DRAFTING CONTRACTS: HOW AND WHY LAWYERS DO WHAT THEY DO: H... CHAPTER THIRTY-ONE Additional Exercises Exercise 31-11 Revised Car Purchase Agreement Revise your draft of the Car Purchase Agreement (Exercise 5-1) based on the material that you have covered so far this semester. In addition, include appropriate provisions to reflect the fol- lowing changes to the transaction's terms: 1. The Buyer has decided that it may want to do a bit of due diligence and not rely solely on the Seller's representations and warranties. The Seller has agreed that the Buyer has the right not to close if a mechanic of the Buyer's choice determines that the car is not in the condition represented. The Buyer has agreed to pay for the inspection. You may create whatever facts you want to draft these business terms. Think about how the inspection would actually take place. What would be the sequence of events? For example, how does the car get to the mechanic? How will the parties know what the mech- anic concluded? Draft these provisions from the Buyer's perspective, but in a manner that would be reasonably acceptable to the other side. In deciding how to draft the provisions about the inspection, also think about the contract's organization Would it be more helpful to the reader to separate the provisions by contract concept or to put all the related provisions together or do some combination? 2. The Seller is insisting on a 10% down payment to be paid concurrently with the execu- tion and delivery of the parties' agreement. She also wants an additional 10% down payment after completion of the mechanic's inspection. 3. The car's Vehicle Identification Number is 23456. 4. The Buyer has been looking for a job as an associate at a law firm and has received an offer from Hie Power & Stress LLP. He wants to be able to call off the closing if he does not receive the promised $5,000 sign-on bonus. To induce the Seller to accept this DRAFTING CONTRACTS: HOW AND WHY LAWYERS DO WHAT THEY DO: H... proposal, the Buyer agreed that if the Buyer did not close because he did not receive his sign-on bonus, the Seller could keep the first down payment. The Seller would also like some assurance in the contract that the Buyer has received an offer from Hie Power. 5. The Seller has agreed to deliver the car, the keys, and any manuals to the Buyer's home on the Closing Date. 6. The Seller has told the Buyer that the car is still under the manufacturer's warranty and that she has its documentation. The Buyer was delighted to learn this but wants to know what the warranty provides. He is not a trusting fellow and is unwilling to rely on the Seller's assessment of the quality of the manufacturer's warranty. If the warranty is not reasonably acceptable, he does not want to purchase the car. Without stating the details of the warranty, provide the Buyer with the comfort he has asked for. 7. If either party makes a misrepresentation or breaches a warranty or covenant, the con- tract should terminate. 8. When working through the endgame provisions, follow the cash and provide for all appropriate contingencies as to the down paymentsboth if the transaction closes and if it does not close. You must separately analyze how the contract will deal with each down payment in each situation. If the facts do not state which party is entitled to one or both of the down payments under a particular circumstance, think through what makes sense from the Buyer's business perspective and draft accordingly. Write a memo no longer than one page explaining which down payments went to which party and why. 9. The closing will take place at 1:00p.m. at the office of the Buyer's lawyers: Workhard & Succeed LLP. Its address is 278 Appletree Lane, Glencoe, Illinois. Assume that the contract has not yet been executed. Each of these provisions, therefore, is part of the original contract and does not amend an existing agreement. In addition, as in Exercise 5-1, assume that no statutes apply to this transaction. Exercise 31-2 Aircraft Purchase Agreement Follow the instructions in the memorandum that follows: Memorandum To: D. Fender From: H. Flighty DRAFTING CONTRACTS: HOW AND WHY LAWYERS DO WHAT THEY DO: H... "Pledge Agreement means the Pledge Agreement by the Borrower in favor of the Bank, substantially in the form of Exhibit F. Drafters include the italicized language above (but not in italics) to handle the possibility that the Pledge Agreement might differ slightly from the exhibit. This could occur either because the parties must complete blanks in the form, such as the date, or because the parties agree to a minor change. As indicated, parties may also include as an exhibit an agreement that has been previ- ously signed. Parties often do this if the agreement directly relates to the agreement's purpose. For example, the parties might attach to an assignment and assumption agreement a copy of the contract being assigned. Again, the rationale is to prevent a dispute, in this instance, as to which contract is being assigned. In the United States, parties would not generally attach as an exhibit a letter of intent or a confidentiality agreement signed before the signing of the main agreement. Outside the United States, customs differ, so be sensitive to local practice. Occasionally, parties also use exhibits to display technical information or to demonstrate how a mathematical formula works.12 The sample computations act as a form of legislative his- tory that the parties or a court can use to resolve disputes. Exhibits are generally given sequential numbers or letters based on the order in which they appear in an agreement. Exhibit A, Exhibit B, and Exhibit C, or Exhibit 1, Exhibit 2, and Exhibit 3. To facilitate keeping track of the exhibits, some drafters bold the references to them the first time they are used: Exhibit A. CHAPTER FIVE: EXERCISES Exercise 5-1 Draft a car purchase agreement using the following facts. Do not include any other provisions. Assume that no statutes apply to the transaction. Use the House Purchase Agreement (Chapter 32, Document 1) as a precedent. It is avail- able in Microsoft Word on the book's website. Facts 1. The parties are Barbara Balram, the seller, and Tom Rogers, the buyer. 2. The car is a red, 20XX Acura. 3. It has been driven 26,000 miles. 4. The purchase price is $11,000. The buyer will pay the seller with a certified check. 5. The seller owns the car, and it is not subject to any liens. 6. The car has been maintained in accordance with the owner's manual and is in good operating condition, normal wear and tear excepted. DRAFTING CONTRACTS: HOW AND WHY LAWYERS DO WHAT THEY DO: H... "Pledge Agreement means the Pledge Agreement by the Borrower in favor of the Bank, substantially in the form of Exhibit F. Drafters include the italicized language above (but not in italics) to handle the possibility that the Pledge Agreement might differ slightly from the exhibit. This could occur either because the parties must complete blanks in the form, such as the date, or because the parties agree to a minor change. As indicated, parties may also include as an exhibit an agreement that has been previ- ously signed. Parties often do this if the agreement directly relates to the agreement's purpose. For example, the parties might attach to an assignment and assumption agreement a copy of the contract being assigned. Again, the rationale is to prevent a dispute, in this instance, as to which contract is being assigned. In the United States, parties would not generally attach as an exhibit a letter of intent or a confidentiality agreement signed before the signing of the main agreement. Outside the United States, customs differ, so be sensitive to local practice. Occasionally, parties also use exhibits to display technical information or to demonstrate how a mathematical formula works.12 The sample computations act as a form of legislative his- tory that the parties or a court can use to resolve disputes. Exhibits are generally given sequential numbers or letters based on the order in which they appear in an agreement. Exhibit A, Exhibit B, and Exhibit C, or Exhibit 1, Exhibit 2, and Exhibit 3. To facilitate keeping track of the exhibits, some drafters bold the references to them the first time they are used: Exhibit A. CHAPTER FIVE: EXERCISES Exercise 5-1 Draft a car purchase agreement using the following facts. Do not include any other provisions. Assume that no statutes apply to the transaction. Use the House Purchase Agreement (Chapter 32, Document 1) as a precedent. It is avail- able in Microsoft Word on the book's website. Facts 1. The parties are Barbara Balram, the seller, and Tom Rogers, the buyer. 2. The car is a red, 20XX Acura. 3. It has been driven 26,000 miles. 4. The purchase price is $11,000. The buyer will pay the seller with a certified check. 5. The seller owns the car, and it is not subject to any liens. 6. The car has been maintained in accordance with the owner's manual and is in good operating condition, normal wear and tear excepted. DRAFTING CONTRACTS: HOW AND WHY LAWYERS DO WHAT THEY DO: H... 7. The closing will take place on the last day of the month that follows the month in which the car purchase agreement is signed. 8. With respect to the period beginning on the day the agreement is signed and ending on the closing date, the seller promises not to paint the car and not to drive it more than 500 miles. The seller also promises to garage the car and to continue to maintain it. 9. The buyer only has to close if the seller has performed its covenants and if the seller's representations and warranties are true on the date that they were made and on the closing date as if they were made on that date, except to the extent the agreement contemplates that specific facts might change. 10. The date of the agreement is the date that this assignment is due. Exercise 5-2 Follow the instructions supplied in the following memorandum from Senior Associate to Over- worked Junior Associate. For the purposes of this exercise, assume that it is March 1, 20X8. From: Senior Associate To: Overworked Junior Associate Date: March 1, 20x8 As you know, Corporate Partner went on vacation last week and left me in charge of one of her matters. As I will be conducting the negotiations, I need your assistance in churning out the documents. Please review the deal terms and determine how you would translate each of them into contract concepts. Specifically, determine which of the following contract concepts best expresses each business term. Several of the business terms require more than one contract concept. It will not help me to tell me that a business term belongs in the action sections or the endgame provisions. What I really need to know is which con- tract concept to use. Put your answer on the line that follows each numbered paragraph. Don't worry about Paragraph 12. We will deal with that information later on in the transaction. - Representation and warranty Covenant - Right - Condition Condition to an obligation and the related obligation (on-going or walk-away?) - Condition to discretionary authority and the related discretionary authority Condition to a declaration and the related declaration Discretionary authority - Declaration