Transcript Remedies - On Contracts

Contract Drafting
Class 10
Thurs. Feb 16
University of Houston Law Center
D. C. Toedt III
Common contract
screw-ups
Common contract screw-ups
“7. The contract that has additional signature
blocks in [a schedule or exhibit, e.g., a form
of deed], and these are signed as well as
or instead of the main signature blocks of
the contract.”
[From “Top 10 howlers when preparing contracts for signature,” by the IP
Draughts blog at http://goo.gl/Km6Dw.]
Pretentiousness
Some pretentious expressions
How could these be improved?
 During such time as Customer needs help
 During the course of Provider’s work
 Provider will effectuate its obligations
 The parties will endeavor to agree
 Provider will forthwith notify Customer
Defined terms
Defined terms – where to put?
Team exercise: Write down six places
where you might find the definition of a
defined term in a contract (careful – try to
think “outside the box”)
Introducing a defined term

Stark p. 80: “Mechanical Failure” means
[definition follows]

Adams, MSCD: Mechanical Failure
refers to [definition follows]
Can Stark be improved on?
P. 82, # 15
 P. 83, # 17
 P. 84, # 19 (“Song” example)

 Compare

with p. 81, # 13
P. 84, # 20
Which do you like better, & why?
Stark p. 87, # 1
 Version 1?
 Version 2
Dell Master Purchasing Agrmt (Z&B pp.
236 et seq.)
Representations and
Warranties - preview
Buying a used car
Representation (Stark p. 12)



Statement of fact
As of a moment in time
Intended to induce reliance

Justifiable reliance is required for a
cause of action
Warranty (Stark p. 13)

Technical definition


Real world definition


A promise that a statement is true
A promise that the maker of a statement will
pay damages to the recipient of the statement
if the statement isn’t true and the recipient
suffers damages
There is no reliance component, nor intent.
Warranty
The car is yellow.
Remedies for breach of
warranty (Stark pp. 14-16)

Benefit of bargain
 Diminution
in value
 Alt: Cost of paint job?

Incidental damages?
 Rental

cost, while car is in paint shop
Consequentials?
 UCC:
If not disclaimed
Damages cap in contract?
 Attorneys’ fees?

Remedies for
Misrepresentations

Honest or negligent, if material
 Avoidance
 Restitutionary

Recovery
Fraud
 Choice between
 Avoidance and Restitutionary Recovery
and
 Damages
 Out-of-pocket
 Benefit of the bargain
 Punitive
Trade-offs: Representations
versus Warranties

Representations

Warranties
 Avoidance
 No
 Punitive
 Benefit
damages
reliance component
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
British Sky Broadcasting v. EDS
Case: http://bit.ly/9bPMbe (468-page PDF)
 HTML: http://bit.ly/c3SUZh
 Entire-agreement clause
 £30MM damages cap


N/A to fraud. misrep. or negl. misrep.
UK judge found EDS exec lied
 No contract liability finding

British Sky Broadcasting v. EDS

¶ 841: “Although it is not necessary to establish motive, motive
provides support. Joe Galloway was quite clearly anxious to
further his career. He was ambitious and to achieve a
successful bid with Sky for the CRM Project would provide him
with an opportunity to demonstrate his abilities to those in EDS.
It was that motive which led him to say that he could achieve
the Sky CRM Project in the required timescale when he knew
that he had no proper basis for doing so. EDS say that there
can be no motive in obtaining a project on the basis of times
which cannot be met. I do not think he took that type of long
term view. His wish was to be awarded the CRM Project and
use that for advancement.”
211 – No reliance
Representations outside this Agreement:
None – the parties have specifically
negotiated this section.
 Each party represents and warrants that,
in entering into this Agreement, it is not
relying on any representation by the other
party, other than those set forth herein or
incorporated by reference.

Why include no-reliance clause?

Vendor: Avoid fraudulent-misrep. claims

Customer (silver lining if forced to agree):
Identify problems BEFORE they arise
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):
deals, practices, problems – interrog.,
document production, depositions
 Expert witnesses – fees, report review,
depositions, trial props, trial prep
 Past

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
End of class