Chapter 20: Practical Contracts

What are the three ways to amend a contract that has a provision requiring that amendments be in writing?

Signing an amendment; crossing out language and replacing by hand with the correct terms (it is good practice for both parties to initial such changes); rewriting the entire contract to include the changed provisions

Pre-reading

Spend time thinking about the provisions that are important to you

Representations and warranties

Statements of fact about the past or present

Sole discretion

The absolute right to make any decision on an issue

If a contract does contain an ambiguous provision, how does the court interpret it?

The courts interpret it against the drafter of the contract

What should the introductory paragraph include?

The date, the names of the parties, and the nature of the contract, and specific language indicating that the parties entered into an agreement

Force majeure event

A disruptive, unexpected occurrence for which neither party is to blame that prevents one or both parties from complying with a contract

Covenant

A promise in a contract

Assignment of rights

A transfer of benefits under a contract

Delegation of duties

A transfer of obligations under a contract

Srivener's error

A typo

Material breach

A violation of a contract that defeats an essential purpose of the agreement

Rider

An amendment or addition to a contract

Good faith

An honest effort to meet both the spirit and letter of the contract

When do lawyers prefer to negotiate touchy subjects?

At the beginning of a relationship, when everyone is on friendly terms and eager to make a deal, rather than waiting until trouble strikes

What does a severability provision ask?

For the court to simply delete the offending clause and enforce the rest of the contract

In the cases of an ambiguous provision, why does the court interpret the provision against the drafter of the contract?

Protect people from the dangers of form contracts that they have little power to change; protect people who are unlikely to be represented by a lawyer; encourage those who prepare contracts to do so carefully

The first read

Read through once, to just get the basic idea of the contract - its structure and major provisions

Reciprocal promises

Promises that are enforceable independently

What is one advantage of using lawyers to conduct negotiations?

They can serve as the bad guy, the person that prevents the deal from being made

Why are lawyers trained to be pessimists?

They try to foresee and protect against everything that can possibly go wrong

What-ifs

Think about the various outcomes, good and bad

Boilerplate

Creates a private law that governs disputes between the parties

Choice of forum provisions

Determine the state in which any litigation would take place

Choice of law provisions

Determine which state's laws will be used to interpret the contract

In the case of a scrivener's error, when will a court reform a contract?

If there is a clear and convincing evidence that the alleged mistake does not actually reflect the true intent of the parties

When do contracts need to be in writing?

It is required by the Statute of Frauds; the deal is crucial to your life or the life of your business; the terms are complex; you do not have an ongoing relationship of trust with the other party

What are the steps to preventing mistakes in the contract?

Let your lawyers draft the contract; resist overlawyering; read the important terms carefully

The second read

Make sure the contracts handle the what-ifs in a satisfactory manner

What must a breach be to constitute a violation of the contract?

Material

Reasonably

Ordinary or usual under the circumstances

Steps to reading a contract

Pre-reading; the first read; what-ifs; the second read

Conditional promises

Promises that a party agrees to perform only if the other side also does what it promised

Vagueness

The parties to a contract deliberately include a provision that is unclear

What is the point of an integration clause?

To prevent either side from later claiming that the two parties had agreed to additional provisions

What are the three kinds of mistakes?

Vagueness; ambiguity; scrivener's error

Ambiguity

When a provision in a contract is unclear by accident

Can one state's courts apply another state's laws?

Yes

Should the title of a contract be as descriptive as possible?

Yes