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