DRAFTING AND ANALYZING CONTRACTS

Transcription

1 0001 VERSACOMP (4.2 ) COMPOSE2 (4.43) NEW LAW SCH. Front Matter SAMPLE for PERFECTBOUND Pubs J:\VRS\DAT\03037\FM.GML --- r3037_fm.sty --- POST DRAFTING AND ANALYZING CONTRACTS A Guide to the Practical Application of the Principles of Contract Law Third Edition Scott J. Burnham Professor of Law The University of Montana Schoool of Law 09/26/06 (12:20) 1

2 LCCCN#: ISBN#: This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be sought. LexisNexis and the Knowledge Burst logo are trademarks of Reed Elsevier Properties Inc, used under license. Matthew Bender is a registered trademark of Matthew Bender Properties Inc. Copyright 2003 Matthew Bender & Company, Inc., a member of the LexisNexis Group. All Rights Reserved. No copyright is claimed in the text of statutes, regulations, and excerpts from court opinions quoted within this work. Permission to copy material exceeding fair use, 17 U.S.C. 107, may be licensed for a fee of 10 per page per copy from the Copyright Clearance Center, 222 Rosewood Drive, Danvers, Mass , telephone (978) Editorial Offices 744 Broad Street, Newark, NJ (973) Mission St., San Francisco, CA (415) East Water Street, Charlottesville, VA (434) (Pub.3037)

3 To my parents, whose New England minds always took a practical turn iii

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5 ACKNOWLEDGMENTS This work began to take shape as I taught Contracts at the University of Montana School of Law. Dean John O. Mudd gave particularly strong encouragement to curriculum development that emphasized application as well as doctrine. In the summer of 1984, I was assisted by a grant from the National Institute for Dispute Resolution, which recognized the preventive law value of good drafting. Other than these two, specific acknowledgments seem out of place, for to list is to limit. I would have to acknowledge not only those individuals who helped directly with the work, but those who have helped me to see a need and to fill it. I am grateful to them, the many teachers and students I have profited from as a law student, practitioner, and professor. Excerpts from the following materials appear with the kind permission of the copyright holders. Additional permissions appear in the text. Am. Jur. Legal Forms (2nd ed.). Copyright 2000 West Group. Reprinted with permission. Material from Bender s Uniform Commercial Code Service is reprinted with permission from Forms and Procedures Under the Uniform Commercial Code by Frederick M. Hart and William F. Willier. Copyright 2003 by Matthew Bender & Co., Inc. All rights reserved. Corbin, Contracts. Copyright 1962, 2001 Matthew Bender & Co., Inc. All rights reserved. Restatement (Second) of Contracts. Copyright 1981 The American Law Institute. Reprinted with the permission of The American Law Institute. Uniform Laws Annotated. Copyright 1995 West Group. Reprinted with permission. West s Legal Forms. Copyright 1998 West Group. Reprinted with permission. White & Summers, Uniform Commercial Code (5th ed.). Copyright 2000 West Group. Reprinted with permission. v

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7 Acknowledgments v Table of Contents ix Introduction PART I How the Principles of Contract Law Are Exemplified in Drafting Chapter 1. Offer and Acceptance Chapter 2. Consideration Chapter 3. Indefiniteness Chapter 4. Enforceability Chapter 5. Capacity Chapter 6. Parol Evidence Chapter 7. Interpretation Chapter 8. Mistake Chapter 9. Force Majeure Chapter 10. Promise and Condition Chapter 11. Modification and Discharge Chapter 12. Warranties Chapter 13. Damages Chapter 14. Third Parties PART II How the Principles of Drafting Are Exemplified in Contracts Chapter 15. The Framework of a Contract Chapter 16. Operative Language and Boilerplate Terms vii

8 viii Chapter 17. The Language of Drafting Chapter 18. Plain Language Chapter 19. Drafting with a Computer PART III How to Read and Analyze a Contract Introduction Outline of the Passes First Pass: Orientation Second Pass: Explication Third Pass: Implication Fourth Pass: Remediation Fifth Pass: Evaluation Conclusion Appendix A: Sample Contract Appendix B: Exercises Bibliography Index I-1

9 Acknowledgments Summary Table of Contents v vii Introduction PART I How the Principles of Contract Law Are Exemplified in Drafting Chapter 1. Offer and Acceptance Introduction Firm offers U.C.C Did negotiating parties intend an agreement? Objective manifestation of assent The Battle of the Forms U.C.C Ethics in offer and acceptance Exercises Chapter 2 Consideration Introduction Statutes dispensing with consideration Recital of consideration The adequacy of consideration Drafting the recital of consideration Illusory contracts Distributorship agreements Output and requirements contracts Satisfaction clauses Exercises ix

10 x Chapter 3 Indefiniteness Introduction The parties do not intend to enter into a contract The parties intend to enter into a contract The parties intend to enter into a contract with some provisions to be agreed upon at a later time The resources of the law: The U.C.C Other resources to make an agreement definite Ethics in drafting Exercises Chapter 4 Enforceability Introduction Regulation of form Regulation of substance Surrendering a right Unconscionability Severability Consumer Protection Acts Ethics in drafting Application: Exculpatory clauses Exercises Chapter 5 Capacity Introduction Behavior Fraud Mental capacity Minority Authority Exercise

11 xi Chapter 6 Parol Evidence Introduction Is the agreement final? Is the agreement complete? Merger clause Exception: Formation issues Adhesion contracts The U.C.C. parol evidence rule Collateral agreement Interpretation Modification Exercises Chapter 7 Interpretation Introduction Recitals General and particular Ambiguity Connectives And/or Describing characteristics or classes Listing conditions or criteria Modifiers Cures for ambiguity Definition Tabulation Application of tabulation Normalized drafting Vagueness Exercises Chapter 8 Mistake Introduction

12 xii 8.2 Putting the assumptions in the contract Assuming the risk Releases Ethical issues Exercises Chapter 9 Force Majeure Introduction Qualifying an obligation Absolute performance Force majeure Drafting for specific situations Exercises Chapter 10 Promise and Condition Introduction Promise Condition Conditions precedent and conditions subsequent Drafting promises and conditions Remedies Who is supposed to go first? If one party doesn t perform, must the other party perform anyway? How much or what kind of nonperformance by one party excuses performance by the other party? Drafting clear conditions Exercises Chapter 11 Modification and Discharge Introduction Common law modification of executory agreements The modern rule

13 xiii 11.4 Settlement of claims Unliquidated or disputed obligations Accord and satisfaction contrasted with substituted contract Liquidated and undisputed obligations Drafting a conditional check Provisions barring modification and waiver Exercises Chapter 12 Warranties Introduction Express warranty Implied warranty of merchantability Implied warranty of fitness for a particular purpose Disclaimer of warranties Disclaimer of express warranties 2-316(1) Disclaimer of implied warranties The conspicuousness requirement Conflicts among warranties Limitation of remedies The Magnuson-Moss Warranty Act Non-U.C.C. warranties Exercises Chapter 13 Damages Introduction Specific performance Money damages: Application of the Hadley rules Liquidated damages Arbitration Attorneys fees Punitive damages

14 xiv 13.8 Exercises Chapter 14 Third Parties Introduction Third party beneficiaries Assignment of rights Delegation of duties Is an assignment a transfer? Contractual prohibitions Novation Exercises PART II How the Principles of Drafting Are Exemplified in Contracts Chapter 15 The Framework of a Contract Introduction The use of forms Zero-base drafting The structure of a contract Description of the instrument Caption Transition (language of agreement) Recitals Definitions Operative language and boilerplate terms Closing Exercises Chapter 16 Operative Language and Boilerplate Terms Introduction Stating obligations Representations and warranties

15 xv 16.4 Example: Providing for the consequences of breach Boilerplate Headings Choice of law Choice of forum Waiver of jury trial Notice Example Exercises Chapter 17 The Language of Drafting Introduction Use the present tense Use the active voice Draft in gender-neutral language Language of agreement Language of obligation, authorization, and condition Language of obligation Language of authorization Language of condition Fleshing out the agreement for completeness Declarations Remedies Cross-references Example of the language of drafting Exercises Chapter 18 Plain Language Introduction Subjective standards of plain language Objective standards of plain language Plain language and substance The process of plain language drafting

16 xvi 18.6 Example of plain language drafting Is plain language drafting worth the trouble? Computer assistance Summary: The elements of plain language Exercises Chapter 19 Drafting with a Computer Introduction Word processing Word processing guides you through original thought Word processing improves your written expression Word processing quickly repeats past experience Preparing a document for document assembly Document assembly Expert systems Other uses for computers in drafting Comparison by computer Virtual drafting Exercises PART III How to Read and Analyze a Contract Introduction Outline of the Passes First Pass: Orientation Ascertain the general theme The description of the instrument The caption Recitals The primary exchange of promises Detect the structure of the contract Foundation or cathedral?

17 xvii Stepping stone or final agreement? What are the parts of the contract? See the transaction against a larger background What are the goals of the parties? What are the applicable rules of contract law? Is there applicable regulation? Second Pass: Explication Identify the boilerplate terms Merger Modification Assignment and delegation Force majeure Severability Headings Dispute resolution Arbitration Choice of law Choice of forum Attorneys fees Ascertain the rights and duties of each party Identify promises Watch for promises that are beyond customary norms Determine the duration of the contract Identify conditions The event is within the control of neither party The event is within the control of the party whose performance is conditional on the event The event is within the control of the other party Consider creating a graphic Third Pass: Implication Read in the default rules

18 xviii 3.2 Read in the implied conditions Is one party s entire performance a condition of the entire performance of the other party? Who performs first? Did the party who performed first protect itself? Read in trade usage, course of dealing, and course of performance Fourth Pass: Remediation Is a party s nonperformance breach? Changed circumstances Modification or waiver Nonoccurrence of a condition Trade usage If nonperformance is not excused, what happens? The nonbreaching party may recover damages Ask what the nonbreaching party would have had if the contract had been performed Look for express terms relating to damages The nonbreaching party s conterperformance may not be due The entire performance was not given A part of the performance was given The performance was not timely given Create a visual representation Look for terms that address remedies Specific performance Liquidated damages Limitation of remedies Dispute resolution Fifth Pass: Evaluation Assemble your concerns

19 xix Should you expressly state omitted terms? Do you understand and agree with all the stated terms? Do you understand and agree with the consequences of breach? Do you wish to alter any boilerplate terms? Are there terms you wish to negotiate? Check the document for completeness Detect weaknesses with language Plain English Ambiguity Definitions Explore opportunities to gain greater expertise Find an up-to-date form Find a book or expert on the subject Conclusion Appendix A: Sample Contract Appendix B: Exercises Bibliography Index I-1

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