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 statements, certified by the Borrower’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
 5th 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

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
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
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