CONTRACT DRAFTING -- SPRING 2012
D. C. TOEDT dc@toedt.com
Class 3 — Tuesday, January 24
3.1
Warm-up exercises
IN THE NEWS: Camelot LLC v. AMC ShowPlace Theatres, No. 11-1767 (8th Cir. Jan. 18, 2012) (lecture)
REVIEW: What do clients want?
IN-CLASS EXERCISE: Stark Exercise 18-3
3.2
Signature dates
READ: This blog posting.
FACT SITUATION: It’s the last week of March. Your client Big Public Software Company has a calendaryear fiscal year, and its shares are traded on Nasdaq. That means it must file financial reports with the
SEC within a certain number of days after each March 31, June 30, September 30, and December 31
(commonly referred to as Q1 through Q4 respectively, or sometimes 1Q through 4Q). ¶ BPSC’s sales people are working on a huge deal. If the deal closes, BPSC will “make the number,” that is, its earnings will
match analysts’ expectations; if not, BPSC will "miss," and the price of its stock likely will nosedive.
¶ The sales people stay late at the office on March 31, hoping to iron out the last negotiation points. But
the parties don’t actually come to agreement until April 3.
QUESTIONS FOR CLASS DISCUSSION:
(a) On April 3, BPSC’s vice president of sales calls you with an urgent question: Can the parties
backdate their signatures to March 31, so that BPSC can book the sale in Q1 so that it won't
“miss”?
(b) What eventually happened to the general counsel of Computer Associates (the company referred to in the blog posting), Stephen Woghin? How about its CEO Sanjay Kumar?
(c) What motive(s) might BPSC have to backdate a contract?
3.3
Electronic signatures
READ: The portion of Naldi v. Grundberg, 80 A.D.3d 1, 908 N.Y.S.2d 639 (N.Y. App. Div. 2010) at
http://goo.gl/1Uyug , beginning with the transitional paragraph at pp. 6-7 through the transitional paragraph at pp. 10-11.
CONTRACT DRAFTING -- SPRING 2012
D. C. TOEDT dc@toedt.com
FACTS: Your client TexBling is a Houston company that sells jewelry on-line, but only to Texas customers.
One particular customer is Nick, an individual living in Houston. ¶ Nick clicks on “I agree” to buy a
$20,000 diamond engagement ring, C.O.D. Nick pays for ground shipping; the Web site says that the
ring will arrive in 7 to 10 days. ¶ It's now 8 days after Nick ordered the ring. It hasn't arrived. Sans ring,
Nick goes ahead with proposing to his girlfriend Nora during a Rockets game; by prearrangement, his
proposal is shown on the Jumbotron at Toyota Center. ¶ To Nick’s horror, Nora turns him down, bursts
into tears, and storms out of the arena to get a cab home — live on the Jumbotron and on national TV.
(Here’s a real-life example — supposedly.) ¶ The next day, the delivery truck arrives with the ring, but
the grief-stricken Nick no longer wants it; he refuses to take delivery and also refuses to pay for it.
(Cue Gary Lewis and the Playboys.) ¶ TexBling, the jewelry vendor — heedless of the potential bad publicity — tells you it wants you to sue Nick for breach of contract in failing to pay for the ring.
QUESTIONS FOR CLASS DISCUSSION:
(a) Could Nick assert a statute-of-frauds defense, on grounds that he never signed a contract? Why
or why not? Reference: 15 USC § 7001; Tex. Bus. & Comm. Code § 322.007; see also § 322.002
(definitions), § 322.003 (scope); see also id. § 2-201 (statute of frauds).
(b) Could Nick assert that TexBling failed to obtain his handwritten, hard-copy signature, agreeing
that it was OK to use electronic signatures? Why or why not? Reference: Tex. Bus. & Comm.
Code § 322.005.
(c) When TexBling consulted you about setting up their on-line sales operation, should you have
told them to be sure to save a hard-copy printout of Nick’s “I agree” contract form to make it
enforceable? Why or why not? Reference: 15 USC § 7001(d); Tex. Bus. & Comm. Code
§ 322.012.
3.4
Post-signature changes to document, exhibits, etc.
FACTS: Yesterday your client and "the other side" signed a contract that included several exhibits. ¶
You have all signed copies of the contract in your possession and are supposed to send one fully-signed
copy to the other side today. ¶ You just noticed that one of the exhibits includes a significant typographical error.
QUESTION FOR CLASS DISCUSSION:
(a) Can you just change out the exhibit pages before you send the fully-signed copy to the
other side? Why or why not?
(b) How else could you handle this situation?
CONTRACT DRAFTING -- SPRING 2012
3.5
D. C. TOEDT dc@toedt.com
Email amendments
SKIM: Stevens v. Publicis, S.A., 2008 NY Slip Op 02880 [50 AD3d 253]
QUESTIONS FOR CLASS DISCUSSION:
(a) What did Publicis initially do (or not do) that [ticked] Stevens off? (P. 2)
(b) Why did Stevens lose? (Pp. 3-4)
(c) Any "lessons learned" advice for clients about their business practices?
3.6
Notarization
FACTS: Your client, Landlord, has negotiated a five-year commercial lease agreement for one of its office
buildings. The tenant’s lawyer wants the signers to have their signatures notarized. Landlord agrees to
have the signatures notarized.
QUESTIONS FOR CLASS DISCUSSION:
(a) Why might the tenant’s lawyer want the lease agreement to be notarized? Would that be in
your client Landlord’s best interest? References: Tex. Prop. Code §§ 12.001, 13.002; Tex. Civ.
Prac. & Rem. Code §§ 121.004-121.008(a); this blog entry; Tex. R. Evid. 902(4), (8).
(b) What is the difference between an acknowledgement and a jurat?
(c) In these circumstances, what does the notary's certificate need to say?
ADDITIONAL FACTS: Your secretary is the only notary public around. She [or it could be "he," of course]
can't find her notary seal.
(d) Could your secretary sign the notary certificate without a seal? References: Tex. Gov. Code
§ 406.013; Tex. Civ. Prac. & Rem. Code §§ 121.004.
ADDITIONAL FACTS: After rummaging around, your secretary finds two seals in the bottom of her drawer. One is an embossed seal, the other is an ink stamp.
(e) Of the two seals your secretary found, which one should she use — the embossed one, or the
ink one? References: Tex. Gov. Code § 406.013; see also Tex. Prop. Code §§ 121.004(d).
(f) What must your secretary do before signing the notary certificate? Reference: Tex. Civ. Prac. &
Rem. Code §§ 121.005.
CONTRACT DRAFTING -- SPRING 2012
D. C. TOEDT dc@toedt.com
(g) What must your secretary do after notarizing the signature(s)? References: Tex. Gov.
Code § 406.014; Tex. Civ. Prac. & Rem. Code §§ 121.012.
(h) If no notary is around, can you notarize the signatures as an attorney? Should you? References:
Tex. Civ. Prac. & Rem. Code § 121.001; Tex. Discipl. R. Prof. Conduct 3.08 (“Lawyer as Witness”).
SURPRISE! The person who will sign the lease for the tenant is in Kuwait and will FAX her signed signature page to you. QUESTIONS FOR CLASS DISCUSSION:
(i) Can your secretary, who is here in Houston, notarize that signature? Reference: Tex. Civ. Prac. &
Rem. Code §§ 121.004(a); see also this article, which applies to Texas as much as to Massachusetts.
(j) Who in Kuwait could "notarize" the signature? References: Tex. Civ. Prac. & Rem.
Code § 121.001(c), (d)
CONTRACT DRAFTING -- SPRING 2012
D. C. TOEDT dc@toedt.com
Class 4 — Thursday, January 26
4.1
Warm-up
IN-CLASS EXERCISE: Stark Exercise 18-4
4.2
Nondisclosure agreements (NDAs) (part 1)
READ: Zarfes & Bloom pp. 1-32
SKIM: Z&B p. 114 (the recitals)
QUESTIONS FOR DISCUSSION (asterisks indicate questions you should be prepared to answer)
1. * Who are some of the potential future readers of an NDA?
2. Why do employers often ask their employees to sign NDAs?
3. * If an employee does not sign an NDA, does that mean the employee is free to steal the employer's
confidential information? Why or why not? (Hint: See Z&B pp. 12-13.)
4. * Name two inherent weaknesses of NDAs.
Coca-Cola Employee NDA (Z&B pp. 5 et seq.)
5. Preamble: Notice the recitation of the company's name and state of incorporation. For a company
like Coca-Cola, there are dangers in having this recitation in its standard form. What are some of
these dangers, and how can they be managed?
6. * Are preliminary recitals in a contract generally binding? (Hint: See Z&B p. 9-10.)
7. * Section 1: Why are there separate definitions for "Confidential Information" and "Trade Secrets"?
(Hint: See § 4)
8. Section 1(a): Why do you think the definition includes so many "regardless" phrases?
9. Section 1(b): Where do you think the definition of "Trade Secret" came from? ? (Hint: See Z&B
pp. 13-14.)
10. Section 1(b): What's the significance of having a "compilation" be potentially a trade secret?
CONTRACT DRAFTING -- SPRING 2012
D. C. TOEDT dc@toedt.com
11. * Suppose the Coca-Cola formula could be reverse-engineered by using simple, well-known chemical
analysis techniques on a sample of the product. Would the formula qualify as a trade secret?
Would the formula qualify as confidential information? Why or why not?
12. * What are some practical steps that a company can take to establish legal rights in its confidential
information? (Hint: See this blog posting.)
13. If a company doesn't take every reasonable precaution to protect its confidential information, what
does that do to its chances of asserting any legal rights in the information against its employees?
14. Section 2: Why is there such a lengthy "acknowledgement"?
15. Section 2: Is the first sentence likely to be actually true? Why is it there?
16. * Section 2: Could the employee dispute the first and second sentences if a lawsuit were to occur?
17. Section 2: What's the significance of the "confidence and trust" language?
18. Section 2, first grammatical paragraph: Does the last sentence really "fit" with the rest of the
agreement?
19. Section 2, third grammatical paragraph: What's the significance of the first sentence?
20. Section 2, third grammatical paragraph: Why did Coke's lawyers include the "inevitable breach" language?
21. * Section 2, third grammatical paragraph: In what situation would the "inadequate remedy" language come into play?
22. * Section 2, third grammatical paragraph: What's the significance of the "without bond " phrase?
23. * Section 4: How are the employee's obligations different in respect of Confidential Information and
Trade Secrets?
24. Section 4(a), 4(b): Why does the employee agree to contact Coke for written clarification?
25. Section 4(b): From the perspective of persuading a court (as opposed to legal doctrine), is there a
better way to write the last sentence, which reads "Nothing in this provision shall be interpreted to
diminish the protections afforded trade secrets under applicable law"?
26. Section 6: Does an "inventions, discoveries, and authorship" provision belong in an agreement having the title that this one does?
27. * Section 7: Why does the choice-of-law provision say "without giving effect to the choice of law
provisions [of Delaware law]"? (Hint: See Z&B pp. 29-30.)
CONTRACT DRAFTING -- SPRING 2012
D. C. TOEDT dc@toedt.com
28. * Section 8: Why does the forum-selection choice-of-law provision say "without giving effect to the
choice of law provisions [of Delaware law]"? (Hint: See Z&B pp. 29-30.)
FACT SITUATION: Joanne, a new employee at a factory, mentions to her supervisor that her former
employer had some clever tricks to improve its factory production. ¶ The supervisor is interested and
picks Joanne's brain. ¶ The supervisor says, those tricks are old hat, but yes, they're clever; we'll try
them out to see if they do us any good. ¶ Joanne had a Coca-Cola-style NDA with her former employer.
29. * Could Joanne's former employer file suit against her new employer? On what grounds, if any?
30. Who would have the burden of proof? (Careful, this is sort of a trick question.)
ADDITIONAL FACTS: Joanne's NDA contained an express acknowledgement that the clever tricks were
economically valuable and not generally known.
31. * Is the acknowledgement binding on Joanne? How about on her new employer?
FACT SITUATION: Your client calls and says she just had a conversation over coffee with a potential
business alliance partner. During the conversation, she and the prospective partner discussed information that they agreed to keep confidential.
32. What might some of the client's options be? Reference: This blog posting.
FACT SITUATION: You represent Seller, which is pitching Buyer to make a big purchase. To help establish what Buyer needs, Seller wants Buyer to provide it with confidential information. Buyer wants to
put an NDA in place.
QUESTIONS YOU MIGHT BE ASKED:
(a) Should the NDA protect just Buyer's information, or the information of both Buyer and Seller
alike? Explain your answer.
(b) Should the NDA distinguish between "confidential information" and "trade secrets" for any particular purposes? Why or why not?
(c) Where could you find a definition of "trade secret"?
(d) Is there a difference between a confidentiality agreement and a non-competition agreement?
CONTRACT DRAFTING -- SPRING 2012
Class 5 — Tuesday, January 31
READ: Zarfes & Bloom pp. 33-49
5.1
Warm-up
IN-CLASS EXERCISE: Stark Exercise 18-5
5.2
Nondisclosure agreements (NDAs) (part 2)
33. [QUESTIONS TO FOLLOW]
Class 6 — Thursday, February 2
READ: Zarfes & Bloom pp. 51-87
34. [QUESTIONS TO FOLLOW]
I'm holding off on readings in Stark to make sure everyone has the book.
D. C. TOEDT dc@toedt.com