Ch 20 Practical Contracts Flashcards
Creating A Contract
Do you need a written agreement at all?
there are times when an agreement should definitely be in writing:
1. The Statute of Frauds requires it.
2. The deal is crucial to your life or the life of your business.
3. The terms are complex.
4. You do not have an ongoing relationship of trust with the other party.
The Lawyer
(Lawyers and Clients, Hiring a Lawyer)
[Lawyers and Clients]
-For this reason, lawyers are trained to be pessimists—they try to foresee and protect against everything that can possibly go wrong.
-Lawyers also 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
-One advantage of using lawyers to conduct these negotiations is that they can serve as the bad guys.
[Hiring a Lawyer]
If you do hire a lawyer, be aware of certain warning signs. Although the lawyer’s goal is to protect you, a good attorney should be a dealmaker, not a deal-breaker.
Who Drafts the Contract?
Generally, both sides would prefer to control the pen (i.e., to do the actual writing) because the drafter has the opportunity to choose a structure and wording that best represents his interests.
-Typically, the party with the most bargaining power prepares the drafts.
How to Read a Contract
Reading a contract is not like cracking open a novel. Instead, it should be a focused, multi-step process:
* Pre-reading
* The first read
* What-Ifs
* The second read
Mistakes
(Vagueness, Ambiguity, Typos, Preventnig Mistakes)
[Vagueness] :
The parties to a contract deliberately include a provision that is unclear.
-Vagueness is your enemy.
-The true test of whether a vague clause belongs in a contract is this: Would you sign the contract if you knew that the other side’s interpretation might win in court?
[Ambiguity] :
When a provision in a contract is unclear by accident.
-If a contract does contain an ambiguous provision, the courts interpret it against the drafter of the contract.
This rule is meant to:
1. Protect people from the dangers of form contracts that they have little power to change.
2. Protect people who are unlikely to be represented by a lawyer. Most people do not hire a lawyer to read form contracts such as leases or insurance policies. And without an experienced lawyer, it is highly unlikely that an individual would be aware of ambiguities.
3. Encourage those who prepare contracts to do so carefully.
[Typos]
scrivener’s error: A typo
-In the case of a scrivener’s error, a court will reform a contract if there is clear and convincing evidence that the alleged mistake does not actually reflect the true intent of the parties.
[Preventing Mistakes]
-Let your lawyer draft the contract. as a general rule.
-Resist overlawyering.
-Read the important terms carefully.
When your lawyer presents you with a written contract, you should follow these rules:
1. Complain if your lawyer gives you a contract with provisions that are irrelevant to your situation.
2. If you do not know what a provision means, ask. If you still do not know (or if your lawyer does not know), ask him to take it out. Lawyers rarely draft from scratch; they tend to use other contracts as templates. Just because a provision was in another agreement does not mean that it is appropriate for you.
3. Remember that a contract is also a reference document. During the course of your relationship with the other party, you may need to refer to the contract regularly. That will be difficult if you do not understand portions of it, or if the contract is so disorganized you cannot find a provision when you need it.
Terms That Vary by Contract
(Title, Introcutory Paragraph, Definitions, Covenants, Represenatations and Warranties)
[Title]
-The title should be as descriptive as possible—a generic title such as AGREEMENT. Much better to title it EMPLOYMENT AGREEMENT or CONFIDENTIALITY AGREEMENT.
[Introductory Paragraph]
-The introductory paragraph includes the date, the names of the parties, and the nature of the contract.
-The introductory paragraph must also include specific language indicating that the parties entered into an agreement.
[Definitions]
[Covenants]
Covenant: A promise in a contract
(Language of the Covenants.)
(Breach)
-To constitute a violation of the contract, the breach must be material.
* Material breach: A violation of a contract that defeats an essential purpose of the agreement.
(Good Faith)
* Reasonably: Ordinary or usual under the circumstances
* Good Faith: An honest effort to meet both the spirit and letter of the contract.
* Sole Discretion: The absolute right to make any decision on an issue
(Reciprocal Promises and Conditions.)
* Reciprocal promises: Promises that are each enforceable independently.
* Conditional: Promises that a party agrees to perform only if the other side also does what it promised.
[Representations and Warranties]
-Covenants are the promises the parties make about what they will do in the future. Representations and warranties are statements of fact about the past or present;
* Representations and warranties: Statements of fact about the past or present
Boilerplate
(Choice of Law and Forum, Modification, Assignment of Rights and Delegation of Duties, Arbitration, Attorneys’ Fees, Integration, Severability, Force Majeure, Notices, Closing)
[Choice of Law and Forum]
* Choice of law provisions: Determine which state’s laws will be used to interpret the contract
* Choice of forum provisions: Determine the state in which any litigation would take place
[Modification]
* rider: An amendment or addition to a contract
-If a contract has a provision requiring that amendments be in writing, there are three ways to amend it:
1. Signing an amendment (or rider).
2. Crossing out the wrong language and replacing it by hand with the correct terms. It is good practice for both parties to initial such changes. This method is typically used at the last minute, say if a mistake is first noticed at the closing.
3. Rewriting the entire contract to include the changed provisions. In this case, the contract is typically renamed: The Amended and Restated Agreement. This method is most appropriate if there are many complex alterations.
[Assignment of Rights and Delegation of Duties]
* assignment of rights: A transfer of benefits under a contract
* Delegation of duties: A transfer of obligations under a contract
[Arbitration]
[Attorney’s Fees]
[Integration]
[Severability]
-a severability provision asks the court simply to delete the offending clause and enforce the rest of the contract
[Froce Majeure]
* 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.
[Notices]
[Closing]
