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Introduction to Transactional Drafting

Las Vegas, Nevada Saturday October 10, 2015 – 1:45-3:00 p.m.

NALS 64th Annual Education Conference & National Forum

Lori D. Johnson, Esq. Assistant Professor

University of Nevada, Las Vegas William S. Boyd School of Law

Program Overview

•  Prof. Lori Johnson •  Outline of a contract

•  Building blocks of a contract

•  Effectively assisting with drafting, reviewing and editing contracts

Why drafting matters…

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Contract Law Basics Acknowledgments: Thomas R. Haggard & George W. Kuney, Legal Drafting in a Nutshell (3d ed., West 2007). Tina L. Stark, Drafting Contracts: How and Why Lawyers Do What They Do (Aspen 2007). Andrea B. Yelin, Contract Law for Legal Professionals (Prentice Hall 2009).

Forming a Contract

•  Mutuality ! Consideration ! Competence

•  Need not be in writing, except where required.

•  If written, parol evidence rules applies.

•  Contract can later be modified.

Basic Contract Components

•  Preamble (or Introductory Paragraph)

•  Recitals (or Background)

•  Consideration Clause (or Words of Agreement)

•  Definitions

•  Business provisions •  Representations, Warranties, Covenants, Indemnities, Conditions, etc.

•  Events of Default/Termination

•  Boilerplate

•  Signatures

•  Exhibits and Addenda

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Preamble & Recitals

Traditional Contemporary

Consideration Clause

Traditional

•  NOW, THEREFORE, in consideration of $10 paid in hand and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows:

Contemporary

•  Accordingly, the parties agree:

Definitions •  Use of defined terms increases clarity and reduces

ambiguity in contracts.

•  Roles of definitions within contracts: •  Explain the meaning of a word or technical term.

•  Enlarge or limit the meaning of a word for purposes of a contract.

•  Provide clarity / avoid ambiguity.

•  Options for drafting: •  Stand-alone definition (“Price” means…)

•  Textual definition (…eight thousand dollars (the “Price”).)

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A quick exercise…

•  Create a stand-alone defined term for the following sentence, and also re-work the sentence so that it would work as a definition in context:

•  The property being sold is the Union Park Mall.

Boilerplate

•  Choice of Law

•  Waiver of Jury Trial

•  Arbitration

•  Indemnification

•  Severability and Integration

•  Notices

•  Amendments

Some resources

•  Client forms

•  Firm databases

•  Form books (UNLV Law Library)

•  Fee-Paid Online legal sources •  BloombergLaw Dealmaker

•  Edgar (SEC Website)

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Signatures

•  Introductory language: •  The Parties agree to the terms

of this Agreement above.

•  Proper identification of parties.

Seller

_______________________ John Doe Sonoma Properties, LLP By: Cabernet Associates, LLC, its Managing Partner By: __________________ John Doe, Managing Member

Where to find this information http://nvsos.gov/sosentitysearch/

Business Provisions The building blocks of legal obligations

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Representations

•  A statement of fact as of a particular date.

•  Requires reliance to be actionable.

•  Ex: Party A represents to Party B as follows:

The car has been driven 38,000 miles.

Tip for drafting:

•  Avoid reps regarding future facts.

•  If your client is giving the rep, make the rep narrow in scope and attempt to qualify it.

•  If your client is receiving the rep, make it broad and unqualified.

Warranties

•  Similar to a representation.

•  No requirement of reliance.

•  Ex: Party A represents and warrants to Party B as follows:

The car has been driven 38,000 miles.

Tips:

•  Be more careful as the maker of warranty, as the measure of damages differs and risk of successful lawsuit is higher (no need to prove reliance).

•  Consider qualifying warranties appropriately.

A quick exercise…

•  Based on who you represent – draft and rep/warranty that the Property to be sold is free of liens other than those disclosed by the Seller.

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Covenants

•  Promise to act (or not act) in the future.

•  Use “shall” rather than “will” to signal a covenant.

•  Flipside of a covenant = a right.

•  Ex: Tenant shall pay rent on the first Thursday of every month.

Drafting Tips:

•  When making covenants, be careful of obligating your client to elements out of their control.

•  Use qualifiers as appropriate (e.g., “best efforts”).

Conditions

•  A condition to an obligation is a state of facts that must exist before a party is obligated to act.

•  A condition to discretionary authority is a state of facts that must exist before a party may choose to act.

•  Exs: •  If the house passes inspection, the

Buyer shall provide a deposit. •  If the house does not pass

inspection the Buyer may rescind this contract.

Drafting Tips:

•  If your client needs to satisfy the condition, make it easier, provide flexibility.

•  Think of conditions in terms of an if/then relationship.

•  You can phrase conditions by using “must” instead of shall.

Interplay of Building Blocks

•  Rep and Warranty •  The Property is not subject to any liens.

•  Covenant •  Seller shall not incur any liens upon the Property.

•  Condition •  In order for Buyer to be obligated to close on the

Property, Seller must have complied with all covenants.

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Which building block to use?

1.  You want your client to be sure that a company has a certain level of inventory before purchasing the company.

2.  You do not want your client to be forced to supply additional materials unless the previous invoice has been paid.

3.  Your client wants to agree to provide interior design services for a friend.

Termination / Events of Default

•  Consider drafting for earlier termination based upon breach of one of the business terms.

•  Ex: Either Party may earlier terminate this Agreement by giving 10 Business Days notice to the other party, if the latter party materially misrepresented a fact or materially breached a warranty or covenant included in this Agreement.

Recap: Basic Contract Components

•  Preamble (or Introductory Paragraph)

•  Recitals (or Background)

•  Consideration Clause (or Words of Agreement)

•  Definitions

•  Business provisions •  Representations, Warranties, Covenants, Indemnities, Conditions, etc.

•  Events of Default/Termination

•  Boilerplate

•  Signatures

•  Exhibits and Addenda

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Drafting Style Tips

•  Whenever possible – use the active voice. •  Buyer shall pay the Purchase Price.

•  The Purchase Price shall be paid by the Buyer

•  Avoid legalese and doublets when possible – consider synonyms: •  Aforesaid = previous

•  Circumstances in which = when

•  Null and void = void

•  Avoid the use of “and/or” •  Be very specific – “A or B but not both”

Let’s try a quiz!!

Questions