Contract DraftingClass 3

University of Houston Law Center

D. C. Toedt III

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 ….

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]

SAME QUESTION:

Does AMC have the right to extend the lease

on the same terms?

Probably Probably not Unclear

SAME QUESTION:

Does AMC have the right to extend the

lease on the same terms?

No - AMC must negotiate

Camelot LLC v. AMC ShowPlace Theatres, Inc., No. 11-1767 (8th Cir. Jan. 18, 2012)

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

Redraft ?

§ 5.3 Percentage rent [INTENTIONALLY OMITTED]

§ 6.4 Tenant share of landlord operating costs [INTENTIONALLY OMITTED]

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 ….

Redraft ?

REDRAFT POSSIBILITY:

§ 3.4 OPTION TO EXTEND: … [T]his Lease [will be] ex-

tended on the same terms and conditions set forth herein ….

WHAT DO CLIENTS - AND PARTNERS - WANT?

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 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.

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.

Signature dating

Big Public Software Company hypothetical Questions:

1. Backdate signatures?

2. Reason(s) for backdating?

Computer Associates

Sanjay Kumar - what happened to him, and why?

Steven Woghin?

Exercise: Electronic signatures

Question:

Statute of frauds defense because of lack of handwritten signature?

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.

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.

Question:

Handwritten “pre-signature” needed to show consent to e-signatures?

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.

Question:

Record retention – hard copies needed?

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.

Post-signature changes

FACTS: Contract is “signed, sealed, delivered” Oops – exhibit has a mistake What to do?

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

Notarization

End of class

Exercise 18-4: Legalese Except as herein to the contrary provided otherwise

provided in this Agreement, each party releases, remises and forever discharges the 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 hereafter subsequently have, against the other by reason of any matter, cause, or thing for any reason to[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

Legalese (Stark ch. 18)

Reps and warranties (Stark ch. 3)

Trade-offs: Representations versus Warranties

Representations

AvoidancePunitive damages

Warranties

No reliance component

Benefit of the bargain damages

No need to prove defendant’s scienter

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 justifiedBUT: Warranty claim succeeded

Parties settled after appellate holding

Discovery issues for eitherwarranty or misrep. claim

True value of asset sold InspectionsComparablesExpert testimony

Alt: Repair costsEstimatesExpert testimony

Extra discovery issuesfor misrepresentations

Standard of care (negligence claims):Past deals, practices, problems – interrog.,

document production, depositionsExpert 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 WarrantyThe car is red.

CovenantSeller shall not paint the car.

ConditionSeller must have complied with all covenants.

General provisions