avoiding bad contract drafting: looking at the big...

Avoiding Bad Contract Drafting: Looking at the Big Picture, Including Structure, Language, Definitions, Terms, Consistency, and Boilerplate

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Mark Cohen, J.D., LL.M., Attorney, Boulder, Colo.

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Avoiding Bad Contracts: Looking at the Big Picture, Including Structure, Language, Definitions, Terms, Consistency, and

Boilerplate

Mark Cohen, J.D., LL.M.PO Box 19192

Boulder, CO 80308(303) 638-3410

[email protected]

A live Strafford CLE WebinarJune 3, 2020

Copyright 2020 by Mark Cohen, J.D., LL.M. 5

Avoiding Bad Contracts: Looking at the Big Picture, including Structure, Language, Definitions, Terms, Consistency, and

Boilerplate

Much of the litigation arising out of consensual transactions is the result of a poorly drafted document – a “Bad Contract.”

This suggests the distinction between transactional work and litigation is somewhat artificial.



Boilerplate

3 Types of “Bad Contracts”1. No Contract. “It is by now hornbook law that the test for enforceability of an agreement is whether both parties have (1) manifested an intention to be bound by its terms and (2) whether the terms are sufficiently definite to be enforced.” Channel Homes Ctrs. v. Grossman, 975 F.2d 291 (3rd. Cir. 1986).

2. Ambiguous Contract. There is an intent to be bound and the terms are sufficiently definite, but a term or provision in the contract is ambiguous. (This may be costly litigation because parol evidence will likely be admissible).

3. An Unambiguous Contract That Hurts Your Client. A contract that doesn’t protect your client or exposes you client to unnecessary risk. (This may be worse than “no contract” because with “no contract” your client may still have claims based on promissory estoppel and/or unjust enrichment).



Boilerplate

Overview of Today

• “The Big Picture”• Why Drafting Matters• Ways to Draft a Bad Contract (A tongue in cheek look at what not to do).

• Benefits of Plain English Contracts (There are plenty)

• Specific Provisions and Sample Boilerplate



Boilerplate

GOALS• A better understanding of how good drafting can prevent

litigation or maximize your odds of success if your can’t avoid litigation.

• To inspire you to think about ways you can improve your drafting.

• To explain WHY plain English drafting can benefit you and your clients and HOW to reduce Legalese

• To look at some specific provisions and common mistakes in them.

• For this PowerPoint to be a resource you can refer to.


Big Picture

Lawyers are pressed for time. Clients want it now. Consequently, we often just cut and paste from the last contract we drafted without considering whether there is a better way to do it or how we could improve it.

“As a result of his experiments he concluded that imitation was a real evil that had to be broken before real rhetoric teaching could begin… Schools teach you to imitate. If you don't imitate what the teacher wants you get a bad grade.”

‐ Zen and the Art of Motorcycle Maintenance


Big Picture“Contract” can have two meanings:

1. The understanding the parties have reached – “the meeting of the minds.”

An enforceable contract requires a manifestation of mutual assent in the form of an offer by one party and acceptance thereof by the other ... [and] agreement or meeting of the minds of the parties as to all essential elements. Keddie v. Beneficial Ins., Inc., 580 P.2d 955, 957 (Nev. 1978).

The general rule is that oral contracts are enforceable unless some specific enactment, such as a statute of frauds, renders a specific category of oral contracts unenforceable. Samra v. Shaheen Bus. and Investment Group, 355 F.Supp.2d 483, 497 (D.D.C. 2005)


Big Picture

The problem with an oral contract is that when a dispute arises you have, by definition, opened the door to parol evidence.

If there is a genuine dispute about what the agreement was, the court will not grant summary judgment.

If you can’t win on summary judgment, litigation is more expensive and comes with more risk.


Big Picture“Contract” can have two meanings:

2. The document that expresses “the meeting of the minds.”

A written contract serves two functions:

1. Clarify and Express Expectations. Who will do what, by when, in what manner, and how will the results and proceeds of their efforts (risks, losses, gains) be allocated; and

2. Dealing with Disruption. The contract should simplify and streamline how the parties manage disruptive change and disagreement – how issues are identified, how parties are notified, and how the conflict is engaged and resolved.

Linda Alvarez, Discovering Agreement, American Bar Association, 2016.


Big PictureThe First Written Contract


Big Picture

Copyright 2020 by Mark Cohen, J.D., LL.M.

• Lawyers saw the unanswered questions (a form of ambiguity), and added language to address them.

• Each time a new issue arose, lawyers added language to address it.

• Documents became longer.• Then came typewriters, word processors, and computers.

16

Lawn Care Contract

This agreement for Lawn Maintenance services between _________________________ (hereafter referred to as "Client") and _________________________ (hereafter referred to as "Contractor") is made and entered into upon the following date: ____/____/____. The lawn stated in this agreement is found at the following address: _____________________________________________________________. The Client would like to have the above mentioned lawn maintained on a regular basis. The Client and Contractor hereby agree to the following terms: 1. The Client will grant the Contractor access to the lawn during regular business hours Monday - Friday (8:00am - 5:00pm) CST and additional mutually agreed upon times. 2. Client or Contractor (Designate one or the other) will provide all equipment and supplies that are necessary to perform normal maintenance services on the above mentioned yard. 3. Client will pay Contractor $_____ on the first day of each month for regular maintenance services performed for the rest of the month. 4. Client will pay Contractor for additional maintenance or repair that may become required for the lawn to sustain an acceptable appearance. The Contractor shall bill the Client for the cost of work that is needed that is above and beyond what is considered reasonable and customary for normal maintenance of the lawn. This additional "above and beyond" repair hereafter shall be referred to as "ad hoc work". 5. Ad hoc work that has a cost that is less than or equal to $50 shall be performed by the Contractor without the Client's consent. However, work that is to be estimated greater than $50 the Contractor must receive authorization by the Client before the additional maintenance is provided. 6. "Regular Maintenance" will include the following: removal of debris from the yard, mowing of the lawn and trimming of trees and shrubs and any other plants that are in need of pruning, fertilization of the lawn's soil, inspection of plants and soil for insects, also the extermination of any insects or rodents that are discovered during normal maintenance activities. 7. Contractor will begin performing regular lawn maintenance on the following date: ____/____/____. Thereafter, regular lawn maintenance will be performed on a mutually agreed upon schedule. Either party may terminate this contract at any time by supplying a written notice of termination on a specified date to the other party, with at least two weeks notice prior to the stated date of termination. If there is any litigation needed between the Client and Contractor it shall be filed and tried in the Contractor's local jurisdiction. In agreement to the above mentioned terms the Client and Contractor sign below: Applicable Law This contract shall be governed by the laws of the State of __________ in __________ County and any applicable Federal Law. ______________________________________ Date____________ Signature of the Client ______________________________________ Date____________ Signature of Contractor Copyright 2020 by Mark Cohen, J.D., LL.M. 17

Why Drafting Matters

THE PAROL EVIDENCE RULE

It sounds like a boring law school topic until you have to litigate a case where a party claims the contract doesn’t express what the parties agreed to.


Why Drafting MattersTHE PAROL EVIDENCE RULE

In the absence of allegations of fraud, accident, or mistake in the formation of the contract, parol evidence may not be admitted to add to, subtract from, vary, contradict, change, or modify an unambiguous integrated contract. Boyer v. Karahenian, 915 P.2d 1295 (Colo. 1996).

The terms of a contract intended to represent a final and complete integration of the parties' agreement are enforceable and parol evidence offered to establish the existence of prior or contemporaneous agreements is inadmissible to vary the terms of such contract. Sentinel Acceptance Corp. v. Colgate, 424 P.2d 380 (Colo. 1976).

Terms used in a contract are ambiguous when they are susceptible to more than one reasonable interpretation. B&B Livery, Inc. v. Riehl, 960 P.2d 134 (Colo. 1998).

An integrated contract is one that contains all the terms the contracting parties agreed to. Harmon v. Waugh, 414 P.2d 110 (Colo. 1966).


Why Drafting MattersTHE PAROL EVIDENCE RULE

Semantic ambiguity – a word has multiple meaningsSeller shall pay Buyer $10,000.00. What if the Seller is in the U.S. and the Buyer is in Canada?

Syntactic ambiguity – it is unclear what a word refers to or modifies. The Sellers shall sell their Shares to the Buyer. Must both Sellers sell their shares or only the shares they own jointly?

Contextual ambiguity – the provisions are inconsistent. Tenant shall maintain the entire building and Landlord shall maintain the lobby of the building.

Examples from Tina Starck, Drafting Contracts.



Whether a contract is ambiguous is a question of law. Pepcol Mfg. Co. v. Denver Union Corp., 687 P.2d 1310 (Colo. 1984).

However, once a court determines that a contract is ambiguous, the meaning of the ambiguous term is a question of fact. Dorman v. Petrol Aspen, Inc., 914 P.2d 909 (Colo. 1996).

Once a court determines that a contract is ambiguous, the intent of the parties is question of fact. Metropolitan Paving Co. v. City of Aurora, 449 F.2d 177 (10th Cir. 1971).



If a question of fact exists…

NO SUMMARY JUDGMENT



If no summary judgment…

• Written discovery• Depositions• Long wait for trial • Increased litigation expense• Greater risk – judges and juries are unpredictable


Ways to Draft a Bad Contract1. Omit the caption or title. A bad contract has no caption at the top of the first page stating what the document is. If you must use a caption, use one that offers little information such as "Agreement" or "Contract." Do not, for example, use "Horse Purchase Contract" because that would reveal exactly what the document is and make it more difficult for party to claim they did not know what they were signing.

Though the general rule is that one who signs a contract is presumed to have read it, understood it, and agreed to its terms, clarity is a factor courts consider in evaluating whether a contract is unconscionable. Always ask, “What can I do to make it more difficult for the other party to claim they did not understand what they were signing or had a different understanding?”


Ways to Draft a Bad Contract2. Include a formal introduction. A bad contract begins with a verbose, formal introduction. Why? Because that’s how they did it in England 400 years ago. Here is sample bad introduction you may use:

This Agreement (hereinafter "Agreement") is made and entered into this ____ day of ___________, 20___, by and between John Jones of Denver, Colorado (hereinafter "Seller") and Suzy Smith of Durango, Colorado (hereinafter "Buyer") for the purchase of Seller’s fifty percent (50%) interest in the horse known as "Silver." (46 words)

Do NOT use straightforward language such as this:

This is an Agreement ("Agreement") between John Jones ("Jones") and Suzy Smith ("Smith") for the purchase of Jones’s 50% interest in the horse known as "Silver." (26 words)


Ways to Draft a Bad Contract3. Use verbose recitals over short summaries. Historically, contracts included recitals to clarify intent, add to consideration, and/or bolster the importance of conditions in the contract. A bad contract should include recitals that accomplish none of these goals and that include the words "WHEREAS" and the phrase "NOW, THEREFORE." Example:

WHEREAS, Jones and Smith each own a fifty percent (50%) interest in the horse known as "Silver"; WHEREAS, Smith desires to purchase Jones’s fifty percent (50%) ownership interest in said horse;WHEREAS, Jones is willing to sell his fifty percent (50%) interest in "Silver" to Smith on the terms set forth herein; and,WHEREAS, Smith is willing to purchase Jones’s fifty percent (50%) interest in "Silver" on the terms set forth herein;NOW, THEREFORE, in consideration of the mutual covenants herein contained, and other good and valuable consideration, in hand paid, the receipt and adequacy of which is hereby acknowledged, the parties hereto mutually agree as follows: (107 words)


Ways to Draft a Bad ContractIf you want a bad contract, always use the "WHEREAS / NOW, THEREFORE" format for recitals. Do NOT replace the recitals with a summary such as this:

Background

Jones and Smith purchased a horse for $50,000. They each paid $25,000 of the purchase price and agreed they would each own a 50% interest in the horse. Differences arose between Jones and Smith concerning the horse. Jones and Smith have agreed to resolve their differences on the terms in this Agreement. (52 words)


Ways to Draft a Bad Contract

4. Use WITNESSETH. Use "WITNESSETH" to separate the introduction from the contractual terms. Why? Because that’s how they did it in England 400 years ago. I recommend using a bold font, centering it, inserting a space between each letter, and underscoring each letter like this:

W I T N E S S E T H



Even better…

W I TN E S S E T H


Ways to Draft a Bad Contract5. Don’t define key terms. A bad contract avoids defining technical words or terms of art altogether or defines them in a way that prevents all parties from sharing a common understanding of them. If you include definitions, you may still draft a bad contract by:

• Using ambiguous words in your definitions (for example, a "ton" could mean 2,000 pounds or a long ton of 2,200 pounds)

• Defining terms not used in the contract (copying from another contract)• Using the defined term in the definition (for example, you may define a

"writing" to mean "any writing")• Defining more terms than necessary• Defining a term only after it has already appeared in the contract rather

than when it first appears.• Including substantive provisions of the agreement in the definitions



5. Don’t define key terms.

Example:

Thompson v. National Union Fire Insurance, 249 F.Supp.3d 606 (D. Conn. 2017)(Insurer's motion for summary judgment denied where exclusion in policy for projects insured under a "wrap‐up" or similar rating plan did not define those terms and was ambiguous).



3 Ways to Handle Definitions:

• Include a “Definitions” section the contract.

• Include the definitions in an attached Schedule to make the contract easier to read.

• Define each term as it appears.


Ways to Draft a Bad Contract6. Omit the consideration. An agreement not supported by consideration is invalid and unenforceable. Ireland v. Jacobs, 163 P.2d 203 (Colo. 1945).

A truly bad contract omits any discussion of consideration or only expresses the consideration given by one party.

Avoid vague descriptions of the consideration such as "for good and valuable consideration, in hand paid, the receipt of which is hereby acknowledged." A good contract should state the price, quantity, quality, time of performance, method of payment, and time of payment.

The contract should make clear what each party will do for the other party. “Consideration” consists of a benefit to the party promising, or a loss or detriment to the party to whom the promise is made.


Ways to Draft a Bad ContractIf the contract is unclear about the consideration, the best case scenario is that the Court allows parol evidence on what the agreed consideration was.

The worst case scenario:

• Summerhill, LLC v. City of Meriden, 131 A.3d 1225 (Conn. App. 2016)(Affirming trial court's granting of directed verdict where plaintiff was unable to show consideration to support the agreement.

• Hoopla Sports and Entertainment, Inc. v. Nike, Inc. 947 F.Supp. 347 (N.D. Ill. 1996)(Breach of contract claim dismissed where Plaintiff failed to allege the consideration for the agreement).


Ways to Draft a Bad Contract7. Don’t Address the Term of the Contract.

• Specify the term of the contract. • Avoid “During the term of this agreement” if you have not specified the

term.

Renewal

• Does the contract automatically renew? • Do the parties have the option to renew? On what terms?

Termination

Do the parties have a right to terminate for cause? On what conditions?Do the parties have a right to terminate without cause? How much notice is required?


Ways to Draft a Bad ContractIssues with the term of a contract and termination:

• Specify events that entitle a party to terminate the contract. (Common in loan agreements, leases, etc.). But could be used in other contracts.

• Termination for cause. Define what constitutes “cause.” (Is there an advantage to not defining it?)

• How much notice required to terminate?

• Specify which provisions survive termination of the contract, e.g., confidentiality, dispute resolution, non‐competes, etc.



Example:

Rossetto v. Pabst Brewing Co., Inc., 217 F.3d 539 (7th Cir. 2000)(Appellate court reversed trial court's granting of employer's motion for summary judgment where collective bargaining agreement was ambiguous as to duration of benefits and did not include "during the term of this agreement.").


Ways to Draft a Bad Contract8. Use inconsistent terminology. To draft a bad contract, you should use multiple terms to refer to the same thing. For example, if the contract defines "Agreement" to mean "this Agreement," you should sometimes use "Contract, "this document" and “this understanding” rather than "Agreement."

Example:

Langone v. USCO Distribution Services, Inc., 389 F.Supp.2d 91 (D. Mass. 2005)(Litigation involving the terms "temporary employee," "probationary employee," and "temporary worker.").



9. Omit headings or use misleading headings. Headings allow a reader to quickly see what each paragraph is about and make it difficult for a party to credibly claim they did not understand what they were agreeing to.

See, Haynes v. Farmers Inc. Exchange, 89 P.3d 381, 385 (Cal. 2004) (Court did not enforce a provision limiting coverage contained in a section with the heading "Other Insurance").


Ways to Draft a Bad Contract10. Include unrelated items in the same paragraph. For example, in a paragraph stating neither party may assign its interest in the contract, include a provision that requires an award of attorney fees to the prevailing party in any litigation.

Ponder v. Blue Cross of So. Cal., 193 Cal.Rptr. 632 (Cal. App. 1983)(Exclusionary clause appeared on page that contained approximately 2,000 words and was located under a subheading whose ordinary meaning does not encompass the condition purportedly excluded, thus discouraging discovery of the misplaced exclusionary clause.).



11. Do not number the paragraphs or pages. Numbered paragraphs and pages make it easier for people to find and discuss specific portions of the contract.

If you don’t number the pages and paragraphs, there may come a day when you are in court saying something like this to the judge: "I am looking at the sixth paragraph up from the bottom on the seventeenth page, about midway through the paragraph, right after the semicolon

Use Roman Numerals. If you must number your paragraphs and pages, consider using the archaic Roman numeral system. (Be sure to use only whole numbers because the Roman system contains no way to calculate fractions or to represent the concept of zero).



12. Do not specify the date, time, and place of performance.

Vague: Jones will deliver the horse to Smith.

Clear: Jones will deliver the horse to Smith at 574 Ridge Road, Durango, Colorado, by 5:00 p.m. on August 1, 2015, at Jones’s expense.



13. Do not address attorney’s fees. In most states, the general rule is that a court will not award attorney’s fees unless authorized by statute, rule, or a provision in the contract. Waters v. District Court, 935 P.2d 981, 990 (Colo. 1997).

A contract that lacks a “Loser Pays” attorney’s fees clause generally benefits the party with greater resources, and it can leave the “little guy” with no meaningful remedy.



14. Do not address venue. A bad contract fails to specify the venue for any litigation arising out of the contract. A good contract will contain something like this:

The parties agree that the exclusive venue for any litigation arising out of this Agreement will be in the District Court of Boulder County, Colorado.


Ways to Draft a Bad Contract15. Do not include a waiver of the right to a jury trial.

• One reason many of us older lawyers chose law school is because we grew up watching Perry Mason trap witnesses on cross‐examination. (Or L.A. Law, Boston Legal, etc).

• There is nothing juries like more than being forced to listen to two profitable businesses fight over money.

• Jurors especially enjoy hearing expert testimony from accountants and economists. Jurors love math.


Ways to Draft a Bad Contract16. Do not include a merger clause. A merger clause (Or “integration clause”) provides that the contract represents the complete and final agreement of the parties and that all prior discussions are merged into the contract.

A bad contract includes no merger clause, thus leaving the door open for disputes about promises or representations allegedly made that are not in the contract.

The purpose of the merger or integration clause to is show that the written contract is complete (or “integrated”), final agreement of the parties to exclude parol evidence.


Ways to Draft a Bad ContractIf you include a merger clause, draft one that includes lots of legalese to impress your client, the other party’s lawyer, and any judge or jurors who may ultimately read it. Here is a sample merger clause you may use:

This Agreement, along with any exhibits, appendices, addenda, schedules, and amendments hereto, encompasses the entire agreement of the parties, and supersedes all previous understandings and agreements between the parties, whether oral or written. The parties hereby acknowledge and represent, by affixing their hands and seals hereto, that said parties have not relied on any representation, assertion, guarantee, warranty, collateral contract or other assurance, except those set out in this Agreement, made by or on behalf of any other party or any other person or entity whatsoever, prior to the execution of this Agreement. The parties hereby waive all rights and remedies, at law or in equity, arising or which may arise as the result of a party’s reliance on such representation, assertion, guarantee, warranty, collateral contract or other assurance, provided that nothing herein contained shall be construed as a restriction or limitation of said party’s right to remedies associated with the gross negligence, willful misconduct or fraud of any person or party taking place prior to, or contemporaneously with, the execution of this Agreement. (174 words)

Do NOT use a simple, concise merger clause such as this:

This Agreement sets forth the complete agreement of the parties. There are no promises or representations other than those in this Agreement. (22 words)



17. Do not address modification. Litigation sometimes arises when a party claims the parties orally modified their agreement after signing the contract. A good contract provides that any modifications must be in writing and signed by both parties.

But even when a contract provides that modifications must be in writing, the parties can modify that provision by their words or conduct.


Ways to Draft a Bad ContractA written contract may be modified by a later oral agreement, Cordillera Corp. v. Heard, 592 P.2d 12 (Colo. App. 1978), aff'd, 612 P.2d 92 (Colo. 1980), even in the face of a specific provision in the written agreement that all modifications must be in writing. Colorado Investment Services, Inc. v. Hager, 685 P.2d 1371 (Colo. App. 1984).

In addition, an express provision in a written agreement may be waived, either expressly or by implication. Ebrahimi v. E.F. Hutton & Co., 794 P.2d 1015 (Colo. App. 1989). Such a waiver may be implied if a party engages in conduct which manifests an intent to relinquish the right or privilege or acts inconsistently with its assertion. Cooper v. First Interstate Bank of Denver, N.A., 756 P.2d 1017 (Colo. App. 1988). And, the question of waiver is a question of fact which is also not normally appropriate for summary judgment. See Burman v. Richmond Homes Ltd., 821 P.2d 913 (Colo. App. 1991).



This contract may not be modified, except in a writing signed by both parties. The parties may not modify this provision orally or by their conduct. No waiver of this provision shall be valid unless in a writing signed by both parties.



18. Do not address dispute resolution. A good contract specifies the method the parties will use to resolve disputes, such as mediation, arbitration, or litigation.

Vague: In any dispute arising out of this Agreement, the parties will submit to mediation.


Ways to Draft a Bad ContractComplete:

In any dispute arising out of this Agreement, the parties must participate in mediation before filing suit.

The mediator will be Jane Johnson of XYZ Mediation, Inc., and the mediation will be held in Boulder, Colorado. The parties will each pay half the mediator’s fees.

Any party may initiate mediation by sending a written demand to the other party. If the other party does not respond to the demand within fourteen days or fails to participate in any scheduled mediation, the aggrieved party may seek an order compelling mediation, and in that event the other party shall pay the aggrieved party’s attorney’s fees and costs incurred in seeking an order to compel mediation.


Ways to Draft a Bad Contract19. Include a cockamamie scheme to select an arbitrator or a mediator. For example, rather than agreeing on the mediator or arbitrator ahead of time and identifying him or her in the contract, try something like this:

In any dispute arising out of this Agreement, the parties agree that they will select an arbitrator by the following method: Each party shall designate its choice to serve as the arbitrator by serving written notice of that party’s choice on the other party. If the parties do not agree on the arbitrator, the two arbitrators selected by the parties shall then designate a person to serve as the arbitrator.


Ways to Draft a Bad Contract20. Include inconsistent provisions.

In any dispute arising out of this Agreement, the parties agree they will participate in binding arbitration to resolve the dispute

Then, in the next paragraph, include something like this:

In any dispute arising out of this Agreement, the parties agree that the exclusive venue for any litigation shall be in the District Court of Boulder County, Colorado.

Once an ambiguity appears, the court must examine the contract as a whole to determine if anyof the other provisions might resolve the ambiguity. Travelers Ins. Co. v. Jeffries–Eaves, Inc., 166Colo. 220, 223, 442 P.2d 822, 824 (1968).

If the ambiguity remains and therefore the challenged provision is susceptible to two differentbut reasonable meanings, the provision must be construed against the drafter thereof. HeclaMining Co. v. New Hampshire Ins. Co., 811 P.2d 1083, 1090 (Colo. 1991).



21. State that the parties will agree on a term later.

Seller will deliver a vehicle to buyer in a color to be agreed upon.



22. Do not specify which jurisdiction’s laws will govern. Many contracts involve parties living or operating in different jurisdictions or operating in several jurisdictions.

The doctrine of lex loci contractus, which holds that when a contract is silent on what law will govern, the governing law will be that of the jurisdiction where the contract was made. But what if the parties are in different states and signed it electronically?



23. Make it difficult to distinguish the parties. Suppose one party is ABC, Inc., and it owns ABC Transportation, Inc. and ABC Credit, Inc., both of which the contract mentions. By simply referring to "ABC" throughout the contract, you can create confusion as to which entity is a party to the contract or whether all three are.

A variation on this is to confuse an entity with its individual owner. For instance, you might sometimes refer to a party as "Acme, LLC," but at other times refer to it as "Johnson" (owner of the LLC).



24. Cut and paste from the Internet. I did a Google search for "sample contract for sale of goods," and got 40.8 million results.

In any dispute arising out of this Agreement, the parties will submit to binding Arbitration using the rules of the American Arbitration Association (AAA). This makes your contract more bad for several reasons:

1. It does not specify that the parties must use the AAA; it states only that they must use the AAA’s rules.

2. It does not specify which AAA rules will apply; the AAA has many sets of rules for various types of disputes.

3. The lawyer using this language may not realize that the AAA’s rules can be just as complex as the rules of procedure the lawyer hoped to avoid by including an arbitration provision in the first place.

4. The lawyer using this provision may be unfamiliar with the AAA’s fee structure. In disputes involving small businesses or small amounts of money, it may not make sense to use the AAA.



25. Don’t include a non‐assignment provision. Generally, nothing prevents a party from assigning its interest in a contract to some other person or entity.

If your client’s local supplier assigns its interest in a contract to a supplier in North Korea…



26. Don’t require that notices be in writing.

No party may assign its interest in this Agreement without the consent of the other party.

No party may assign its interest in this Agreement without the written consent of the other party.



27. Be redundant.

• Adds to length• Increases risk of inconsistency



28. Don’t address indemnification.

Indemnification is the right of a party that is legally liable for a loss (the indemnitee) to shift that liability to another party (the indemnitor). American Transtech, Inc. v. U.S. Trust Corp., 933 F.Supp. 1193, 1202 (S.D.N.Y. 1996). Indemnification generally involves claims by third‐parties, not claims between parties to the agreement.

However, an indemnity provision may apply to claims between the parties (first‐party claims or direct claims) if the provision clearly applies to first‐party claims or is written so broadly that a court interprets it that way. Hot Rods, LLC v. Northrop Grumman Sys. Corp., 242 Cal. App. 4th 1166, 1170 (Cal. App. 2015).


Ways to Draft a Bad ContractIn Hot Rods, LLC v. Northrop Grumman Sys. Corp., 242 Cal. App. 4th 1166, 1170 (Cal. App. 2015), Northrup sold an environmentally compromised property to Hot Rods. The sales contract addressed environmental indemnity this way:

Seller hereby agrees to indemnify, defend by legal counsel…, and hold the Buyer … harmless from and against any claims, demands, penalties, fees, fines, liability, damages, costs, losses, or other expenses including, without limitation, reasonable environmental consulting fees and reasonable attorney fees arising out of (a) any Environmental Action(s) and/or Remediation involving an environmental condition or liability involving the Real Property caused by an act or omission of Seller… (Emphasis added).

When Hot Rods subsequently sued Northrop for failing to reimburse its losses from remediation activities, Northrup argued it was not responsible because the agreement covered only third party claims. The court disagreed, holding the phrase “any claims” was broad enough to encompass first‐party claims.

To eliminate ambiguity, drafters should address the issue directly by including language stating the parties' intent. For example, "This indemnity provision applies only to third‐party claims."


Ways to Draft a Bad ContractNot all courts believe “indemnify” and “hold harmless” mean the same thing.

See, e.g., Queen Villas Homeowners Association v. TCB Property Management, 56 Cal. Rptr. 3d 528, 534 (Cal. Ct. App. 2007) ("Indemnify" is an offensive right allowing an indemnitee to seek indemnification. “Hold harmless” is defensive ‐‐ the right not to be bothered by the other party itself seeking indemnification.).

The routine inclusion of "hold harmless" has led to litigation over whether the indemnitor must advance defense costs to the indemnitee.Majkowski v. American Imaging Management Services, 913 A. 2d 572 (Del. Ch. 2006). "Hold harmless" language may also open the door to claims that one party agreed to release the other from responsibility for its own negligence. Rooz v. Kimmel, 55 Cal.App.4th 573, 582 (1997) (Hold harmless provision prevented plaintiff from recovering damages resulting from defendant's negligence). See also, U.S. v. Contract Management, Inc., 912 F. 2d 1045 (9th Cir. 1990).

If they mean the same thing, you don’t need both. If they mean different things, beware of unintended consequences.


Ways to Draft a Bad ContractThe Duty to Defend

An indemnity provision may include a duty to defend. A duty to defend, if specified, requires the indemnitor to defend the indemnitee in a legal action. This could be critical because the indemnitee may lack the resources to defend a suit while the indemnitor may have significant resources. An indemnitee with significant resources sued by a third party may prefer to defend itself and seek reimbursement from the other party for costs and attorney’s fees after the matter is resolved. Conversely, the indemnitor may prefer to control the defense because the indemnitor will ultimately be liable for any losses the indemnitee suffers.

In the absence of a contrary provision, implicit in the indemnitor’s duty to defend is the right to control the defense. Farmers Grp., Inc. v. Trimble, 691 P.2d 1138,1141 (Colo. 1984). This includes the selection of counsel. See, e.g., Cent. Mich. Bd. of Tr. v. Emp’rs Reinsurance Corp., 117 F.Supp.2d 627, 634–35 (E.D. Mich. 2000)

Although an indemnitor with a duty to defend normally has the right to control the defense, in the absence of a contrary provision, the indemnitor may not have the right to settle third‐party claims against the indemnitee without the indemnitee's consent. Lawyers drafting indemnity provisions should address this issue to avoid uncertainty. A lawyer representing an indemnitor charged with a duty to defend should also consider the lawyer's possible ethical obligations to the indemnitee.



29. Don’t address limitations on liability.A limitation on liability clause is a provision stating that if one party damages the other, it is not responsible for the full amount of the damage.

A limitation on liability clause is generally enforceable unless prohibited by statute, unconscionable, or it violates public policy.

Types of Limitations on Liability:

• Dollar caps

• Limitations on the types of damages, e.g., consequential, indirect,incidental, special, and punitive. (Damages where it is more difficult toforesee the dollar amount of damage).



Watch for conflicts between the indemnification provision and any limitations on liability.

You may want to make clear that limitations on liability do not apply to:

• Indemnity claims when a third‐party sues• Breach of confidentiality• Gross negligence, willful misconduct, fraud



30. Don’t address Force Majeure

The danger of attempting to list every possibleForce Majeure event lies in the doctrine ofExpressio Unius Est Exclusio Alterius.

If your clause says, “Acts of God, fire, or flood,”but doesn’t say “earthquake,” you may have anissue.



Not Defined:

“To the extent caused by force majeure, nodelay, failure, or default will constitute abreach of this Agreement.” See, David W. Tollen, TheTech Contracts Handbook, American Bar Association, 2010.


Ways to Draft a Bad Contract30. Other issues with Force Majeure

• Is the non-performing party’s performance excused temporarily or permanently? Iftemporary, for how long is performance excused?

• Must the event be unforeseen? Must the event be beyond the control of the non-performing party? See, Perlman v. Pioneer Ltd. Partnership, 918 F.2d 1244 (5th Cir.1990). (Where contract did not require the event be unforeseen or beyond control ofa party, trial court erred in reading those terms into the contract).

• Obligation of the non-performing party to give notice of Force Majeure event within aspecified time.

• Non-performing party’s duty, if any, to attempt to respond to Force Majeure event.

• Right of a party to terminate contract if Force Majeure event continues for specifiedtime.



31. Use Both Numerals and Letters to Create Confusion

Charles R. Tips Family Trust v. PB Commercial, LLC, 459 S.W.3rd 147 (Tex. App. 2015)(Contract stated the principal amount as “ONE MILLION SEVEN THOUSAND DOLLARS AND NO/100 ($1,700,000.00) DOLLARS.” (Court ruled words controlled over numbers).


Ways to Draft a Bad Contract32. Use a formalistic signature format. Now that you have prepared the baddest contract ever, the parties must sign it to indicate they agree to its terms. A bad contract must include a formal signature section to make sure the parties know that the forty‐seven‐page monstrosity they are signing (with W I TN E S S E T Hemblazoned across the first page) is an important legal document rather than a less important communication like a note to little Wendy’s teacher explaining that her bunny ate her homework. I recommend something like this:

IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals the day and year first above written.

This is particularly bad when there is no date and year above the signatures.

Do NOT do this:________________________ John Jones (Date)________________________ Suzy Smith (Date)



33. Change Your Language Without Wanting to Change Your Meaning

“Except to the extent expressly permitted by this Agreement, Shareholders may not sell, transfer, assign, pledge, encumber or otherwise dispose of or convey (by operation of law or otherwise) shares of the Corporation.”

“If a shareholder proposes to transfer shares and dies prior to the closing of the sale and purchase contemplated by Section 1 . . . .”This example taken from Transactional Skills Drafting: Contract Drafting – Beyond the Basics, Scott J. Burham, Tennessee Journal of Business Law (2009, page 253).



34. Don’t pay attention to modifiers.

“Seller shall ship oranges and grapefruit from Florida.”

“Seller shall ship: (1) oranges, and (2) grapefruit from Florida.”

“Seller shall ship oranges and grapefruit, both from Florida.”This example taken from Transactional Skills Drafting: Contract Drafting – Beyond the Basics, Scott J. Burham, Tennessee Journal of Business Law (2009, page 253).


Ways to Draft a Bad Contract35. Don’t pay attention to punctuation.

The Agreement shall continue in force for a period of five years from the date it is made, and thereafter for successive five year terms, unless and until terminated by one year prior notice in writing by either party.

The Agreement shall continue in force for a period of five years from the date it is made, and thereafter for successive five year terms unless and until terminated by one year prior notice in writing by either party.This example taken from Transactional Skills Drafting: Contract Drafting – Beyond the Basics, Scott J. Burham, Tennessee Journal of Business Law (2009, page 253).


Ways to Draft a Bad Contract36. Be Unclear About What is and is Not Part of the Contract.Parties use Schedules to provide details about the transaction that itwould be burdensome to include in the contract. Parties useSchedules to disclose information that would otherwise be part of thecontract proper, such as representations and warranties, or exceptionsto other provisions. Parties may use Schedules for several reasons:

1. It may make the contract easier to read.2. It may simplify the drafting of the contract since drafting schedules

can be assigned to a different lawyer.3. Including a Schedule may be useful where some of the information

is not available when the drafter prepares the Schedule.4. In some cases, such as with S.E.C. filings, schedules are not filed or

made available to the public.



Exhibits are separate documents relating to thecontract that the parties want incorporated into thecontract.

An Exhibit is a stand‐alone document. It can be adocument currently in effect or one to be effectivesometime after the parties sign the contract. It canbe a signed contract, an unsigned contract, a formto be used in complying with a contractrequirement, or some other document.



Specify what document governs if there is a conflict:

“In case of a conflict or inconsistency between this Agreement and anyother contract documents, this Agreement shall control.” City ofBenkelman, Nebraska v. Baseline Engineering Corporation, 2016 WL1092476 (D. Neb. 2016)

"The language and terms set forth in this Exhibit shall prevail in theevent of a conflict between this Exhibit and the foregoing printedLease" Westlaw Home Magnolia Point Minerals, LLC v. ChesapeakeLouisiana, LP, 2013 WL 398957 (W.D. La. 2013)



Things to watch out for:

• Referring to an “attached” document that is not attached.

• Failure to make clear that a document is part of the contact.

• Incorporating a document through a bad hyperlink.

• Incorporating a document that incorporates other documents.


Ways to Draft a Bad Contract37. Use Plenty of Legalese.

“Furthermore, the release agreement here was written in simple and clearterms, it was not inordinately long and complicated, and Riehl indicated inher deposition that she understood that by executing the agreement, she wasin fact granting B & B a release.” B&B Livery, Inc. v. Riehl, 960 P.2d 134 (Colo.1998). (Release that was broader than statutory limitation on liability wasenforceable).

Exculpatory clause in fitness club member usage agreement did not clearlyand unambiguously waive fitness club member's claim under the PremisesLiability Act (PLA) for personal injuries sustained in club's locker room fromtripping on a hair dryer cord after washing her hands; agreement usedexcessive legal jargon, was unnecessarily complex, and created a likelihoodof confusion or failure of a party to recognize the full extent of therelease provision. Stone v. Life Time Fitness, Inc., 411 P.3d 225 (Colo. App.2016).



Indemnification provision was enforceable where itis “clear and unambiguous and is written in plainlanguage, not hidden nor lost in a haze of smallprint and legalese.” Midwest Concrete Placement,Inc. v. L&S Basements, Inc., 363 Fed.Appx. 570 (10th2010).

Disclaimer language in employee manual notenforceable where written in “confusing legalese.”Nicosia v. Wakefern Food Corporation, 643 A.2d 554(N.J. 1994).


Ways to Draft a Bad ContractLanguage limiting liability in service contract was not hidden in fine print, contract was neither written in unnecessary legalese nor exploitative, and homeowner's estate alleged no facts to support an inference that there was deceptive bargaining conduct at time of contracting. M.F. v. ADT, Inc., 357 F.Supp.3d 111 (D. Kan. 2018).

Forum selection clause enforceable where “written in plain language, not complex ‘legalese’; and it is written in all capital letters, not hidden in fine print.” Essendant Co. v. American Product Distributors, Inc., 2019 WL 4735406 (N.D. Ill. 2019)



Many statutes require plain English in certain contracts:

Section 10‐4‐633.5, C.R.S. (2016) (plain language required in auto insurance policies).

A seller commits a deceptive trade practice by failing “to deliver to the customer at the time of an installment sale of goods or services a written order, contract, or receipt setting forth the name and address of the seller, the name and address of the organization which he represents, and all of the terms and conditions of the sale, including a description of the goods or services, stated in readable, clear, and unambiguous language.” C.R.S. § 6‐1‐105(1)(m), C.R.S.



Procedural unconscionability includes the existence of factors such as sharp practices, the use of fine print and convoluted language, as well as a lack of understanding and an inequality of bargaining power.Brown v. Louisiana‐Pacific Corp., 820 F.3d 339, (8th Cir. 2016).

Substantive unconscionability includes harsh, oppressive, and one‐sided terms. Id.

Some states require that a provision be both procedurally and substantively unconscionable to be unenforceable, but not all do. See, In Re Marriage of Shanks, 758 N.W.2d 506 (Iowa 2008) (addressing procedural unconscionability even after finding a lack of substantive unconscionability).


Plain English in ContractsLEGALESE:

• Double negatives• Jargon• Lengthy sentences• Massive paragraphs• Needless words• Passive voice• Redundant provisions• Poor structure


Benefits of Plain English

• Lowers costs• Improves productivity• Increases credibility• Reduces misunderstandings• Shortens documents• Less likely to scare potential customers• Makes it more difficult for a party to claim lack of understanding

• Easier for a judge or jurors to understand


Benefits of Plain EnglishIncreased Productivity

Josh Bernoff, Bad Writing is Destroying Your Company’s Productivity, Harvard Business Review, September 6, 2016. https://hbr.org/2016/09/bad‐writing‐is‐destroying‐your‐companys‐productivity

Chris Myers, In Business, Clarity Comes First, Forbes, October 17, 2015.https://www.forbes.com/sites/chrismyers/2015/10/17/in‐business‐clarity‐comes‐first/#76e1705f3c25

Shawn Burton, The Case for Plain‐Language Contracts, Harvard Business Review, January‐February 2018. https://hbr.org/2018/01/the‐case‐for‐plain‐language‐contracts (Plain English contracts took 60% less time to negotiate).


Writing in Plain English1. Don’t Use long sentences. Example:

No person has been or is authorized to give any informationwhatsoever or make any representations whatsoever other than thosecontained in or incorporated by reference in this document, and, ifgiven or made, such information or representation must not be reliedupon as having been authorized. (47 words)

Use short sentences. Example:

You should rely only on the information in this document. We have notauthorized anyone to provide you different information. (20 words)


This Agreement, along with any exhibits, appendices, addenda, schedules, andamendments hereto, encompasses the entire agreement of the parties, andsupersedes all previous understandings and agreements between the parties, whetheroral or written. The parties hereby acknowledge and represent, by affixing their handsand seals hereto, that said parties have not relied on any representation, assertion,guarantee, warranty, collateral contract or other assurance, except those set out inthis Agreement, made by or on behalf of any other party or any other person or entitywhatsoever, prior to the execution of this Agreement. The parties hereby waive allrights and remedies, at law or in equity, arising or which may arise as the result of aparty’s reliance on such representation, assertion, guarantee, warranty, collateralcontract or other assurance, provided that nothing herein contained shall beconstrued as a restriction or limitation of said party’s right to remedies associated withthe gross negligence, willful misconduct or fraud of any person or party taking placeprior to, or contemporaneously with, the execution of this Agreement. (174 words)

This Agreement sets forth the complete agreement of the parties. There are nopromises or representations other than those in this Agreement. (22 words)

Copyright 2020 by Mark Cohen, J.D., LL.M.

Writing in Plain EnglishPlain English Uses Fewer Words

90

Writing in Plain English

2. Don’t use passive voice. In the active voice, the subjectof the sentence performs the action. In the passive voice,the subject is acted upon. The active voice requires fewerwords and tracks how people think.

Passive: This contract may be terminated at any time byeither party on thirty day’s written notice to the otherparty. (20 words)

Active: Either party may terminate this contract on thirtyday’s written notice to the other party. (15 words)



Active voice usually requires fewer words andbetter reflects the chronology of events.

If you have trouble spotting examples of passivevoice, look for be‐verbs (is, are was or were)followed by a verb ending in –ed. For instance,The Motion was denied.


Writing in Plain English3. Use personal pronouns. Personal pronouns speak to thereader and help avoid abstractions.

Without personal pronouns:

Unless otherwise inconsistent with this Agreement or notpossible, INSPECTOR agrees to perform the inspection inaccordance with the current Standards of Practice of theInternational Association of Certified Home Inspectors("InterNACHI") posted at www.nachi.org/sop.htm. AlthoughINSPECTOR agrees to follow InterNACHI’s Standards ofPractice, CLIENT understands that these standards containlimitations, exceptions, and exclusions. (55 words)



With personal pronouns:

Unless otherwise noted in this Agreement or notpossible, we will perform the inspection inaccordance with the current Standards of Practiceof the International Association of Certified HomeInspectors ("InterNACHI") posted atwww.nachi.org/sop.htm. You understand that thesestandards contain limitations. (42 words)



4. Don’t Use superfluous words. Never use one word when several will do. More words mean longer contracts, and longer contracts justify higher fees. Here are some examples of simple words that can be replaced with superfluous words:

Simple LegaleseIf In the event thatAlthough In spite of the fact thatBecause Owing to the fact that



5. Avoid redundancy:• rest, residue, and remainder• null and void• remise, release, sell, and quit claim• due and payable• indemnify and hold harmless• sell, convey, assign, transfer, and deliver



6. Don’t use unnecessary, legalistic words.

• Aforementioned• Hereinafter• Whatsoever• Therein• Herein• Notwithstanding



7. Avoid foreign language:

• Inter alia• Assuming arguendo• A fortiori / a priori• Ab initio• De facto



8. Keep sentences and paragraphs short.

Accepted readability formulas such as the Flesch ReadingEase Scale rely heavily on sentence and paragraph length.Try to keep your average sentence length to 20 or 25 words.

A long sentence usually indicates you are trying to say toomany things at once. The same applies to paragraphs; tryto keep the average number of sentences in a paragraph tofive or six.



9. Avoid nominalizations (converting a verb to a noun).

Legalese Plain EnglishYou may make an application You may applyIf a court makes a determination If a court determinesYou will provide information You will inform



10. Avoid negatives

Legalese: Persons other than the primary beneficiarymay not receive these dividends. (12 words)

Plain English: Only the primary beneficiary may receivethese dividends. (10 Words)


Writing in Plain English11. Don’t use negative compounds.

Negative compound Single word

not able unablenot accept rejectnot certain uncertainnot unlike similar, alikedoes not have lacksdoes not include excludes, omitsnot many fewnot often rarelynot the same differentnot … unless only ifnot … except only ifnot … until only when


Writing in Plain English12. Keep the subject, verb, and object close together. Mostsentences should follow the normal English word order: subject, verb, andthen object (if any). Consider this example from Richard Wydick’s PlainEnglish for Lawyers:

The proposed statute gives to any person who suffers financial injury by reason of discrimination based on race, religion, sex, or physical handicap a cause of action for treble damages.

There is a 21‐word gap between the verb (gives) and the object (cause of action). One remedy is to make two sentences. Another is to move the intervening words to the end of the sentence:

The proposed statute gives a cause of action for treble damages to any person who suffers financial injury because of discrimination based on race, religion, sex, or physical handicap.



Keep the subject, verb, and object close together.

Legalese: Holders of Class A and Class B certificates will beentitled to receive on each payment date, to the extent moniesare available therefor (but not more than the Class A CertificateBalance or Class B Certificate Balance then outstanding, adistribution. (42 words)

Plain English: Class A and Class B Certificate Holders will receivea distribution on each payment date if funds are available onthose dates for their class. (25 words)



13. Don’t use numerals AND letters.

Legalese: Buyer will pay seller one million nine hundred fifty thousand dollars ($1,950,000.00).

Plain English: Buyer will pay seller $1,950,000.00.



14. Watch out for “of”. It often signifies wordiness. The Court previously advised the Defendant of the fact that there was no factual basis for such an instruction. 19 words

The Court previously advised the Defendant that there was no factual basis for such an instruction. 16 words



15. Watch out for “that” and “which.”“That” and “which” are often unnecessary.

The Court previously advised the Defendant thatthere was no factual basis for such an instruction.



16. Refer to people and organizations by name.

For example, rather than using “Lessor” and “Lessee,” use “Smith” for the “Lessor” and “Jones” in place of “Lessee.”


Using MS Word to Reduce LegaleseMicrosoft Word’s grammar check function offers the ability analyze the readability of any document. It tells you:

• the number of words in the document• the number of characters• the number of paragraphs• the number of sentences• the average sentences per paragraph• the average words per sentence• the average number of character per word• the percentage of sentences that employ passive voice• the Flesch Reading Ease Scale• the Flesch‐Kincaid Grade Level Scale

There are also similar open source programs such as Abiword.


Using MS Word to Reduce Legalese


Using MS Word to Reduce Legalese1. Open MS Word2. Click “File”3. Click “Options”4. Click “Proofing”5. Check the box “Check grammar with spelling”6. Check the box, “Show readability statistics”7. For “writing styles, select “grammar and style”8. Click “Settings” and check all the boxes under

“grammar” and “style”9. Click “OK”


Materials on Plain English

Legal Writing in Plain English by Bryan A. Garner and

Plain English for Lawyers (5th ed.) by Richard C. Wydick.

U.S. Securities and Exchange Commission Plain English Handbook available for free at https://www.sec.gov/pdf/handbook.pdf

Federal Plain Language Guidelineshttps://plainlanguage.gov/media/FederalPLGuidelines.pdf


Boilerplate in Plain English


Boilerplate

Not Assignable. Neither party may assign this Agreement without the other party’s written consent.


Boilerplate

Binding on Successors. This Agreement binds the parties’ successors.

(Define “successors” in the definitions if you wish).


Boilerplate

Governing Law.Colorado law governs this Agreement.


Boilerplate

Invalidity. If a court declares any provision in this Agreement invalid, the other provisions remain valid. In that event, the court must modify the invalid provision for the (Seller’s) (Buyer’s) benefit to the fullest extent the law allows.


Boilerplate

Reading / Review of Counsel. The parties have read this Agreement and had the opportunity to have qualified counsel review it.


Boilerplate

Voluntary Agreement. The parties sign this Agreement voluntarily, free of any duress.


Boilerplate

Venue. The exclusive venue for any action arising out of this Agreement will be the County or District Court of Boulder County, Colorado.


BoilerplateVenue (in a Lease).

A. The exclusive venue for any eviction or injunction we may seek arising out of this lease will be Arapahoe County, Colorado. The exclusive venue for any other action arising out of this lease will be in Boulder County, Colorado,

B. You may not assert a counterclaim against us in any action for eviction or injunction that we file against you; however, you may file a separate action against us in Boulder County.


Boilerplate

Waiver of Jury. In any action arising out of this Agreement, the parties waive jury trial.


Boilerplate

Attorney’s Fees, Expenses, and Court Costs. In any action arising out of this Agreement, the court must award the prevailing party its actual attorney’s fees, litigation expenses, and court costs.


Boilerplate

Construction. If a court declares any provision in this Agreement ambiguous, the court shall not construe that provision against the party drafting the Agreement. Both parties participated in negotiating this Agreement and had the opportunity to consult counsel before signing it.


Boilerplate

Entire Agreement. This Agreement contains the complete understanding of the parties. There are no promises, representations, or terms other than those in this Agreement.


Boilerplate

Modification. The parties may not modify this Agreement, except in a writing signed by the parties.


Boilerplate

Headings. The headings in this Agreement are for convenience; they do not define, limit, or extend the scope of any provision in this Agreement.


Boilerplate

Prompt Performance. Time is of the essence in all provisions in this Agreement.


Boilerplate

Representations. The parties represent that they have the ability and intend to comply with every provision in this Agreement, that they are solvent, and that they are not aware of any matter that might cause them to be unable to perform their obligations under this Agreement.


Boilerplate

Waiver. Failure to invoke any right in this Agreement by either party is not a waiver of that right.


Boilerplate

Events Beyond A Party’s Control. No party will be liable for failing to perform any obligation under this Agreement if unforeseeable events beyond that party’s control prevent performance.


Boilerplate

Disputes.

A. Required Notice. If you believe you have a claim against us arising out of this Agreement, you must provide us with a written notice of your claim in sufficient detail and with sufficient supporting documents that we can intelligently evaluate it. Failure to provide this notice bars you from filing suit.

B. Mediation. If you provide the notice required by subparagraph A and we are unable to resolve the matter, you must participate in non‐binding mediation before filing suit. The mediator will be Steve Smith of XYZ Dispute Resolution in Boulder. Each party will pay ½ of the mediator’s fees. The mediation may not exceed four hours unless both parties consent.


Boilerplate

Notices.

A. Where this Agreement requires or permits one party to give notice to the other, the party giving notice must send the notice by email. Smith’s email address is [email protected]. Jones’ email is [email protected]

B. Notice sent by email is effective on the date sent.

C. If a party’s email address changes, that party must promptly notify the other party of its new email address.


Boilerplate

Authority. If X is a corporation, LLC, or similar entity, the person signing this Agreement for X represents that he has authority to do so.


Boilerplate

Personal Guaranty. In consideration of X’s willingness to enter into this Agreement, I personally and unconditionally guarantee Y’s prompt performance of all obligations in this Agreement. I agree I am bound by all provisions in the Agreement and any modifications to it. X may enforce this guarantee without first resorting to other remedies. ____________________________________ GUARANTOR (Date)


Part 4

CONTRACT CHECKLIST


Contract ChecklistTitleIntroductionParties

Exact Legal Name DBAShort name to be used in the contract, e.g., XYZ Corporation (“XYZ”)State of Incorporation can be helpful, but not essential

Effective Date (may be different than date signed)DefinitionsRepresentationsDuties of Each PartyRights of Each PartyPriceQuantitiesDelivery DateWhich Party Pays for Delivery?Risk of LossTime of PaymentMethod of Payment, e.g., check, certified check, wire transfer, etc.Term of Agreement (Perpetual, fixed term)


Contract ChecklistTermination of Agreement

For causeWithout causeNotice of Termination Required Time Period

Survival of Provisions After Termination (confidentiality, noncompetition, nonsolicitation)SecurityInterest

RateHow compounded

Late Payment FeesInsurance

Types and levels of coverageProviding proof of coverageRequiring notice if coverage is cancelled

Exclusivity (franchise agreements, distributorship agreements, etc.)Risk of LossConditions PrecedentConditions SubsequentStatutorily Required Language (Example: Equine Liability Statute)Indemnification (one way or mutual?)Independent Contractor Provisions Notice and Opportunity to CureWarranties Disclaimer of Warranties


Contract ChecklistForum Selection / VenueGoverning LawDispute Resolution

ArbitrationMediationLimits on length of mediation or arbitrationWho pays for arbitration or mediation?Who will be the arbitrator or mediator?

Waiver of JuryAttorney’s Fees, Expense, and Costs

Limitations on Liability (State that the limitation is reasonable and enables the party to provide the good or service at the agreed price). Core‐Mark Midcontinent, Inc. v. Sonitrol Corp., 300 P.3d 963 (Colo. App. 2012)

Liquidated DamagesNon‐AssignabilityDefaultTaxes

Property taxesSales taxesIncome taxesAllocation of purchase price (IRS Form 8594)

ConfidentialityPersonal Guaranty


Contract ChecklistInvalidity / SeverabilityReading / Review of CounselVoluntary AgreementIntegration / Merger ClauseModificationRules of ConstructionAuthority to Bind the BusinessRemedies

DamagesSpecific performanceInjunctive relief

SignaturesCounterpartsFax / Electronic SignatureDuplicate or Triplicate Originals

Protection of Intellectual PropertyConfidentialityOwnership of IP / Works for HireNoncompetition Agreements (magic words from Colorado statute)Nonsolicitation Agreements

Exhibits / AttachmentsIncorporation of Documents via Hyperlinks

Rights and Obligations of SuccessorsTime is of the EssenceRenewal

Automatic RenewalOption to Renew / Renewal Terms

No WaiverNotices

Method of noticeAddress or email addressWhen notice effective


About MarkMark Cohen has 36 years of experience as a lawyer. He earned a B.A.in Economics at Whitman College and earned his law degree at the University of Colorado in Boulder. He earned an LL.M. Agricultural and Food Law from the University of Arkansas, where he also taught advanced legal writing. His diverse legal career includes service as an Air Force JAG, a Special Assistant U.S. Attorney, a prosecutor, a municipal judge for Boulder, six years on the Advisory Board of The Colorado Lawyer (including one as chairperson), and service on the Executive Board of the Colorado Municipal League.He founded the nonprofit Plain English Institute and is its president.

Mark wrote six articles in the Am.Jur. Proof of Facts series, including the seminal article on piercing the corporate veil. He has written numerous articles and book reviews for The Colorado Lawyer. In 2004, he won 2nd prize in the SEAK National Legal Fiction Writing Competition. He wrote two mysteries published by Time Warner, and his first mystery, The Fractal Murders, became a Book Sense ® mystery pick and was a finalist for the Colorado Book of the Year. His non‐legal articles have appeared in magazines such as Inside Kung Fu, Camping & RV, and Modern Dad. He is a member of the Institute of General Semantics and the Mystery Writers of America. He writes a regular column for the Nederland Mountain‐Ear.

Mark’s practice focuses on drafting and reviewing legal documents including contracts, corporate documents, real estate documents, employment documents, intellectual property documents, motions, pleadings, and briefs. He also litigates cases arising out of poorly drafted documents. He enjoys helping businesses and other lawyers improve their legal and non‐legal documents by translating them from Legalese into plain English.

Mark holds a black belt in karate and serves on the board of directors of Dart, Inc., a Boulder non‐profit that offers training in personal safety, violence prevention, and appropriate dating relationships.
