Shared Flashcard Set

Details

Legal Drafting: Business Deal
Terms
74
Law
Professional
01/14/2012

Additional Law Flashcards

 


 

Cards

Term
private laws
Definition
rules that parties develop which the courts will enforce, subject to public policy exceptions found in statutes and common law (also known as planning documents)
Term
What does a contract do?
Definition
  • establishes terms of parties' relationship 
  • reflects agreement as to rules that will govern transaction
  • statement of facts
  • promises to future performance
  • each party's rights
  • events that must occur before each party has to perform 
  • party's discretionary authority 
  • how contract will end
  • general policies that govern relationship 
Term
What are a contract's goals? 
Definition
  • accurately memorialize business deal
  • clear and unambiguous 
  • resolve problems pragmatically
  • be specific that parties know rights and obligations, but flexible to cope with changed circumstances 
  • advance client's goals and reduce risks
  • give each side enough of what it needs so that each side leaves the table feelnig they negotiated a good dael 
  • prevent litigation 
Term
business contracts
Definition
covers all negotiated contracts, whatever the topic or dollar amount; not standard form contracts. 
Term
contemporary commercial drafting
Definition
draws on principles of plain English and promotes clarity, simpler language, shorter sentences, formatting, etc. 
Term
basic principles of contract drafting
Definition
  • use recitals sparingly 
  • limit number of definitions
  • avoid ambiguity 
  • do not use false imperative
  • tabulate to promote clarity 
Term
questions to think about when writing contract
Definition
  • What are client's business goals?
  • How can contract frustrate or further those goals?
  • What risks inhere in transaction?
  • What business issues does provision raise?
  • Does provision give other side too much control?
  • Do represenations and warranties allocate too much risk to the client?
  • How can the drafter change a covenant's standard of liability to reduce the client's risk?
  • Should a particular event result in a breach? 
  • Does the contract provision resolve the client's business problem? 
Term
seven contract concepts 
Definition
  1. representations
  2. warranties
  3. covenants
  4. rights
  5. conditions
  6. discretionary authority
  7. declarations
Term
representation
Definition
statement of past or present fact, made as of a moment in time to induce a party to act. 
Term
warranty
Definition
promise that if statement is false, amker of statement will indemnify the other party for any damages suffered because of the false statement. 
Term
covenant
Definition
promise to do or not to do something; creates duty to perform. 
Term
right
Definition
opposite of covenant; entitles party to other party's performance. 
Term
condition to an obligation
Definition
state of facts that must exist before a party is obligated to perform. 
Term
discretionary authority
Definition
gives party a choice or permission to act; sometimes exercise of discretionary authority is subejct to satisfaciton of condition. 
Term
declaration
Definition
fact as to which both parties agree; sometimes is subject to satisfaction of a condition. 
Term
translation skill
Definition
requires drafter to look at each specific agreement of business deal and to translate it into contract concepts (only then can drafter memorialize the business deal and translate it into contract concepts).
Term
warranty
Definition
  • no reliance component
  • acts as indemnity
  • maker of statement will pay damages to statement's recipient if statement was false and recipient was damaged 
  • does not matter whether recipient knew statement was false
Term
three types of misrepresentations 
Definition
  1. innocent
  2. negligent
  3. fraudulent (misrepresentation made with known falsity, scienter) 
Term

innocent/negligent misrepresentation remedies 

(some say must be material)

Definition
  • avoidance 
  • restitutionary recovery 
Term
fraudulent misrepresentation
Definition
  • void contract, seek restiuttion
  • affirm contract, retain benefits, and sue for damages based on claim of fraudulent misrepresentation (tort of deceit
  • measure of damages depends on state's law
Term

benefit of the bargain 

 

Definition
equal to value that property was represented to be minus actual value; results in higher damages award and is measure of damages that party generally receives upon contract breach
Term
out-of-pocket measure
Definition
equal to amount π paid for property minus actual value 
Term
punitive damages
Definition
if fraudulent misrepresentation, π may be entitled to punitive damages
Term
Why should party receive both representations and warranties?
Definition
  • option to void contract and receive restitution only if party receives representations
  • may sue for punitive damages by claiming fraudulent misrepresentation
  • if party cannot prove justifiable reliance, can sue for breach of warranty 
  • if state follow out-of-pocket rule for damages for fraudulent misrepresentations, party can still recover greater benefit of damages by suing for breach of warranty 
  • breach of warranty claim may be easier to prove than fraudulent misrepresentation 
Term
avoidance
Definition
permits injured aprty to unwind the contract; also known as rescission. 
Term
risk allocation
Definition
establishing standards of liability, representations and warranties serve purpose of risk allocating; degree of risk each party assumes with respect to statement varies depending on how broadly or narrowly statement is drafted. 
Term
flat representation
Definition
absolute, high-risk statement, no room for error.
Term
qualified representation
Definition
approximating, greater room for error. 
Term
disclosure schedule
Definition
typical way to indicate pending litigations is to list them on a disclosure schedule and then refer to schdule in the representation and warranty.
Term
imputed knowledge
Definition
knowledge each executive would have had if executive had performed a diligent inquiry. 
Term
knowledge
Definition
actual knowledge
Term
wordsmithing
Definition
suggests that a lawyer is changing language for no substantive reason and is wasting time and money.
Term
closing
Definition
when parties exchange the agreed performances (typically only in acquisitions and financings). 
Term
covenants
Definition
promise to do or not to do something; creates duty to perform. 
Term
obligation
Definition
duty to perform. 
Term
degrees of obligation 
Definition
business differences between different ways of expressing a party's obligations. 
Term
due diligence
Definition
corporate equivalent of test-driving a car before purchasing; examine, among other things, seller's contracts, equipment, financial statements. 
Term
gap periods
Definition
time between signing and closing in acquisition transactions; buyer may need to obtain financing, parties may need to obtain consents to transacitons or to transfer assets; buyer may perform due diligence if not done prior to; generally no covenants need to be performed. 
Term

Remedies: 

Breach of Covenant 

Definition
entitles injured party to sue for damages, and if facts are appropriate, specific performance; measure of damages is benefit of the bargain damages (if breach is so material that it cannot be cured, then party may have right to cancel) 
Term
right
Definition
flows from another party's duty to perform; from a covenant; person to whom performance is owed has right to that performance; if there is a duty, there is a correlative right. 
Term
condition 
Definition
state of facts that must exist before a party is obligated to perform. 
Term
ongoing conditions
Definition
conditions that if not satisfied do not affect the parties' ongoing contractual relationship. 
Term
walk-away conditions
Definition
conditions, that if not satisfied permit a party to choose whether to perform or not perform (usually are benefits that party wants to receive before performing the obligation memorialized in subject matter performance provision). 
Term
Relationship Between Conditions and Covenants
Definition
  • walk-away conditions and walk-away rights are sometimes related to party's performance of covenant 
  • satisfaction of condition may rest on performance of covenant
  • condition can be unrelated to any covenant 
Term
discretionary authority
Definition
gives its holder a choice or permission to act; may exercise authority, but is not required to; once it exercises authority, other party is bound by holder's decision. 
Term
privilege
Definition
what a person who has discretionary authority has.
Term
condition to discretionary authority
Definition
exercise of discretionary authority is often subject to state of facts; state of facts that must exist before a party may exercise its discreitonary authority; NOT a right. 
Term
declaration
Definition
statement of fact as to which the parties agree; neither party stated fact to induce other party to act, cannot sue on declaration, no rights/remedies associated with it. 
Term
condition to a declaration
Definition
state of facts that must exist before a policy has substantive consequences. 
Term
introductory provision
Definition
composed of preamble, recitals, and words of agreement. 
Term
preamble 
Definition
first paragraph of contract (identifies contract, name of agreement, parties, date parties signed contract)
Term
recitals
Definition
explain background of contract and why parties are entering into it; not enforceable provision; do not provide rights or remedies. 
Term
words of agreement
Definition
they state for record that parties have agreed to terms of contract; also referred to as statement of consideration. 
Term
defined terms
Definition
shorthand way of referring to complex concepts and ensure that the same concept is said the same way throughout an agreement. 
Term
definitions
Definition
used to expand or narrow the ordinary meaning of a word or phrase. 
Term
action sections
Definition

where the parties: 

  • agree to perform main subject matter of contract
  • agree to pay consideration
  • set forth term of contract
  • set forth closing date
  • list closing deliveries 
Term
subject matter performance provisions
Definition
each side covenants to other that it will perform main subject matter of covenant; does not always consist of reciprocal covenants of future performance; sometimes, self-executing provision.
Term
consideration
Definition
price, salary, or royalties. 
Term
term of the contract
Definition
the number of years the conract will govern parties' relationship.
Term
closing deliveries
Definition
each party covenants to the other how it will deliver its performance at closing. 
Term
endgame provisions
Definition
next-to-last substantive provisions in contract that set forth business terms that govern the end of the parties' contractual relationship; require drafter to determine different ways that a contract can end and how contract will deal with each of scenarios; drafted as conditions. 
Term
general provision
Definition
also known as boilerplate provisions; tell parties how to govern their relationship and administer the contract (e.g. notice, choice of law, choice of forum, antiassignment, merger, waiver of jury trial, severability provisions); some are covenants, others declarations. 
Term
signature lines
Definition
contract concludes with parties' signatures. 
Term
reciprocal promises
Definition
reflect mutuality of transaction.
Term
cashier's check
Definition
check that bank issues from its own account; bank's promise to pay recipient. 
Term
certified check
Definition
check as to which bank has set aside sufficient funds from paying party's account to ensure full payment of check; bank certifies by having employee sign, funds not available until business day after banking day on which funds deposited, bank can take back payment if discovers it was fraudulently issued. 
Term
wire transfer
Definition
irrevoable, electronic transfer of immediately available funds using a system that the Federal Reserve System maintains (also known as Fed funds transfer).
Term
cash
Definition
currency, bills, and coins.
Term
stub period
Definition
period less than calendar year that occurs when contract term begins or ends in middle of calendar year. 
Term
evergreen provision
Definition
automatically renews contract's term. 
Term
time-of-the-essence clause
Definition
if parties MUST close on specific closing date. 
Term
rolling closing dates
Definition
if time is not of essence, provide parties may jointly postpone closing date. 
Term
drop-dead date
Definition
if agreement permits postponements, date after which parties may no longer postpone closing; include endgame provisions that provide for contract's termination and spell out consequences of failure to close (DO NOT put that information in the action section). 
Supporting users have an ad free experience!