March 9, 2010 Negotiating Around the Duty of Good Faith

In this May 2007 blog post I mentioned the dispute between Crusader Entertainment and schlockmeister Clive Cussler. In this post, the ContractsProf Blog provides the latest installment in this gripping saga—an opinion by a California appellate court.
Here’s the bit that caught my eye:
On the key issue in the appeal, the court found that Cussler had [...]

March 9, 2010 Adding General Terms to a Stand-Alone Purchase Order

My recent post on stand-alone purchase orders prompted a related thought:
When you issue a stand-alone purchase order (in other words, one not issued under a master contract), you could incorporate the general terms (in other words, everything that doesn’t relate to deal-specific matters such as product and price) in different ways. You could include them [...]

March 3, 2010 Comparing General Terms in a Master Contract and General Terms in a Stand-Alone Purchase Order

I received the following inquiry from a reader:
As you know, goods or services can be purchased by means of purchase orders issued under a master contract or by POs that aren’t issued under a master contract—I’ll refer to the latter as “stand-alone” POs. They can be issued for one-off purchases or on a regular basis [...]

March 2, 2010 Follow-Up on Consequential Damages

After chewing over the comments to this post on excluding consequential damages, I’m left with the following thoughts:

I remain of the view that putting a cap on damages is the simplest and least contentious way to limit damages. And it can make excluding certain kinds of damages less relevant, or even entirely irrelevant. Whether a [...]

February 15, 2010 Excluding Consequential Damages Is a Bad Idea

[For a follow-up to this post, see this March 2, 2010 blog post.]
I have in front of me a contract—it’s for the sale of goods—that contains the following provision excluding certain kinds of damages:
Neither party will be responsible or held liable for any consequential, special, or incidental losses or damages.
You can rely on sellers asking [...]

January 12, 2010 Disclaiming the Warranty of Title in Sales of Goods

Rarely do I have occasion to offer thoughts on drafting under article 2 of the Uniform Commercial Code, which applies to sales of goods.
Here are two warranty disclaimers from some equipment purchase agreements I’ve been reviewing:
NO OTHER WARRANTY TO CUSTOMER FROM SELLER IS EXPRESS OR IMPLIED. SELLER SPECIFICALLY DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY AND [...]

October 25, 2009 Assigning Future Rights

I find that the notion of categories of contract language (considered in detail in chapter 2 of MSCD) often provides a useful framework for analyzing substantive drafting issues.
Take an issue I was asked about twice recently, once at the ACC annual meeting, once by one of my Penn Law students. It’s routine for contract provisions [...]

August 30, 2009 My Version of the AAA Standard Arbitration Clause

[Revised Aug. 30 7:20 p.m. EDT to reflect comments by Mark and Richard; revised further Oct. 18 with respect to "arising out of and relating to," as discussed in this post.]
Here’s the standard arbitration clause recommended by the American Arbitration Association, as stated in the AAA commercial arbitration rules (free registration required):
Any controversy or claim arising out of or [...]

August 27, 2009 When to Provide for Indemnification

Now that my summer is officially over …
I suspect that many drafters think that an indemnification section should appear in contracts as a matter of course, much like a governing-law provision. But before you include an indemnification section, consider the pros and cons.
Indemnification Can Benefit a Party Bringing a Claim
Bring In Deep Pockets. If the [...]

June 12, 2009 Addresses That Aren’t So Dependable

In contracts, addresses occur in the notices provision. And if a contract doesn’t include a notices provision, usually I’ll include in the introductory clause the address of any individual that’s a party, so as to distinguish that individual from anyone else with the same name; see MSCD 1.49.
But some addresses are more dependable than others. [...]

June 5, 2009 A Recent English Commercial-Law Decision on Waiver Language

This Mace & Jones “Education Update” alerted me to the recent English case of KG Bominflot Bunkergesellschaft fur Mineralole MBH & Co KG v Petroplus Marketing AG (2009).
Here’s the gist of it: The buyers purchased from the sellers fuel oil that tested OK before shipping but was found to be unsatisfactory on arrival. The buyers [...]

May 11, 2009 Redundancy in Governing-Law Provisions

[You might also want to read this September 2009 post in which I refine my thinking on "arising out of" and "relating to".]
A Canadian law firm recently shared with me its draft “boilerplate” template. On reading it, I saw that the law firm recommends that its lawyers use the following language in any governing-law provisions (I’ve [...]

April 3, 2009 Providing for Notice by Email (Including Information About RPost)

Not satisfied with having prompted my recent foray into fax terminology, reader David Baghdassarian posted to that item the following comment on providing for notice by email:
As for email notices, the problem I have is that there is too much room for an email to inadvertently be deleted or overlooked, email server to crash, email [...]

March 5, 2009 Addressing All Eventualities in Contract Procedures

A recent Texas case, XTO Energy, Inc. v. Smith Production, Inc., 2009 WL 442003, No. 14-07-00069-CV (Tex. App. Hous., Feb. 24, 2009), shows why it’s a good idea to be excruciatingly comprehensive when specifying in a contract the procedures to be followed when the parties make important decisions.
Appellee Smith was an operator under two joint [...]

February 4, 2009 When the Parties Know That an Obligation Can’t Be Performed

Included in the extensive comments to my recent post “Language Requiring Deletion of Electronic Files” is a comment by Michael Fleming to the effect that it’s appropriate to impose on a party receiving confidential information an obligation to destroy all electronic versions of that information, regardless of whether that’s in fact possible to do. Michael [...]

January 16, 2009 Language Requiring Deletion of Electronic Files

I received the following inquiry from Sarita Nair of the New Mexico law firm Sutin, Thayer & Browne:
I am struggling to find a concise way to limit an obligation to delete electronic records.
As you know, many contracts and letters of intent contain an obligation to destroy documents if a commercial relationship ends. In recent years, [...]

January 6, 2009 Using Parentheses Instead of “Respectively”

In MSCD 12.328, I say that respectively serves to indicate that each item in a list earlier in a sentence is to be paired with its counterpart in a list that follows and contains an equal number of items, as in The first and second prizes went to Marie and Frank, respectively.
But in a recent [...]

August 18, 2008 Granting Language in a Software License Agreement

Here’s a generic bit of granting language from a software license agreement:
Acme hereby grants Widgetco a nonexclusive, perpetual, irrevocable, royalty-free, fully paid-up, worldwide license to the Software (that license, the “License“).
I’m not a licensing guy, so it is with some trepidation that I ask the following question: Are such adjective-heavy formulations really the best alternative?
As [...]

July 29, 2008 Whether to Refer to the Possibility of Dispute Over an Invoice

Eric Goldman recently sent me the following inquiry:
A typical vendor’s contract will say something like “Customer shall pay invoiced amounts within 30 days of invoicing.” With some frequency, customers have been marking up this language to read: “Customer shall pay *UNDISPUTED* invoiced amounts within 30 days of invoicing.” From a vendor’s perspective, I think the [...]

July 23, 2008 New Article on Consequential Damages

The May 2008 issue of The Business Lawyer contains a great article by Glenn D. West and Sara G. Duran of Weil Gotshal entitled “Reassessing the ‘Consequences’ of Consequential Damage Waivers in Acquisition Agreements.” Click here for a copy.
Here’s the abstract:
Consequential damage waivers are a frequent part of merger and acquisition agreements involving private company [...]

July 23, 2008 Article on Clumsy Drafting of an Earnout Provision

A common feature of M&A contracts is the “earnout” provision—a provision that specifies that the purchase price will be increased if the business being acquired meets, post-closing, stated financial-performance targets.
If you’re interested in earnout provisions, of if you’d just like to see yet one more example of how lackadaisical drafting can result in litigation, you might [...]

May 21, 2008 The Duration of Confidentiality Agreements

Reader David recently posed the following question:
I have a question for you that has bugged me for several years. From time to time, my company shares company-related information with a third party and, before doing so, enters into a confidentiality agreement (CA) [also known as a nondisclosure agreement—KAA] with the third party. Our CA has [...]

April 29, 2008 Rethinking Waiver Provisions

Here’s a standard waiver provision:
Waiver. No provision in this agreement may be waived, except by means of a writing signed by the party against whom the waiver is sought to be enforced.
I find such provisions very odd.
Let’s start by considering what a waiver is. There are two kinds of waiver:
First, a contract might specify that [...]

April 29, 2008 Waiver of the Statute of Limitations in “Survival” Provisions

In this July 2006 post I said that although it’s standard to refer to “survival” of representations, it’s unhelpful to do so. I quoted language that I find much clearer.
Well, it would seem that both the traditional language and my preferred language were found wanting in a 2007 case applying California law that I saw [...]

October 21, 2007 Covering the Bases in a Forum-Selection Provision

A cautious drafter would be advised to include in a comprehensive forum-selection provision elements that might seem redundant. Here’s why:
An agreement could provide for either permissive (also know as non-exclusive) jurisdiction or mandatory (also know as exclusive) jurisdiction. The following language provides for permissive jurisdiction:
Any party commencing against the other party any legal proceeding (including [...]

May 28, 2007 Using “Parties” as a Defined Term

Regarding use of the word parties as a defined term, MSCD 2.42 says the following:
[D]o not use the defined term the Parties. It ostensibly spares the drafter from having to refer throughout a contract to the parties to this agreement, but one can simply refer to the parties, because such a reference could not conceivably [...]

April 17, 2007 The U.K. Approach to “Representations” and “Warranties”

Via the InHouse Blog I learned of a briefing paper written by Leon N. Ferera, John R. Phillips, John Runnicles, and Jeffery D. Schwartz of Jones Day entitled “Some Differences in Law and Practice Between U.K. and U.S. Stock Purchase Agreements.”
It touches on various subjects of interest to me, but what caught my eye in [...]

February 12, 2007 Superfluous Provisions

A reader recently sent me the following email:
I’d appreciate your comments on an issue that’s been plaguing me off and on. I often see contracts with a fixed term. This works for a lease or license or a funding agreement where government agrees to provide funding to an entity for a specific period. At the [...]

November 16, 2006 New Article on Pre-closing Knowledge of Inaccurate Representations

The November 6, 2006, issue of the National Law Journal contains my article on pre-closing knowledge of inaccurate representations. Go here for a copy. I apologize for the small print.
I had given it the title “M&A Contracts: Addressing Pre-closing Knowledge of Inaccurate Representations,” but of course that wasn’t catchy enough for the editorial staff, who [...]

September 18, 2006 Getting Rid of the “Successors and Assigns” Provision

A standard ingredient of contract boilerplate is the “successors and assigns” provision. Here’s what a run-of-the-mill successors and assigns provision looks like:
This agreement is binding upon, and inures to the benefit of, the parties and their respective permitted successors and assigns.
I’ve long considered the successors and assigns provision to be one of the abiding mysteries [...]

August 7, 2006 The Bankruptcy Code’s Effect on a Drafter’s Ability to Restrict Assignment and Provide for Termination on Bankruptcy

Drafters should be aware of laws that can trump provisions of a given contract.
A good example of this is the way the U.S. Bankruptcy Code can render unenforceable contract provisions that restrict assignment of rights under a contract or give a party the right to terminate if the other party files for bankruptcy.
To improve my [...]

July 9, 2006 “Survival”

I’ve recently been thinking about the concept of “survival.” It crops up in contracts in three ways, and in each of those contexts it’s either unnecessary or inferior to an alternative approach. I discuss each of these three contexts below.
Survival of Claims
Sometimes an agreement will specify that any claims that arise before an agreement terminates [...]

June 25, 2006 Pre-closing Knowledge of Inaccurate Representations

This weekend, I decided to explore the implications of the Buyer knowing, pre-closing, that a Seller representation is inaccurate. (I haven’t seen the various aspects of this topic treated together in any detail from the perspective of the drafter.) Here’s what I put together; you should consider it a first draft. I’d be happy to [...]