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Contract Drafting Class 3

Contract Drafting Class 3

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Contract Drafting Class 3

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  1. Contract DraftingClass 3 University of Houston Law Center D. C. Toedt III

  2. In the news …. § 3.4 OPTION TO EXTEND: … [T]his Lease [will be] extended on the same terms and conditions set forth herein, except that . . . (ii) no Rent concessions, abatements, lease buyouts, tenant allowances or limitations on tax or expense pass-throughs granted with respect to the Lease Term hereof shall be applicable to any Option Period ….

  3. Other provisions: § 5.3 Percentage rent [INTENTIONALLY OMITTED] § 6.4 Tenant share of landlord operating costs [INTENTIONALLY OMITTED] § 13.2 Tenant contribution to promotion & marketing fund [INTENTIONALLY OMITTED]

  4. SAME QUESTION: Does AMC have the right to extend the lease on the same terms? Probably Probably not Unclear

  5. SAME QUESTION: Camelot LLC v. AMC ShowPlace Theatres, Inc., No. 11-1767 (8th Cir. Jan. 18, 2012) Does AMC have the right to extend the lease on the same terms? No - AMC must negotiate

  6. Court’s rationale: The “intentionally omitted” provisions were “Rent concessions,” etc. (!) During extension, those “concessions” must be “unconceded” → indeterminate Minnesota law: “Renewal” must be negotiated

  7. Redraft ? § 5.3 Percentage rent[INTENTIONALLY OMITTED] § 6.4 Tenant share of landlord operating costs [INTENTIONALLY OMITTED]

  8. Redraft ? § 3.4 OPTION TO EXTEND: … [T]his Lease [will be] extended on the same terms and conditions set forth herein. , except that . . . (ii) no Rent concessions, abatements, lease buyouts, tenant allowances or limitations on tax or expense pass-throughs granted with respect to the Lease Term hereof shall be applicable to any Option Period ….

  9. Redraft ? REDRAFT POSSIBILITY: § 3.4 OPTION TO EXTEND: … [T]his Lease [will be] ex-tended on the same terms and conditions set forth herein ….

  10. What do clients - and partners - want?

  11. 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.

  12. 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.

  13. Signature dating Big Public Software Company hypothetical Questions: Backdate signatures? Reason(s) for backdating?

  14. Computer Associates Sanjay Kumar - what happened to him, and why? Steven Woghin?

  15. Exercise: Electronic signatures

  16. Question: Statute of frauds defense because of lack of handwritten signature?

  17. E-SIGN -- 15 USC § 7001 Notwithstanding any statute, regulation, or other rule of law (other than this subchapter and subchapter II of this chapter), with respect to any transaction in or affecting interstate or foreign commerce— (1) a signature, contract, or other record relating to such transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form; and (2) a contract relating to such transaction may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its formation.

  18. Tex. Bus. & Comm. Code § 322.007 (a) A record or signature may not be denied legal effect or enforceability solely because it is in electronic form. (b)AAA contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.

  19. Question: Handwritten “pre-signature” needed to show consent to e-signatures?

  20. Tex. Bus. & Comm. Code § 322.005 (b) This chapter applies only to transactions between parties each of which has agreed to conduct transactions by electronic means. Whether the parties agree to conduct a transaction by electronic means is determined from the context and surrounding circumstances, including the parties ’ conduct.

  21. Question: Record retention – hard copies needed?

  22. Tex. Bus. & Comm. Code § 322.012 (a) If a law requires that a record be retained, the requirement is satisfied by retaining an electronic record of the information in the record which: (1) accurately reflects the information set forth in the record after it was first generated in its final form as an electronic record or otherwise; and (2) remains accessible for later reference.

  23. Post-signature changes FACTS: Contract is “signed, sealed, delivered” Oops – exhibit has a mistake What to do?

  24. Post-signature changes • Sept. 2010: Lawyer for Dodgers’ owner changes exhibit to prenup, after it’s been signed, but didn’t tell the parties • Exclusive  inclusive • Represented H and W Link to LA Times story

  25. Notarization

  26. End of class

  27. 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].

  28. 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.

  29. “Texas” rule on atty. fees Tex. Civ. Prac. & Rem. Code § 38.001 Who can recover? Prerequisites?

  30. Arele Partners v. Gunnerman Procedural history Evidentiary standard for fraud. intent Measure of damages 5th Cir. majority opinion focus Higginbotham – motive for dissent? Lessons

  31. Legalese (Stark ch. 18)

  32. Reps and warranties (Stark ch. 3)

  33. 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

  34. 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

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

  36. 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

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

  38. 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

  39. 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.

  40. General provisions