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Contract Drafting
This article is a short but comprehensive guide into all aspects of contract drafting.
2023 Business Drafting Workshop: LLCs
Reps and Warranties | Breach, Remedies, and Dispute Resolution | Conditions, Discretionary Authority, & Declarations | Annotated Covenants
Contract Drafting Building Blocks: Reps and Warranties
Sample Stock and Goodwill Purchase Agreement
Contract Drafting Building Blocks: Breach, Remedies, and Dispute Resolution
I often describe contract drafting as a “creative process.” A statement that has drawn unbelieving looks from many past students. But drafting a contract presents the opportunity to create a private body of law between two or more parties. That private body of law, along with any other applicable statutes, regulations, and common law, dictate how the parties will work together to achieve some common goal. To draft that document appropriately and in a way that helps the parties reach the goal, the lawyer has to think through the process of each party’s performance – the who, what, when, where, and how of each obligation, condition, or discretionary action. Once that process is complete, the lawyer drafts those obligations, conditions, and discretionary actions in a way that memorializes the parties’ intentions. I have also often told students that a major perk of a transactional practice (for me at least)is that your clients are typically happy to be working with you. They haven’t hired you because they are fighting with someone or at the beginning stages of litigation. Instead, the client is embarking on a new deal or relationship. Very often, one that brings sought-after potential and opportunity for the client. And in this situation, they are happy to have you on board.However, while we prefer to focus on the positive aspects of the transaction, we also know that part of that creative process includes consideration of what can go wrong. It is inevitable that a percentage (hopefully a very, very small percentage) of contracts we draft will end up in some type of dispute or litigation. Relationships go south or economic circumstances change for the parties, and the contract should address those potential situations. We have to think through what constitutes a default, when is termination of the agreement allowed, what are the consequences of that termination (both monetary and nonmonetary), and what are the remedies the parties may seek– specific, common law, or both.
Contract Drafting Building Blocks: Conditions, Discretionary Authority, & Declarations
Sample Stock and Goodwill Purchase Agreement
Annotated Covenants
Set forth below is a typical covenants section that would appear in a stock purchase agreement. Note that these covenants assume that defined terms are set forth in the rest of the agreement.
Contract Drafting
This paper is comprised of excerpts from Waks, Whitlock, Texas Practice Guide—Business Transactions,Chapter 1, Contracts (Thompson Reuters, 2022). Section references are to the particular section from the Chapter where the excerpted material is located.
Dealing with Drafting Deadlocks
Two of your law school classmates decide to form a company, and it sounds great. Bill and Paul have the same business idea – making custom pet bandanas and selling them at the farmers market every Saturday. They both put the same amount of money into the business, and launched their little pet accessory business as an LLC. You hear bits and pieces through the school newsletter, but it seems they are doing really well selling at the Redmond farmer’s market. Next thing you know, Bill wants to start selling at the Seattle Sunday farmers market, just a little way away. However, you hear that Paul doesn’t want to drive that far and has blocked Bill’s decision. It is a 50/50 company, and Bill and Paul agreed to make decisions about the business together even though they never wrote out a formal agreement. Without Paul’s consent, the business can’t expand to Seattle, and stylish pets in the urban oasis may need to go without the latest in Kraken accessories.For Bill and Paul, foregoing an LLC Operating Agreement sounded like a good idea at formation – they couldn’t imagine ever disagreeing about how to run the business! - but now that Paul vetoed Bill’s business decision, bandanas have piled up because Bill can’t sell at the Sunday market. Bill could make a lot more money from selling at the other market, and the workers he hired to make the extra bandanas and collars (he expanded production to collars without Paul’s consent) need to be paid. This is a problem.It's a good thing you also went to law school with Bill and Paul, and even better that you did pretty well in your Business Entities class and went to work in Delaware after graduation.
Drafting & Negotiating Complex Commercial Agreements
Supply chain disruptions have taken center stage in the news cycle in the wake of the COVID-19 pandemic, bringing commercial agreements into the international spotlight. In this volatile commercial environment, attorneys have a unique opportunity to bring order to chaos by providing valuable legal insight into their clients’ procurement and supply chain relationships. This article identifies several key considerations for drafting and negotiating complex commercial agreements specifically through the lens of potential supply chain issues. For simplicity’s sake, this article focuses primarily on customers and suppliers, but attorneys should also pay close attention to the various other parties in the overall supply chain network, such as raw materials providers, distributors, resellers, and logistics and warehousing providers. Generally, the party purchasing goods or services is referred to as the “customer” and the party providing goods or services is referred to as the “supplier” throughout this article, but other defined terms may be a better fit for different types of agreements (e.g., “Client” or “Purchaser” may be used for the party purchasing goods or services, and “Service Provider” or “Seller” may be used for the party providing goods or services). This article does not contain an exhaustive list of provisions that should be included in a commercial agreement. Complex commercial agreements are just that – complex! – and should be specifically tailored to the business arrangement between the parties. However, the standard elements addressed in this article should generally apply across a variety of types of agreements.
Boilerplate Provisions
Black’s Law Dictionary defines “Boilerplate” as: “Language which is used commonly in documents having the same meaning; used to describe standard language in a legal document that is identical in instruments of a like nature.” Boilerplate language certainly serves a purpose to reduce transaction costs and avoid protracted negotiation over what, in many instances, are standard terms. But, too often, lawyers rely on this common usage of the term “boilerplate” when examining, or rather glossing over, relatively customary contractual provisions such as recitals, statements of consideration, and the ever-dangerous miscellaneous section. Like other contractual provisions, mere reliance on form boilerplate provisions can yield unintended and often unfavorable results. Therefore, attorneys are cautioned to review these provisions with the same care as they would review the remaining terms of a given contract.
Drafting Contracts to Avoid Ambiguity
This paper will discuss the nature of ambiguous provisions in contracts, how the courts perceive and dispose of them, and, most importantly, some tips on how to avoid common ambiguities in contract drafting. There are many stylistic imperatives to avoiding ambiguities, from the use of simple language in contracts to the reorganization of sentence structure. This article will focus on specific legal issues that arise in contracts that are particularly susceptible to ambiguities and the attention and adjustments lawyers can make to resolve them.
When is a Forfeiture Clause a Non-Compete?
For Texas lawyers who draft non-competes for employers, there are two essential things to remember. First, putting the non-compete in the form of a forfeiture clause won’t necessarily avoid the requirements of the non-compete statute. Second, regardless of what you call it, it is unlikely that a Texas court will enforce a forfeiture clause that functions as an unreasonably broad non-compete. So you might as well make the scope of the discouraged competition reasonable.
It's Not Safe Out There: Consideration of Contract Terms that Avoid or Limit Liability and Legal Expense
This is the PowerPoint slide deck for the presentation.
The Miscellaneous Section of a Contract
In this day of computers, forms, electronic drafting assistants, and Google searches, very few if any attorneys start a contract from scratch each time. This paper presents certain issues that can arise in connection with the miscellaneous sections of a contract from a trial attorneys’ perspective. What are some of the red flags for when the miscellaneous sections of a contract should be treated as “deal points” and when are they just “belt and suspenders”? When are these clauses merely boilerplate, and require no variation from the prior version, form or sample used?
How To Interpret a Complex Business Contract
The purpose of this paper is to suggest a methodology for interpreting a complex business contract (or any contract, for that matter) by interpreting it as a whole, rather than solely by seizing upon certain language within the contract. This paper assumes that the reader has from law school and legal practice become familiar with basic principles of contract formation, drafting and interpretation. An easy-to-read and excellent resource book on these topics is Charles M. Fox, WORKING WITH CONTRACTS: WHAT LAW SCHOOL DOESN’T TEACH YOU (Practicing Law Institute (2nd ed. 2008), available inexpensively at Amazon.com and from numerous other sources. The author illustrates the process by reference to a hypothetical, complex business transaction in which an existing contract places many restrictions on the ability of a party to that contract to do other transactions (directly or through its subsidiaries), including the hypothetical transaction. The task is to identify the salient contractual provisions in the existing, restrictive contract, interpret it as a whole, and reach conclusions regarding the intent of the parties to the restrictive contract. The purpose of the task is to determine whether or not a proposed new transaction would be permitted.
Business Drafting To Maintain the Separate Property of the Involved Entities
Any attorney assisting his or her client with estate planning documents needs to be aware of the potentially hidden land mines associated with marital property issues. This is particularly true because divorce professionals often find themselves unraveling, or attempting to unravel, a myriad of trusts and entities formed by clients with the help of their estate planning attorneys. This paper addresses the marital property issues that can arise in various estate planning documents and also describes some of the challenges that divorce professionals may make to trusts and entities and how to limit the effectiveness of those challenges.
Drafting Contracts (and Everything Else) to Avoid Ambiguity
This paper is so brief a collection of ideas about drafting contracts that it really constitutes little more than a random collection of personal pet peeves. In applying these suggestions, remember that rules – at least many of them – were made to be broken.
7 Deadly Sins of Boilerplate: How Cut-and-Paste Can Get You Sued
Those “standard” sections at the end of a contract may look like the same provisions you have seen in hundreds of contracts. But those tried and true, cut and pasted, provisions can often create, rather than resolve, problems. The fallout from improperly drafted (and typically neglected) boilerplate provisions can determine the enforceability of a contract, the value to be received by a party, and the remedies available to the parties.
General Contract Provisions
This article provides an overview of certain general contract provisions typically included in a purchase agreement entered into in connection with an acquisition or disposition transaction. First, it will discuss the indemnification obligations of the parties in such a transaction. Next, it will address the choice of law and choice of jurisdiction provisions that the parties can include in the purchase agreement and the implications of each such provision. After that, the article will analyze the dispute resolution alternatives that the parties can choose to include in the purchase agreement. Finally, the article will provide an overview of representation and warranty insurance, which can be purchased by a party to the transaction.
Serving Your Clients After the Deal: Drafting Tips from a Litigator to Transactional Lawyers
Complex transactions are documented as a transaction is set to begin, when the parties are optimistic and cooperative. Almost all complex transactions will include clauses that relate to dispute resolution, a concept that may be obscured by the wave of optimism. Often, these kinds of clauses are an afterthought to the dealmakers (your client and the counter-parties). And after you have spent countless hours drafting the “real” substance of the transaction documents, you may be inclined to use boilerplate language to round out the documents. But thoughtful and careful drafting of language related to dispute resolution will save your clients time, money, and anxiety if the deal goes awry, which will enhance the likelihood that the client returns to you to advise on the next transaction. In this article, I will discuss how you can serve your clients’ interests by giving sound advice regarding arbitration, jurisdiction, choice of law, attorney’s fees, and other issues that are sure to arise if a once-promising transaction gives rise to actionable legal disputes.
Contracting In Cyberspace
Acceptance of an offer to contract on the internet “has exposed courts to many new situations, [but] it has not fundamentally changed the principles of contract.” One of these bedrock principles is “[m]utual manifestation of assent, whether by written or spoken word or by conduct . . .” Contracts formed in cyberspace can manifest primarily in one of two ways: i) “‘clickwrap’ or ‘click-through’ agreement in which the internet purchaser is required to affirmatively click an ‘I agree’ box after being presented with a list of terms and conditions of use [or ii)] [a]lternatively, consumers may be presented with a ‘browsewrap’ agreement, in which terms and conditions of use are posted on a website accessible through a hyperlink at the bottom of the subscriber's computer screen.” Recent caselaw has further granulated cyberspace contracting, recognizing both "scrollwrap" and "sign-in-wrap", in addition to clickwrap and browsewrap. Regardless of the moniker given to the cyber-contract at issue, in determining the existence and enforceability of contracts in cyberspace, the case law focuses on the very simple issue of whether the parties know that a contract is being offered and formed.
7 Deadly Sins of Contract Drafting - Constructive Interpretation and Interpretative Construction
This paper will analyze and discuss 7 topics regarding contract drafting that can impact the effectiveness, predictability and enforceability of an agreement. There are many other topics that deserve comment, so this paper will seek to include references to other resources useful to a practitioner in drafting, interpreting and construing contracts in many different types of transactions.
Non-Compete Drafting and Litigation
This paper provides a summary of current Texas law regarding: (1) the inevitable disclosure doctrine; (2) covenants not to compete; (3) non-recruitment covenants; (4) the fiduciary obligations of at-will employees; (5) protecting or obtaining trade secrets in state and federal court litigation; (6) misappropriation of trade secrets cases; and (7) the duty of preservation and spoliation issues in discovery.
Last but not Least: Negotiating and Drafting the "Miscellaneous" Section of a Contract - the Severability & Merger Clauses
After expending a significant amount of time and expense negotiating and drafting the core elements of a business deal, it is not all that uncommon for parties to breathe a sigh of relief once they get to the “miscellaneous” section of the contract and it is assumed that a simple cut and paste of the standard boilerplate provisions is all that is necessary to “seal the deal.” Boilerplate terms can afford drafting efficiency, certainty, and predictability; however, ancillary as they may seem, boilerplate terms, if not given their due consideration, could potentially lead to devastating consequences to the contracting parties. Two such boilerplate provisions are the severability clause and the merger clause. Although seemingly innocuous, these clauses, as discussed below, may in fact result in such complexities that the very essence of the underlying bargain between the parties may be threatened by the inclusion and/or construction of such provisions in a contract.
Negotiating and Drafting the "Miscellaneous" Section of a Contract - Assignment and Third Party Beneficiary Clauses
The key to successfully drafting any contract or agreement is to determine exactly what your client is bargaining for, and the client’s current and long-terms goals which make the bargain beneficial. These specific considerations are important, not just in the drafting and negotiating the business and economic terms of a contract or agreement, but also in determining whether to add and how to draft the “miscellaneous” provisions that are applicable to the deal. Two very important provisions within the “miscellaneous” section of a contract that may have a significant and long-lasting impact on your client’s agreement and bargain are the assignability and third party beneficiary clauses. These clauses dictate who has ultimate control over and responsibility for the obligations and duties imposed by a contractual agreement, and the persons and parties who may benefit from and levy a claim or cause of action for breach of the agreement.