From recitals to boilerplate


Published on

Published in: Business, Technology
1 Like
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

From recitals to boilerplate

  1. 1. © 2014 Dentons. All rights reserved. From Recitals to Boilerplate: A Much-Warranted Contracts Refresher Scott Toban Partner Dentons US LLP T +1 312 876 2816 CLE Seminar for In-House Counsel June 5, 2014 Chicago, Illinois
  2. 2. June 5, 2014 2 INTRODUCTION “Contract law is essentially a defensive scorched-earth battleground where the constant question is, "if my business partner was possessed by a brain-eating monster from beyond space-time tomorrow, what is the worst thing they could do to me?"” - Charles Stross (1964- ) Hugo Award Winner - Best Novella (2005, 2010)
  3. 3. June 5, 2014 3 A CONTRACT FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT THIS FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT (this “Amendment”) is made as of May __, 2014 (the “Effective Date”) by and between HAVEN ON ELDRIDGE APARTMENTS LLC, a Texas limited liability company (“Seller”), and WRPV XII HAVEN HOUSTON, L.P., a Delaware limited partnership (“Buyer”). RECITALS WHEREAS, Seller and Buyer have entered into that certain Purchase and Sale Agreement dated as of April 7, 2014 (as it may be amended, the “Sale Agreement”), regarding certain property located in Houston, Texas and more fully described therein; and WHEREAS, Seller and Buyer desire to modify certain terms of the Sale Agreement in accordance with the terms of this Agreement. (Initially capitalized terms not otherwise defined herein shall have the respective meaning ascribed to such terms in the Sale Agreement). NOW THEREFORE, in consideration of the above recitals which by this reference are incorporated herein, the mutual covenants and conditions contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer agree as follows: 1. Buyer Requested Modifications. (a) Prior to the date hereof, Seller has delivered a Materials Schedule to Buyer setting forth a schedule of materials, personal property and finishes included in the Plans and Specifications and to be incorporated into the construction of the Property. In accordance with the definition of "Materials Schedule" set forth in the Sale Agreement, prior to the expiration of the Due Diligence Deadline, Seller and Buyer shall agree upon a final Materials Schedule that shall be relied upon by the parties. (b) The parties anticipate that one or more times prior to Closing, Buyer may request, and Buyer and Seller may agree upon, the modification or substitution of one or more items on the Materials Schedule (each, a "Buyer Requested Modification"). Each time a Buyer Requested Modification causes a "Cost Increase" (as defined below), prior to Seller executing any Change Order implementing the Buyer Requested Modification, Seller shall deliver to Buyer a true and correct copy of a written invoice, binding estimate, or other written statement (a "Cost Increase Statement") issued by the applicable vendor or contractor setting forth the following: (i) A detailed description of the quantity and original specification of the Materials Schedule item(s) without application of the Buyer Requested Modification; (i) A detailed description of the quantity and new, modified specification of the Materials Schedule item(s) assuming execution of a Change Order implementing the Buyer Requested Modification; and (ii) The exact dollar amount of the additional cost to be charged to Seller for such item(s) as a direct result of the Buyer Requested Modification (such amount, the "Cost Increase"); (b) Upon Seller's receipt of written direction from Buyer acknowledging (i) Buyer's receipt and acceptance of the Cost Increase Statement and (ii) Buyer's authorization of a Change Order implementing the Buyer Requested Modification, Seller shall take such actions as may be required to implement the Buyer Requested Modification, including execution of the related Change Order, all in accordance with the terms of the Sale Agreement. 2. Responsibility for Cost Increase. (a) Seller and Buyer acknowledge that pursuant to the original Sale Agreement, Buyer is not responsible for any additional costs incurred by Seller in connection with any Change Order (and nor does Buyer receive any benefit from cost savings achieved by Seller in connection with any Change Order). (b) Notwithstanding the foregoing, Buyer shall pay and reimburse Seller the amount of a particular Cost Increase if (1) Seller pays the Cost Increase and (2) one of the following circumstances (i) through (iv) occurs: (i) Buyer purchases the Property from Seller pursuant to the Sale Agreement (in which case Buyer shall pay the amount of the Cost Increase at Closing in addition to all other amounts required pursuant to the Sale Agreement); (ii) Buyer terminates the Sale Agreement on or prior to the Due Diligence Deadline (in which case Buyer shall pay the amount of the Cost Increase to Seller no later than five (5) Business Days after such termination); (iii) the Sale Agreement terminates as a result of Buyer's exercise of its termination right under Section 10.6(c) of the Sale Agreement (in which case Buyer shall pay the amount of the Cost Increase to Seller no later than five (5) Business Days after such termination); (iv) the Sale Agreement terminates as a result of a Buyer default as set forth in Section 12.1 of the Sale Agreement (in which case Buyer shall pay the amount of the Cost Increase to Seller no later than five (5) Business Days after such termination). Except to the extent expressly provided herein, the Sale Agreement shall remain in full force and effect in accordance with its terms. All references in the Sale Agreement to “this Agreement” or words of similar import shall be deemed to refer to the Sale Agreement as
  4. 4. June 5, 2014 4 THAT "SAME" CONTRACT
  5. 5. June 5, 2014 5 CONTRACT ANATOMY Title/Preamble Recitals Consideration Representations/Warranties Covenants Conditions/Termination Indemnification Default Remedies Miscellaneous/Boilerplate
  6. 6. June 5, 2014 6 ESSENTIAL ELEMENTS OF A VALID CONTRACT •Consideration •Legal purpose •Offer/Acceptance (Mutual Assent) •Capacity/Competence Valid/Void/Voidable/Enforceable
  7. 7. June 5, 2014 7 ESSENTIAL ELEMENTS OF A VALID CONTRACT "The word 'void' has been used so frequently by the courts, without carefully distinguishing whether it was intended to mean absolutely void or merely voidable, that the decisions and authorities must be examined with care in order to ascertain the meaning in which the word was used by the court in the particular case decided." - McGarry v. Village of Wilmette, 135 N.E. 96, 98 (Ill. 1922)
  8. 8. Restatement of Contracts (1932) Restatement (Second) of Contracts (1981) § 15. Mental Illness or Defect (1) A person incurs only voidable contractual duties by entering into a transaction if by reason of mental illness or defect (a) he is unable to understand in a reasonable manner the nature and consequences of the transaction, or (b) he is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition. (2) Where the contract is made on fair terms and the other party is without knowledge of the mental illness or defect, the power of avoidance under Subsection (1) terminates to the extent that the contract has been so performed in whole or in part or the circumstances have so changed that avoidance would be unjust. In such a case a court may grant relief on such equitable terms as justice requires. June 5, 2014 8 ESSENTIAL ELEMENTS OF A VALID CONTRACT
  9. 9. June 5, 2014 9 PREAMBLE •Know your parties •Is effective date defined in preamble? •Express or by reference? •Double-check later use •Avoid conflicts and ambiguity
  10. 10. June 5, 2014 10 PREAMBLE IN WITNESS WHEREOF, each party hereto has caused this Agreement to be duly executed to be effective as of the Effective Date. __________________________ ________________________ Me You THIS CLE CONTRACT OF ADHESION (this “Agreement”) is made as of June _, 2014 (the “Effective Date”) by and between… If possible, provide a single placement of the date. ----------------------------------------------------------------------------------------
  11. 11. June 5, 2014 11 RECITALS Wormholes and other traps •Archaisms •Say it, and, if you would like to enforce, say it again • Although… Illinois courts have been liberal
  12. 12. June 5, 2014 12 RECITALS • "The primary goal in construing a contract is to give effect to the intent of the parties" (citation omitted). • "We conclude that paragraph 10, taken together with the recital, established an enforceable promise on the part of RSI to employ plaintiff at least until he reached age 65". -Cress v. Recreation Services, Inc., 341 Ill. App. 3d 149, 795 N.E.2d 817, 277 Ill.Dec. 149 (Ill. App., 2003)
  13. 13. June 5, 2014 13 CONSIDERATION •Nominal/Sham Consideration •Jurisdictional differences •Modifications/Amendments •Recent cases
  14. 14. June 5, 2014 14 CONSIDERATION •Recent cases • Urban Sites of Chicago, LLC v. Crown Castle USA, 2012 IL App (1st) 111880, 979 N.E.2d 480: • "Consideration consists of some detriment to the offeror, some benefit to the offeree, or some bargained-for exchange between them" (citation omitted). • "In this case, Urban Sites argues that there was inadequate consideration to support a valid modification of the Sprint lease. However, the evidence contained in the record establishes that there was adequate consideration as a matter of law. The 2005 agreement plainly states that the parties entered into the 2005 agreement “[f]or good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged.” Urban Sites’ representative, Much, executed the agreement and affirmed this representation by initialing each page of the documents. Further, under the “miscellaneous” section of the 2005 agreement, Urban Sites also represented that “[t]his [a]greement shall be binding upon [Urban Sites] and its successors.” Based on the unambiguous representations on the face of the 2005 agreement, the evidence establishes that there was consideration as a matter of law."
  15. 15. June 5, 2014 15 CONSIDERATION •Recent cases Contrast Urban Sites with 3 Williston on Contracts § 7:23 (4th ed.): "But the recital of the receipt of a fictitious consideration is also common in written agreements, when in fact there was no consideration and no intention to give any. When, for instance, a consideration of one dollar or other nominal sum is recited as having been paid in return for a stated promise, the parties ordinarily have not actually bargained for any such exchange, and if the truth cannot be shown, a promise will be enforced which in fact has no sufficient consideration. It would destroy the requirement of consideration to hold that an admission of consideration in an unsealed writing prevented the promisor from showing that no consideration existed. If merely saying in writing that a specified fictitious consideration had been received were enough to make a promise binding, a new kind of formal obligation would be created. Rather than adopt this rule broadly, the solution of the law has been generally to entitle the recital to some weight, but to permit the introduction of contrary evidence except in a few narrowly defined areas."
  16. 16. June 5, 2014 16 CONSIDERATION •Recent cases Restrictive Covenants: • 15 months employment deemed adequate consideration. Montel Aetnastak, Inc. v. Miessen, Case No. 13 C 3801 (N.D. Ill., Jan. 28, 2014) (Castillo, J.). Contrast with: • “There must be at least two years or more of continued employment to constitute adequate consideration in support of a restrictive covenant…” Fifield, 993 N.E.2d 938 (Ill. App. Ct. June 24, 2013).
  17. 17. June 5, 2014 17 REPRESENTATIONS & WARRANTIES •Representation vs. Warranty •Can you define "market"? •You'll likely be asked (or ask) to do so •Know your resources •Local and subject matter requirements Bottom line: Confirm validity of underlying assumptions without which the parties would not be willing to contract
  18. 18. June 5, 2014 18 COVENANTS, CONDITIONS, DEFAULTS & REMEDIES •Spot potential conflicts •Potentially advantageous or not? •Will breach trigger intended consequences? •Double-check integration with defaults and remedies •Know the business, know the deal •Walk businesspeople through scenarios to confirm scope
  19. 19. June 5, 2014 19 MISCELLANEOUS / BOILERPLATE •Reality of fatigue •Draftsperson •Reviewer •The litigator's "page one": •Jurisdiction/Choice of law •ADR •Attorneys fees •Notice
  20. 20. June 5, 2014 20 SCIENCE FICTION? •Mutual assent •When is a writing a writing? •Evolving technologies… Spawning new statutes and regulations •Space-age notices and mailboxes
  21. 21. June 5, 2014 21 CONCLUSION • Questions • Discussion
  22. 22. June 5, 2014 22 Thank You! © 2014 Dentons. Dentons is an international legal practice providing client services worldwide through its member firms and affiliates. This publication is not designed to provide legal or other advice and you should not take, or refrain from taking, action based on its content. Please see for Legal Notices. Scott Toban Partner Dentons US LLP T +1 312 876 2816