Contract Drafting Class 4

University of Houston Law Center

D. C. Toedt III

Exercise 18-3: Legalese No later than 90 days after the end of each fiscal year, the Borrower shall provide the Bank a copy of the Borrower’s year-end financial statements. Such financial statements shall be certified by the Borrower’s chief financial officer to fairly present the financial condition of the Borrower.

Exercise 18-3: Legalese No later than 90 days after the end of each fiscal year, the Borrower shall provide the Bank a copy of the Borrower’s year-end financial statements. Such financial statements shall be certified by the Borrower’s chief financial officer to fairly present the financial condition of the Borrower.

No later than 90 days after the end of each fiscal year, the Borrower will provide the Bank with a copy of its [?] year-end financial state ments, certified by the Bor rower’s chief financial officer as fairly presenting the Borrower’s financial condition.

Coca-Cola NDA (Z&B p. 5)

End of class

Exercise 18-4: Legalese Except as herein to the contrary provided otherwise provided in this Agreement, each party releases, remises and forever discharges the other party from any and all actions, suits litigations, debts,

claims,

and obligations whatsoever , both in law and equity, that either of them ever had, now has, or may hereafter subsequently have, against the other by reason of any matter, cause, or thing for any reason to [through] [to but not including] [to but excluding] the date of the execution of this Agreement [this Agreement’s execution].

Exercise 18-5: Legalese In the event of the failure of If the Borrower aforesaid fails to comply with the terms any term of the aforementioned Note, the undersigned Guarantor waives [notice of acceptance of this Guaranty, diligence, presentment, notice of dishonor, demand for payment, any and all notices ] of whatever kind or nature , and the exhaustion of legal remedies available to the Note’s holder.

“Texas” rule on atty. fees  Tex. Civ. Prac. & Rem. Code § 38.001

 Who can recover? Prerequisites?

Arele Partners v. Gunnerman  Procedural history  Evidentiary standard for fraud. intent  Measure of damages  5 th Cir. majority opinion focus  Higginbotham – motive for dissent?

 Lessons

Legalese (Stark ch. 18)

Reps and warranties (Stark ch. 3)

Trade-offs: Representations versus Warranties  Representations  Avoidance  Punitive damages  Warranties  No reliance component  Benefit of the bargain damages  No need to prove defendant’s scienter

CBS v. Ziff-Davis – sale of magazine division  Rep/warranty re financial statements  Due diligence: Accounting problems  Lawsuit: Misrep. + breach of warranty

(really: litigating the price afterwards)

 Holding:  No misrep.: Reliance not justified  BUT: Warranty claim succeeded  Parties settled after appellate holding

Discovery issues for either warranty or misrep. claim  True value of asset sold  Inspections  Comparables  Expert testimony  Alt: Repair costs  Estimates  Expert testimony

Extra discovery issues for misrepresentations  Standard of care (negligence claims):  Past deals, practices, problems – interrog., document production, depositions  Expert witnesses – fees, report review, depositions, trial props, trial prep  Intent (fraud claims):  Email trails, interrog., depositions  Net worth – for punitive damages

Negotiating risk allocation (Stark pp. 17-19)  See Stark’s examples  Flat representation  Unequivocal  Without wiggle room  Qualified representation  Hedged

Review: Pros and cons of reps and warranties  Representation  Not strict liability – must also prove scienter (intent or recklessness), plus justified reliance  “As of” date  Punitive damages, rescission  Burden of discovery, pre-trial motion practice  Warranty  Strict liability – scienter & reliance not relevant  Can survive for months / years (to be discussed later in the course)  Fewer hassles with discovery, pre-trial motions

Interplay of Contract Concepts

 Rep and Warranty  The car is red.  Covenant  Seller shall not paint the car.

 Condition  Seller must have complied with all covenants.

General provisions