will provide the Bank with a copy of its [?] year-end financial state-ments, certified by the Bor-rower’s chief financial officer as fairly presenting the Borrower’s financial condition. No later than 90 days after the end of each fiscal year, the Borrower shall provide the Bank a copy of the Borrower’s year-end financial statements. Such financial statements shall be certified by the Borrower’s chief financial officer to fairly present the financial condition of the Borrower.
Exercise 18-4: Legalese Except as herein to the contrary providedotherwise provided in this Agreement, each party releases, remises and forever dischargesthe other party from any and all actions, suits litigations, debts, claims, and obligations whatsoever, both in law and equity, that either of them ever had, now has, or may hereaftersubsequently have, against the other by reason of any matter, cause, or thing for any reasonto[through] [to but not including] [to but excluding] the date of the execution of this Agreement [this Agreement’s execution].
Exercise 18-5: Legalese In the event of the failure of If the Borrower aforesaid fails to comply with the terms any term of the aforementioned Note, the undersigned Guarantor waives [notice of acceptance of this Guaranty, diligence, presentment, notice of dishonor, demand for payment, any and all notices] of whatever kind or nature, and the exhaustion of legal remedies available to the Note’s holder.
“Texas” rule on atty. fees Tex. Civ. Prac. & Rem. Code § 38.001 Who can recover? Prerequisites?
Arele Partners v. Gunnerman Procedural history Evidentiary standard for fraud. intent Measure of damages 5th Cir. majority opinion focus Higginbotham – motive for dissent? Lessons
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
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
Discovery issues for eitherwarranty or misrep. claim • True value of asset sold • Inspections • Comparables • Expert testimony • Alt: Repair costs • Estimates • Expert testimony
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
Negotiating risk allocation (Stark pp. 17-19) • See Stark’s examples • Flat representation • Unequivocal • Without wiggle room • Qualified representation • Hedged
Review: Pros and cons of reps and warranties • Representation • Not strict liability – must also prove scienter (intent or recklessness), plus justified reliance • “As of” date • Punitive damages, rescission • Burden of discovery, pre-trial motion practice • Warranty • Strict liability – scienter & reliance not relevant • Can survive for months / years (to be discussed later in the course) • Fewer hassles with discovery, pre-trial motions
Interplay of Contract Concepts • Rep and Warranty • The car is red. • Covenant • Seller shall not paint the car. • Condition • Seller must have complied with all covenants.