Contract Drafting Quiz 2
Identify Severability Provision
"If any provision of this Agreement is illegal or unenforceable, that provision is severed from this Agreement and the other provisions remain in force."
Identify Governing Law provision
"The laws of [insert state name] (without giving effect to its conflicts of law principles) govern all matters arising under and relating to this Agreement, including torts."
Identify Merger Provisions
"This Agreement constitutes the final, exclusive agreement between the parties on the matters contained in this Agreement. All earlier and contemporaneous negotiations and agreements between the parties on the matters contained in this Agreement are expressly merged into and superseded by this Agreement."
Materiality
-vague term requiring facts and circumstances test -what may be material in one context may not be material in another -generally, something may be material if it would affect a persons decision. -in essence, a materiality qualification means that the parties will not nitpick
Governing Law
provision (aka choice of law) establishes the law that governs a dispute arising from an agreement.
Limited Liability Company
-LLCs may be managed by their members or by managers -signature block must reflect who manages the LLC. Example: Sweat & Toil, LLC By: ____________________________ Elizabeth N. Workhorse, Member
Merger
(aka integration provision or zipper clause) -merger provisions are the best way to ensure that parol evidence cannot be used to supplement the contract -when drafting merger, describe agreement as final and exclusive to signal that the parties intend the agreement to be fully integrated. (writing thats both final and exclusive expression of parties agreement is fully integrated. then not even evidence of an additional, consistent term is admissible) -absent mergers, courts will examine all relevant facts and circumstances to determine whether it is a final and exclusive expression of the parties agreement.
Deliver
-In a notice provision -risk of nonreceipt should be on the sender. to do so, notice must be effective only on its receipt. -provision should state the modes by which a party may give notice. typically permits notices to be given by fax, in-person, overnight courier, certified, or registered mail. ---these forms of delivery allows sender to track whether other party received the notice or sender can request a return receipt. -delivery by email is more common now. additional points to consider when drafting a notice provision: -is delivery of the notice a covenant or condition or both? -if a copy of a notice is to be sent to a person other than a party, is that partys receipt required for the notice to be effect? -should the addressee be a specific person or corporate title of the person in charge of the transaction? -what accommodation, if any, needs to be made for international deliveries?
Vague
-NOT the same as ambiguity. -a word or phrase is vague if its meaning varies depending on the context or if its parameters are not plainly delineated. -for example, "Blue" is vague. it could be anything from a pale, robins egg to midnight blue. One blue shades into the next. -language can be ambiguous without being vague. and language can be vague without being ambiguous.
Equitable Relief
-P is seeking that the court compels the D to perform a certain act or refrain from a certain act. i.e., specific performance -(if breach is so material that it is a breach of the whole contract that cannot be cured, then a party may have a right to cancel as well as other remedies)
Successor and Assign
-Successors and assigns provision deals with the consequences of an assignment and delegation -when a party assigns its right under a contract to a third party. but an assignment confers only the benefits of the rights being assigned, not any performance obligations. -draft the provision that says exactly what the parties intend. --by clarifying parties obligations under an assignment and expressly stating that a delegation occurs concurrently with assignment, this proposed provision better serves the purpose of the successors and assigns provision
Series
-a series refers to three or more items in a sentence joined by AND or OR -but tabulating a sentence just because it has a compound or series is inappropriate. length and complexity are also considerations.
Choice of Law
-aka governing law provision -establishes the law that governs a dispute arising from an agreement. -courts enforce these provisions unless the chosen state has no substantial relationship to the parties or transaction or the application of the law would violate the public policy of a state with a greater interest -in its absence, common law conflicts of law principles govern. in that event, the governing law is that of the state with the most significant relationship to the transaction. -also include choice of forum provision that chooses a forum in the state whose law will govern. -when choosing which states law should govern, consider factors such as; whether the law of the jurisdiction is well developed and predictable, whether particular body of state law is hostile or friendly to the type of client (and subject matter) being represented.
Ambiguous
-ambiguity arises when a provision can be interpreted in two or more mutually exclusive ways. Types of ambiguity: 1. Semantic ambiguity: arises because a word has multiple dictionary meanings. ex., US or Canadian dollars? 2. syntactic ambiguity: occurs when it is unclear what a word or phrase refers to or modifies. ex., "The Sellers shall sell their Shares to the Buyer." unclear whether each Seller is obligated to sell its Shares to the Buyer, or whether the Sellers are obligated to sell their jointly owned Shares to the Buyer. 3. contextual ambiguity: occurs when two provisions are inconsistent. The two provisions can be in the same or different agreements.
INTENTIONALLY LEFT BLANK
-antifraud mechanism -stand alone signature pages can be helpful logistically,, they also create possibility of fraud: a nefarious person could attach them to a different document. -if all parties can attend a signing, format the agreement so that the signature lines are on the same page as the final provisions or at least begin on that page. -if the signature lines naturally fall on a separate page, stop the text of the agreement about half way down the previous page, space down several lines and insert in bold letters "INTENTIONALLY LEFT BLANK" or draw an X through the blank space. then, on the following page of the agreement, conclude the text of the agreement and add the signature lines.
Side note: Assignment and delegation provision
-assignment and delegation provision is one of the general provisions that you will tailor most often. when you do, remember must deal with both assignments and delegations, not just assignments -an assignment is a transfer of those rights to a third party -ex., leslie has an obligation to pay Ibraham $100, Ibraham has a right to be paid $100, and he may transfer that right to Mark. Ibrahim is the assignor, Mark is the assignee, and leslie is the non assigning party. --once Ibrahim assigns his rights, he not longer has a right to leslies performance. now mark has that right and leslie has a duty to perform in his favor. -but not the arrow goes in only one direction. Mark has no duty to perform in favor of leslie as Ibrahim did not delegate his performance contemporaneously with the assignment-which leads us neatly to delegations. Delegations: a party delegates its performance when it appoints someone else to perform in its stead
Discretionary Authority
-gives its holder a choice or permission to act -the holder may exercise that authority but is not required to do so. -once it does, the other party is bound by the holders decision -a person who has discretionary authority is sometimes said to have a privilege -this is contractual discretionary authority. parties negotiated and agreed that one or both have a choice under specific facts
Compound
-if deciding whether to break down one sentence into a tabulated format, any sentence with a compound or a series is a candidate. -for these purposes, a compound refers to two items in a sentenced joined by AND or OR.
Limited Partnership
-if general partner is a corporation, then you must add an additional later to the signature block. the sig block must reflect that the partnership is acting through its general partner, a corporation, which is acting through its officer. some drafters reflect the relative relationship between the partnership and the corporate partner by indenting the information 5 spaces with respect to the corporate officer: Sweat & Toil LP, a limited partnership By: Sweat Inc., General Partner By: _______________________________ Elizabeth N. Workhouse, Vice President
Endgame
-in general, a lawyer should consider 6 points when drafting endgame provisions: 1. the termination events (or the events triggering a contractual remedy), 2. the contractual consequences (both monetary and nonmonetary) of receipt of the termination notice, 3. the date the contract terminates, which may depend on the type of termination event and its contractual consequences, 4. whether common law rights survive, 5. whether any specific contract provisions survive, 6. dispute resolution provisions. -Endgame provisions include default, remedy, termination provisions, exit strategies for the venture capitalist, provisions that tie up loose ends in successful transactions, contractual remedy provisions that directly address a specific problem that the parties anticipated during negotiations
Friendly Termination
-results from the successful consummation of a transaction, completion of a project, or the conclusion of a multi-year term relationship; parties close an acquisition, the developer completes the website, or a lease term ends.
Signature Block
-signature blocks are typically placed on the right half of a page, one above the other if more than one person is signing. -parties must be consistent through the contract. signature block must reflect the person signing is acting in a representative capacity (corporations), etc. -drafter must make sure that the signature lines are correct if the parties want a written contract to memorialize their contract and intend that signatures evidence their agreement
Severability
-the purpose of severability provision is to express the parties intent that. a court will enforce the valid provisions of a contract, even if it finds a provision to be illegal or unenforceable. -courts will not enforce obligations arising out of illegal agreements. a contract that contains one illegal provision may also contain legal, enforceable provisions. in this situation, a refusal to enforce the entire contract might be harsh so courts often strike the offending provisions, allowing the rest of the agreement to stay in force
Provision
-typical provisions include amendment, governing law, severability, and waiver of jury trial -provisions supply a roadmap, telling the parties how to govern their relationship and administer the contract
Proviso
-used for three purposes: 1. to state a condition. 2. to state an exception to a rule. 3. to add additional material. -can cause ambiguity -ex., Proviso as a condition "Change Order. the owner may change the bathroom tile, provided that the new tile does not cost more than the original tile." (WRONG) "Change Order. The owner may change the bathroom tile, if the new tile does not cost more than the original tile." (CORRECT)
