Contract DraftingClass 7Tues Feb 7

University of Houston Law Center

D. C. Toedt III

In the news …

Common contract f***-ups

Common contract f***-ups

“10. The contract that is signed with an illegible signature and no information is given as to who has signed or their position within the organisation.”

[From “Top 10 howlers when preparing contracts for signature,” by the IP Draughts blog at http://goo.gl/Km6Dw.]

Drafting exercise: Stark 18-5

Microsoft NDA – general provisions

Assignment of K – Port of NY & NJ

Section 4(g) – assignment of K

QUESTION: Are most contracts ordinarily assignable if K doesn’t say otherwise?A. Yes

B. No

C. Yes, with some exceptions IP licenses Special situations (e.g., unique capabilities /

personal trust & confidence)

Assignment of K (Z&B pp. 23-26)

QUESTION: Why might a party want to restrict the other side’s assignability? (Think of both business reasons and “because I can” reasons.)

Assignment of K (Z&B pp. 23-26)

QUESTION: Why might a company wantto refuse to agree to an assignment-consent requirement in a draft contract? A. Don’t want to have to get consent to spin off a

division or other future M&A deals

B. Requirement would cause tax problems

C. Might want to move contract rights to affiliate

D. Requirement would cause antitrust problems

Assignment of K (Z&B pp. 23-26)

QUESTION: Why might a software vendor want its customers to be able to assign their license agreements? Hint: If a customer had to pay a large fee for consent to assign, what might it decide to do instead? Would the vendor’s competitors have anything to “contribute” to the customer’s thinking process?

Assignment of K (Z&B pp. 23-26)

FACTS: You’re entering into a contract with an agency of the State of New York.

QUESTION: Is there any way around the state-law assignment-consent requirement? Hint: See NY State Finance Law art. 9, § 138

Assignment of K (Z&B pp. 23-26)

CONTRACT PROVISION: “Customer may not assign this Agreement, including for example by operation of law (for example, as the result of a merger), without Vendor’s prior written consent.”

[Questions follow on subsequent slides]

Assignment of K (Z&B pp. 23-26)

CONTRACT PROVISION: “Customer may not assign this Agreement, including for example by operation of law (for example, as the result of a merger), without Vendor’s prior written consent.”

QUESTION: If Customer merges with another company without consent, is the merger void?

Assignment of K (Z&B pp. 23-26)

CONTRACT PROVISION: “Customer may not assign this Agreement, including for example by operation of law (for example, as the result of a merger), without Vendor’s prior written consent.”

QUESTION: What if the contract provision were like Microsoft NDA § 4(g) [Z&B p. 20]?

Assignment of K (Z&B pp. 23-26)

CONTRACT PROVISION: “Customer may not assign this Agreement, including for example by operation of law (for example, as the result of a merger), without Vendor’s prior written consent.”

QUESTION: What additional language might Customer want to negotiate, and why? (Hint: See the subheading “Assignment with transfer of business assets” at http://goo.gl/26MEx.)

Third-party beneficiaries (Z&B p. 20 § 4(b); pp. 27-28)

FACTS: 1. Sam signs a contract to sell Betty his car for $2,000. 2. Betty fails to pay. 3. As a result, Sam can’t pay his rent. 4. Sam’s landlord sues Betty as 3PB.

[Questions follow on subsequent slides]

Third-party beneficiaries (Z&B p. 20 § 4(b); pp. 27-28)

FACTS: 1. Sam signs a contract to sell Betty his car for $2,000. 2. Betty fails to pay. 3. As a result, Sam can’t pay his rent. 4. Sam’s landlord Larry sues Betty as 3PB.

QUESTION: Betty files MSJ - what result?

A. MSJ denied – Larry was a 3PB

B. MSJ deferred for further discovery

C. Betty wins – Larry was only incidental 3PB

Third-party beneficiaries (Z&B p. 20 § 4(b); pp. 27-28)

FACTS: 1. Sam signs a contract to sell Betty his car for $2,000. 2. Betty fails to pay. 3. As a result, Sam can’t pay his rent. 4. Sam’s landlord Larry sues Betty as 3PB.

QUESTION: What result if K said “Betty will pay $500 to Larry to take care of Sam’s back rent and the remaining $1,500 to Sam ….”?

Review: No-oral-modification provisions (Z&B pp. 70-71)QUESTION: In a contract under NY law for the sale of 1,000 widgets, will a court enforce a no-oral-modification provision?

A. No – past contract can’t prevent parties from agreeing to an amendment

B. Yes – NY statute expressly validates

C. Maybe, if no proof of estoppel

Review: Signature line

How would the signature block for Microsoft be written?

End of class