Basic Concepts in Contract Drafting Vincent Martorana
Basic Concepts in Contract Drafting Vincent Martorana
Basic Concepts in Contract Drafting Vincent Martorana
BASIC CONCEPTS IN DRAFTING CONTRACTS
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Basic Concepts in Drafting Contracts
October 1, 2013
presented by
Vincent R. Martorana
for the
New York State Bar Association
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Basic Concepts in Drafting Contracts
* To the extent that this presentation is required to cover the law in order for attorneys to
obtain CLE credit, this presentation is deemed to cover the law. 4
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Basic Concepts in Drafting Contracts
Preliminary Matters
• Practical Considerations
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Basic Concepts in Drafting Contracts
• Can I take out the garbage only once, or is this an ongoing obligation?
• Can I let the garbage pile up for a year and then take it out?
• Do I need to take out all of the garbage in the house, or just some of it?
“No later than 6 a.m. New York time each Monday and Thursday (and no earlier
than 7 p.m. each Sunday and Wednesday, respectively), Vincent shall: (i) place
all Garbage on the interior of the house on the premises (the “House”) in trash
bags (any such trash bag into which Garbage has been placed, a “Trash Bag”);
(ii) seal and place each Trash Bag in one of the garbage cans located on the
exterior of the House (any such garbage can into which a Trash Bag has been
placed, a “Garbage Can”); and (iii) thereafter place each Garbage Can no more
than one inch south of the curb of the sidewalk relating to the premises and
between one and seven feet west of the driveway on the premises. Vincent
shall place all Garbage Cans on the east side of the House (and adjacent
thereto) as of 6 a.m. New York time each Tuesday and Friday. Vincent’s
obligations under this paragraph are personal in nature and, as such, are not
delegable in whole or in part. “Garbage” means rubbish, as determined by
Christine in her sole discretion.”
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Basic Concepts in Drafting Contracts
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Basic Concepts in Drafting Contracts
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Basic Concepts in Drafting Contracts
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Basic Concepts in Drafting Contracts
Some general preferences in contract drafting are listed below. Note that an
“improvement” in one characteristic might result in a “decline” in other
characteristics.
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Basic Concepts in Drafting Contracts
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Basic Concepts in Drafting Contracts
• Preamble
• Recitals
• Body
Definitions
Language of Performance
Obligations and Prohibitions
Discretionary Language
Language of Declaration
Representations
Acknowledgements
Language of Policy
• Signature Pages
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Example:
This ASSET PURCHASE AGREEMENT (this “Agreement”), dated as of
October 1, 2013, is made between Big Bad Corporation, a Delaware corporation
(the “Buyer”), and Little Guy, LLC, a New York limited liability company (the
“Seller” and, collectively with the Buyer, the “Parties”).
• Type of agreement
• Date of agreement
• Parties to agreement (including jurisdiction of organization and
entity type)
• Save descriptive relationships between the parties for the
recitals or the body of the contract (e.g., the representations)
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Basic Concepts in Drafting Contracts
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Basic Concepts in Drafting Contracts
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• Definitions
• Language of Performance
• Obligations and Prohibitions
• Discretionary Language
• Language of Declaration
Representations
Acknowledgements
• Language of Policy
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Basic Concepts in Drafting Contracts
An Initial Thought:
The Who? What? When? Where?
How? Why? Hierarchy
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Basic Concepts in Drafting Contracts
Definitions
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2(a). The Company shall not sell or distribute (each of the foregoing,
a “Transfer”) the Shares.
2(b). The Company shall not sell, assign, pledge, encumber,
hypothecate, distribute (as a dividend or otherwise),
transfer, or otherwise dispose of (each of the foregoing, a
“Transfer”) the Shares.
3. “Attorney” means an attorney, a legal assistant, a chef, or any
individual residing in the state of New York.
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Basic Concepts in Drafting Contracts
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Definitions Provision
“Transfer” means, with respect to a given asset, any sale, assignment, pledge,
encumbrance, hypothecation, distribution (as a dividend or otherwise), transfer, or
other disposition of such asset. When used as a verb, “Transfer” has a correlative
meaning.
…
Section 2.3. The Company shall not Transfer the Shares.
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Basic Concepts in Drafting Contracts
If defining a term “on site,” make sure it is clear which text a definition
relates to
Section 1.1. Johnny shall sell apples to Eve in accordance with Section 1.2 and
shall sell oranges to Adam in accordance with Section 1.3 (any such sale, a
“Required Sale”).
There’s ambiguity as to whether a Required Sale includes sales
to Adam only, or includes sales to Eve and sales to Adam.
Section 1.1. Johnny shall sell apples to Eve in accordance with Section 1.2 and
shall sell oranges to Adam in accordance with Section 1.3 (any such sale to
Eve or Adam, as the case might be, a “Required Sale”).
OR
Section 1.1. Johnny shall sell apples to Eve in accordance with Section 1.2 and
shall sell oranges to Adam in accordance with Section 1.3. “Required Sale”
means any sale described in this Section 1.1.
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It’s ok to…..
•…use the lowercase term as part of a definition
“Transfer” means any transfer, sale, pledge, hypothecation, encumbrance, or other
disposition.
“Permitted Automobile” means any automobile that is permitted on the Long Island
Expressway, including, without limitation, my old 1983 Pontiac Firebird.
•…use other defined terms within a definition
“Law” means any constitution, law, statute, treaty, rule, directive, requirement,
regulation, Order, or any rules or regulations of any self-regulatory organization.
“Order” means any order, writ, judgment, injunction, decree, determination, or award,
in each case that is issued by a Governmental Entity.
“Governmental Entity” means any court, administrative agency, commission, or other
governmental authority or instrumentality, domestic or foreign, federal, state, or local.
A “Law” therefore includes, e.g., any injunction issued by a foreign administrative agency.
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Basic Concepts in Drafting Contracts
…but do not…
•…embed obligations within a definition
“Net Earnings Statement” means a statement of the Company’s net earnings
during the Post-Closing Period in the form attached as Exhibit A, which the
Company shall provide to the Seller no later than 30 days after the last
day of the Post-Closing Period.
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…and do not…
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Language of Performance
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Basic Concepts in Drafting Contracts
Some examples
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Obligations
and Prohibitions
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Basic Concepts in Drafting Contracts
Obligations
• What a party has to do pursuant to a contract
• Think: “shall”
Prohibitions
• What a party is prohibited from doing pursuant to a contract
• Think: “shall not”
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Examples:
• The Purchaser shall pay the Purchase Price to the Seller at the
Closing.
• Each of Moses and his constituents shall not covet his respective
neighbor’s wife.
• The Presenter shall not use any fancy visual effects when
transitioning between slides.
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Basic Concepts in Drafting Contracts
The Framework of a Contract > Body > Obligations and Prohibitions > “shall” vs. “will” vs. “must”
“shall”
vs.
“will”
vs.
“must”
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The Framework of a Contract > Body > Obligations and Prohibitions > “shall” vs. “will” vs. “must”
=
The Purchaser hereby has a duty to wire the Purchase Price to the Seller.
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The Framework of a Contract > Body > Obligations and Prohibitions > “shall” vs. “will” vs. “must”
* Avoid the temptation of using “shall” as a proxy for “…and I really mean it!”
This Agreement shall constitute the entire agreement of the Parties
with respect to the subject matter hereof.
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The Framework of a Contract > Body > Obligations and Prohibitions > “shall” vs. “will” vs. “must”
• But “will” can also convey futurity, whereas “shall” (in ordinary
parlance) is an awkward choice (unless you’re King Arthur).
Davey hereby bets Lou that the Mets will win the World Series
this year.
Davey hereby bets Lou that the Mets shall [i.e., hereby have a
duty to] win the World Series this year.
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The Framework of a Contract > Body > Obligations and Prohibitions > “shall” vs. “will” vs. “must”
• But “must” really asserts that a duty merely exists, not that it
derives from the provision in which it is used.
If companies must [are required to] pay an excise tax on the
Product of 20% or less pursuant to applicable law, then
Newcomer Co. shall [hereby has a duty to] sell the Product.
If companies shall [hereby have a duty to] pay an excise tax on
the Product of 20% or less pursuant to applicable law, then
Newcomer Co. shall [hereby has a duty to] sell the Product.
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The Framework of a Contract > Body > Obligations and Prohibitions > “shall” vs. “will” vs. “must”
In order for Lindsay to drive the car home from the pub, she
must first convince her mom to give her the keys.
In order for Lindsay to drive the car home from the pub, she
shall first convince her mom to give her the keys.
You should not draft the sentence this way since
Lindsay is not obligated to convince her mom to give
her the keys, and there should not be a cause of
action against Lindsay if she failed to convince her
mom to give her the keys. (In fact, it could very well
be the other way around if she succeeded in
convincing her mom….)
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The Framework of a Contract > Body > Obligation and Prohibitions > “shall” vs. “will” vs. “must”
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The Framework of a Contract > Body > Obligations and Prohibitions >
Active Voice vs. Passive Voice
Active Voice
vs.
Passive Voice
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The Framework of a Contract > Body > Obligations and Prohibitions >
Active Voice vs. Passive Voice
General rule: Use the active voice rather than the passive voice when
imposing an obligation.*
* There are certain instances in which it makes sense to use the passive
voice (e.g., those in which the identity of the actor does not matter). 49
The Framework of a Contract > Body > Obligations and Prohibitions >
Active Voice vs. Passive Voice
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The Framework of a Contract > Body > Obligations and Prohibitions >
Active Voice vs. Passive Voice
The Framework of a Contract > Body > Obligations and Prohibitions >
Active Voice vs. Passive Voice
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The Framework of a Contract > Body > Obligations and Prohibitions >
Active Voice vs. Passive Voice
• My son, Matthew?
The Framework of a Contract > Body > Obligations and Prohibitions > Third Parties
** You can’t impose obligations upon persons that are not party to the
contract. (Example 1 – Accountants)
Upon final resolution of all Disputed Items, the Accountants shall issue
a report showing a calculation of the Final Net Working Capital. The
Accountants shall make their determination of the Disputed Items
within 60 days after having been selected.
What if the Accountants don’t issue a report showing a
calculation of the Final Net Working Capital?
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The Framework of a Contract > Body > Obligations and Prohibitions > Third Parties
** You can’t impose obligations upon persons that are not party to the
contract. (Example 1 – Accountants)
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The Framework of a Contract > Body > Obligations and Prohibitions > Third Parties
** You can’t impose obligations upon persons that are not party to the
contract. (Example 1 – Accountants)
If the Parties are unable to resolve any disagreement as to one or more
Disputed Items within 30 days after the Receiving Party’s receipt of a
Protest Notice, then the Parties shall promptly engage Big Accountant
Co. (the “Accountants”) by signing an engagement letter with the
Accountants pursuant to which, among other things, the Accountants
agree to comply with procedures set forth in this Section
2.4(b)(iii).…The Parties shall use their respective reasonable best
efforts to cause the Accountants to reach a final determination with
respect to all Disputed Items (such determination, a “Final
Determination”) and to provide to the Parties, no later than the 60th day
after the Accountants have been engaged pursuant to this Section
2.4(b)(iii), a report with respect to the NWC Statement (the “Final
Determination Report”) that includes a calculation of the Net Working
Capital.
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The Framework of a Contract > Body > Obligations and Prohibitions > Third Parties
** You can’t impose obligations upon persons that are not party to the
contract. (Example 2 – Parent Companies)
Complicated PE Assume that only Blocker and Basic are parties to the
Partners, L.P. (the Stockholders’ Agreement.
“Parent”)
Each of Blocker, Basic and the Parent shall not
directly or indirectly Transfer any Shares.
Complicated PE Each of Basic and Blocker shall not directly or
Intermediate Fund
V, LLC indirectly Transfer (and shall not cause or
permit their respective Affiliates to directly or
indirectly Transfer) any Shares.
JV Company
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The Framework of a Contract > Body > Obligations and Prohibitions > Third Parties
** You can’t impose obligations upon persons that are not party to the
contract. (Example 2 – Parent Companies)
JV Company
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Discretionary Language
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The Framework of a Contract > Body > Discretionary Language > “is/are permitted
to” vs. “might possibly”
The Seller shall not encumber the Shares; except that the Seller
may pledge the Shares to the Bank in connection with a loan
provided by the Bank to the Seller.
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The Framework of a Contract > Body > Discretionary Language > “is/are permitted to” vs.
“might possibly”
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The Framework of a Contract > Body > Discretionary Language > “Naked” Discretion
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The Framework of a Contract > Body > Discretionary Language > “Naked” Discretion
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Basic Concepts in Drafting Contracts
Language of Declaration
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• Representations
• Acknowledgments
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Basic Concepts in Drafting Contracts
The Framework of a Contract > Body > Language of Declaration > Representations
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The Framework of a Contract > Body > Language of Declaration > Representations
The lead-in*…
[Party A] represents to [Party B] as follows:…
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The Framework of a Contract > Body > Language of Declaration > Representations
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The Framework of a Contract > Body > Language of Declaration > Representations
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The Framework of a Contract > Body > Language of Declaration > Representations
Ron will not mention the Federal Reserve in any upcoming debate.
(Future circumstance or event; within the representing party’s
control/knowledge)
This is probably better phrased as an obligation, as follows:
Ron shall not mention the Federal Reserve in any
upcoming debate.
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The Framework of a Contract > Body > Language of Declaration > Representations
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The Framework of a Contract > Body > Language of Declaration > Acknowledgments
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The Framework of a Contract > Body > Language of Declaration > Acknowledgments
Examples:
• The Shareholder acknowledges that the Shares have not been
registered under the Securities Act.
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The Framework of a Contract > Body > Language of Declaration > Acknowledgments
Do not…
• …use acknowledgments to introduce other categories of
language.
The Purchaser acknowledges that it shall pay the Closing Costs at the
Closing.
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The Framework of a Contract > Body > Language of Declaration > Acknowledgments
Do not…
• …use “acknowledges and agrees”
The Consultant acknowledges and agrees that he has reviewed a copy
of, and shall comply with, the Company Policies as in effect on the
Effective Date.
The Consultant acknowledges that he has reviewed a copy of the
Company Policies as in effect on the Effective Date. The Consultant
shall comply with the Company Policies.
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Language of Policy
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If the Prevailing Interest Rate drops below the Adjusted Rate, then
this Agreement will thereby terminate.
If the Prevailing Interest Rate drops below the Adjusted Rate,
then this Agreement will terminate by virtue thereof.
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• Definitions
• Language of Performance
• Obligations and Prohibitions
• Discretionary Language
• Language of Declaration
Representations
Acknowledgements
• Language of Policy
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By:______________________
Name: Dr. Complicated
Title: Chief Difficulty Officer
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Practical Tips
• On the page prior to the sig page:
Use “[Signature page follows]” rather than “[THE
REMAINDER OF THIS PAGE INTENTIONALLY HAS
BEEN LEFT BLANK]”
Insert a “Section Break” prior to the sig page, not a “Page
Break”
• Get rid of headers and footers on the sig page
Exception: You might want to specifically label the footer
of the sig page to denote the counterpart being signed
(e.g., “Signature Page to Assignment Agreement (Foreign
Seller to Domestic Purchaser)”)
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Practical Tips
• Make sure that you and your adversarial counterpart are “on the
same page” – Think ahead!
Same exact counterparts
Number of executed originals per document
(be mindful of documents that are negotiable
instruments….)
• Make sure that you and your client are “on the same page” –
Think ahead!
Number of executed originals per document
(be mindful of documents that are negotiable
instruments….)
** Executive availability
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Basic Concepts in Drafting Contracts
Practical Tips
• Scan signature pages (and, once the deal is closed, entire
documents) and keep originals in a safe place
• Be mindful of negotiable instruments and post-closing
documents to be signed by officers of the target who will
continue as officers of the company post-closing (e.g., CEO
employment agreement, stockholders’ agreement)
• Follow up quickly and aggressively after closing to
catalogue signature pages received and obtain any
missing signature pages
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Legal Archaisms
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Basic Concepts in Drafting Contracts
Legal Archaisms
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Legal Archaisms
• If “which” is interpreted to
Assets of the mean “that”, then only the blue
Company (small) rectangle gets carved
out
Assets of Ambiguity Sub
• But if “which” is interpreted to
mean “, which”, then the
green (medium) rectangle
gets carved out
Immaterial Assets of
Ambiguity Sub
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Basic Concepts in Drafting Contracts
Legal Archaisms
WHEREAS,
NOW, THEREFORE,
IN WITNESS WHEREOF,
Do hereby/does hereby
Undertakes to –
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Legal Archaisms
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Basic Concepts in Drafting Contracts
Legal Archaisms
WITNESSETH:
W I T N E S S E T H:
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Summary
• Language matters.
• The law matters, too. But that’s a story for another day…
• Understand the concept, then put it in words – this is often easier
said than done!
• Separate out the function of each provision or clause (e.g.,
language of performance, language of obligation, language of
declaration, etc.).
• Taking time to develop good drafting habits now will make you a
much more effective drafter when time is of the essence.
• Read what you draft to see if it makes sense. If not, fix the
problem/cure the ambiguity.
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Basic Concepts in Drafting Contracts
The End > This is the end of the presentation. Any questions? Please feel free to ask me now, as I’m
packing up, or via email or a phone call.
Questions?
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Vincent R. Martorana is Counsel in the Corporate & Securities Group with Reed
Smith’s New York office. His practice includes the representation of clients in
domestic and cross-border mergers, stock and asset acquisitions and divestitures,
joint ventures, strategic alliances, licensing arrangements, corporate restructurings,
private equity investments, and securities offerings. He also regularly provides advice
on corporate governance and state laws governing business entities (including
Delaware and New York corporate, partnership, and limited liability company law).
Vincent has represented a wide range of clients—from start-up and early-stage
companies to well-established enterprises—in various industries, including
technology, healthcare, pharmaceutical products, consumer products, and energy.
Vincent has extensive experience providing advice on contract drafting, analysis, and
interpretation relating to disputes, settlements, and negotiated transactions. He has
presented his continuing legal education contract-drafting courses for in-house legal
departments and at various other venues, including Practising Law Institute, Strafford
Webinars, The Business Development Academy, the National Academy of Continuing
Legal Education, Commercial Law WebAdvisor, the American Bar Association, the Vincent R. Martorana, Counsel
New York State Bar Association, the New York City Bar Association, the New York Tel: +1 212 549 0418
County Lawyers Association, the Brooklyn Bar Association, the Suffolk County Bar Email: [email protected]
Association, and the Westchester County Bar Association.
He is also the author of Drafting Points (www.draftingpoints.com), a blog that is To receive regular updates on
dedicated to contract-drafting issues. He has also written several articles on contract contract-drafting issues,
drafting and interpretation and is the co‐author of the Reed Smith LLP white paper A subscribe to Drafting Points at
Guide to Contract Interpretation (February 2013).
www.draftingpoints.com.
Vincent received a J.D. from the University of Chicago Law School and a B.S. in
Economics (with concentrations in Finance and Operations & Information
Management), magna cum laude, from the Wharton School at the University of
Pennsylvania.
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This presentation and the supplemental materials related to
this presentation (this presentation and such materials,
collectively, the “Materials”) are intended to constitute a
continuing legal education course and are intended for an
audience of attorneys. Neither the Materials, nor any
portion thereof, is intended for any other purpose or for
anyone other than an attorney.
Neither the Materials nor any portion thereof constitutes
legal advice.
Neither the Materials nor any portion thereof is permitted to
be distributed without the express written consent of
Vincent R. Martorana.
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Fin!
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Basic Concepts in Drafting Contracts
Presented by
Vincent R. Martorana
Reed Smith LLP
For the
Supplemental Outline
53 US_ACTIVE-107962241.15-VRMARTOR
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INDEX
TOPIC PAGE #
A. Preamble ........................................................................... 2
1. Recitals .................................................................. 3
a. Purpose...................................................... 3
2. Lead-in .................................................................. 4
C. Body .................................................................................. 4
1. Definitions............................................................. 4
a. General ...................................................... 4
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TOPIC PAGE #
a. Usage......................................................... 7
a. Usage......................................................... 12
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TOPIC PAGE #
a. Representations ......................................... 13
i. Usage............................................. 13
b. Acknowledgments..................................... 15
i. Usage............................................. 15
ii. Purpose.......................................... 16
a. Usage......................................................... 17
2. Practice Tips.......................................................... 18
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TOPIC PAGE #
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Notice; Disclaimer
This presentation and the supplemental materials related to this presentation (this
presentation and such materials, collectively, the “Materials”) are intended to
constitute a continuing legal education course and are intended for an audience
of attorneys. Neither the Materials, nor any portion thereof, is intended for any
other purpose or for anyone other than an attorney.
Neither the Materials nor any portion thereof constitutes legal advice.
-v-
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OUTLINE
I. PRELIMINARY MATTERS
c. Irrelevant. Why?
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d. Predictability is better than Uncertainty
C. Contract-Drafting Resources
See Exhibit B for summary tables setting forth the typical “anatomy” of a contract
and categories of contract-drafting language.
A. Preamble
Practice Tip: It’s best to save descriptive relationships between the parties for the
recitals or the body of the contract (e.g., a representation from a party that another
party to the contract is such first party’s direct and wholly owned subsidiary).
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Example:
1. Recitals.
Examples:
A. The Parties desire to amend the Loan Agreement in order to, among
other things, extend the maturity date of the Loan to December 31, 2013.
A. The Parties hereby amend the Loan Agreement to extend the maturity
date of the Loan to December 31, 2013.
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A. The Parties shall take such actions as are necessary to implement the
terms of this Agreement.
Example:
C. Body
1. Definitions.
Examples:
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The Company shall not sell or distribute (each of the foregoing, a
“Transfer”) the Shares.
Example:
Example:
-5-
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decision regarding the manner in which to define a
term depends upon the context.
Section 2.3. The Company shall not sell, assign, pledge, encumber,
hypothecate, distribute (as a dividend or otherwise), transfer, or otherwise
dispose of (each of the foregoing, a “Transfer”) the Shares.
Example:
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Example:
Example:
Example:
Example:
2. Language of Performance.
Practice Tip: To identify and convey language of performance, think of the word
“hereby.”
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Practice Tip: Use the active voice, not the passive voice.
Example:
Practice Tip: To identify and convey an obligation, think of the word “shall.”
Example:
The Purchaser shall pay the Purchase Price to the Seller at the Closing.
Practice Tip: To identify and convey a prohibition, think of the phrase “shall not.”
Example:
Each of Moses and his constituents shall not covet his respective
neighbor’s wife.
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Practice Tip: Substitute (in your mind) the phrase “hereby has/have the duty to” in
place of “shall” to ensure correct usage of the word “shall.”
Practice Tip: Avoid the temptation of using “shall” as a proxy for “...and I really
mean it!”
This Agreement shall constitute the entire agreement of the Parties with
respect to the subject matter hereof.
Practice Tip: Do not use “is obligated to,” “agrees to” (other than in the lead-in to
the body of the contract), “covenants and agrees to,” “shall be obligated to,” or
“undertakes to” to convey a contractual obligation.
Example:
Davey hereby bets Lou that the Mets will [not “shall”] win the World
Series this year.
Example 1:
If companies must [are required to] pay an excise tax on the Product of
20% or less pursuant to applicable law, then Newcomer Co. shall [hereby
has a duty to] sell the Product.
If companies shall [hereby have a duty to] pay an excise tax on the
Product of 20% or less pursuant to applicable law, then Newcomer Co.
shall [hereby has a duty to] sell the Product.
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Example 2:
In order for Lindsay to drive the car home from the pub, she must first
convince her mom to give her the keys.
In order for Lindsay to drive the car home from the pub, she shall first
convince her mom to give her the keys.
Example:
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Example:
Example:
Example:
Upon final resolution of all Disputed Items, the Accountants shall issue a
report showing a calculation of the Final Net Working Capital. The
Accountants shall make their determination of the Disputed Items within
60 days after having been selected.
Upon final resolution of all Disputed Items, the Accountants must issue a
report showing a calculation of the Final Net Working Capital. The
Accountants must make their determination of the Disputed Items within
60 days after having been selected.
Upon final resolution of all Disputed Items, the Parties shall cause the
Accountants to issue a report showing a calculation of the Final Net
Working Capital. The Parties shall cause the Accountants to make their
determination of the Disputed Items within 60 days after having been
selected.
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efforts to cause the Accountants to reach a final determination with
respect to all Disputed Items (such determination, a “Final
Determination”) and to provide to the Parties, no later than the 60th day
after the Accountants have been engaged pursuant to this Section
2.4(b)(iii), a report with respect to the NWC Statement (the “Final
Determination Report”) that includes a calculation of the Net Working
Capital.
4. Discretionary Language.
Practice Tip: To identify and convey discretionary language, think of the phrase
“is/are permitted to.”
Practice Tip: Do not use the following to convey discretionary language: “is/are
authorized to,” “has/have the option to,” or “is/are free to.” But “sole discretion”
and other specified factors for exercising discretion appears to have some force
Example:
The Seller shall deliver in a timely manner all Products that are required to
be delivered pursuant to all purchase orders that Key Customers may
submit during the Pre-Closing Period.
Practice Tip: You can do away with using “may” in contracts altogether!
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c. No “Naked” Discretion. Use discretionary language
as an exception to an express or implied prohibition.
Do not “give” a party the right to take an action that
such party is not otherwise prohibited from taking.
Example:
Dad: “Matthew, you are permitted to eat broccoli or spinach with your
dinner.”
a. Representations.
Note: For this presentation, we’ll put aside the debate as to whether the
“warranties” part is necessary or advisable.
Examples:
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iii. The Lead-in. If a party is making a series of
representations, those representations are
usually preceded by a lead-in.
Practice Tip: Do not state that parties “jointly and severally represent” to another
party. “Joint and several” is a liability concept (e.g., for use in connection with
drafting indemnification provisions).
During December 2011, Mitt did not disparage Newt. (Past circumstance
or event; within the representing party’s control/knowledge)
During December 2011, no writer for Iowa Daily disparaged Newt. (Past
circumstance or event; not within the representing party’s
control/knowledge)
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Schedule A contains a complete and accurate list of all interns with whom
William works on a weekly basis. (Present circumstance or event; not
within the representing party’s control/knowledge)
Ron will not mention the Federal Reserve in any upcoming debate.
(Future circumstance or event; within the representing party’s
control/knowledge)
Each of Rick’s Constituents will attend at least three Newt Rallies. (Future
circumstance or event; not within the representing party’s
control/knowledge)
b. Acknowledgments.
Example:
The Shareholder acknowledges that the Shares have not been registered
under the Securities Act.
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ii. Purpose. Acknowledgments can serve to
expressly align the intentions of the parties
to a contract and can serve as an estoppel
against a party.
Practice Tip: Use an acknowledgment for important statements that you want a
party to acknowledge, rather than putting such statements in the recitals.
Example:
The Purchaser acknowledges that the Purchaser shall pay the Closing
Costs at the Closing.
Example:
Example:
The Consultant acknowledges and agrees that he has reviewed a copy of,
and shall comply with, the Company Policies as in effect on the Effective
Date.
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6. Language of Policy.
Examples:
If the Prevailing Interest Rate drops below the Adjusted Rate, then this
Agreement will thereby terminate.
D. Signature Pages
1. The Lead-in.
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2. Practice Tips.
Practice Tips:
On the page before the signature page, use “[Signature page follows]”
rather than [THE REMAINDER OF THIS PAGE HAS BEEN
INTENTIONALLY LEFT BLANK.].” First, the recommended phrasing is
shorter. Second, when a contract is ready for signature, there might not be
all that much “blank” at the bottom of the penultimate page.
Use a “Section Break” prior to the signature page, rather than a “Page
Break.” Doing so will enable you to separately adjust or delete the headers
and footers on the signature page without affecting the headers and footers
on the pages to the main portion of the contract.
Make sure that you, your client, and your adversarial counterpart are
aligned with respect to the appearance of the signature pages, as well as
the number of original signature pages that should be obtained for each
document.
Scan signature pages and entire documents once contracts have been
signed.
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“I’ll give you all the books in my library that I’ve read.” You’ll get 15
books.
“I’ll give you all the books in my library, which I’ve read.” You’ll get 20
books.
“I’ll give you all the books in my library which I’ve read.” It’s unclear
how many books you’ll get.
Practice Tip: If there is uncertainty between using “that” and using “which,”
“that” is usually the correct choice.
See Exhibit C for a list of common legal archaisms from Ye Olde Contracte and
suitable replacements.
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Exhibit A
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Exhibit B
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Anatomy of a Typical of a Contract
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Categories of Language
Language of Addresses actions “hereby” Willie hereby Use the active voice
Performance being taken by the transfers to Charlie
parties by virtue of all of his rights, Don’t use “shall”
the contract title, and interest in
and to the
Chocolate Factory.
Obligation Addresses what a “shall” Charlie shall arrive Don’t use will (which
party has to do at the Chocolate conveys futurity)
pursuant to the ↓ Factory no later
contract than 11 a.m. on Don’t use “must”
“hereby Friday. (save that for
has/have a duty conditions and other
to” contexts)
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Category Description Think Example Notes
Language of Policy Addresses rules The “rules” of “Chocolate Don’t use “shall”
governing an the contract Factory” means the
event or factory on the plot Use present tense for
circumstance of land located at policies that apply
123 Gene Wilder upon effectiveness of
Addresses the Way, Skokie, IL the contract
scope, meaning, 60076, United
or during of States.
language, a
provision, or a
contract
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Exhibit C
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Fixing Words and Phrases from
Ye Olde Contracte
Ye Olde Contracte Replace With…
1st day of October, 2013 October 1, 2013
WITNESSETH delete
WHEREAS A.
B.
etc.
do hereby hereby
undertakes to shall
is obligated to shall
agrees to shall
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Ye Olde Contracte Replace With…
covenants and agrees to shall
for the avoidance of doubt consider clarifying rule and deleting this
text
IN WITNESS WHEREOF, the parties hereto The Parties are signing this Agreement
have set their respective hands and seals as as of the Effective Date.
of the day and year first above written.
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Exhibit D
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Vincent R. Martorana, Counsel
Tel: +1 212 549 0418
Email: [email protected]
Blog: www.draftingpoints.com
Vincent R. Martorana is Counsel in the Corporate & Securities Group with Reed Smith’s
New York office. His practice includes the representation of clients in domestic and
cross‐border mergers, stock and asset acquisitions and divestitures, joint ventures,
strategic alliances, licensing arrangements, corporate restructurings, private equity
investments, and securities offerings. He also regularly provides advice on corporate
governance and state laws governing business entities (including Delaware and New
York corporate, partnership, and limited liability company law). Vincent has represented
a wide range of clients—from start‐up and early‐stage companies to well‐established
enterprises—in various industries, including technology, healthcare, pharmaceutical
products, consumer products, and energy.
Vincent has extensive experience providing advice on contract drafting, analysis, and
interpretation relating to disputes, settlements, and negotiated transactions. He has
presented his continuing legal education contract‐drafting courses for in‐house legal
departments and at various other venues, including Practising Law Institute, Strafford
Webinars, The Business Development Academy, the National Academy of Continuing
Legal Education, Commercial Law WebAdvisor, the American Bar Association, the New
York State Bar Association, the New York City Bar Association, the New York County
Lawyers Association, the Brooklyn Bar Association, the Suffolk County Bar Association,
and the Westchester County Bar Association.
He is also the author of Drafting Points (www.draftingpoints.com), a blog that is
dedicated to contract‐drafting issues. He has also written several articles on contract
drafting and interpretation and is the co‐author of the Reed Smith LLP white paper
A Guide to Contract Interpretation (February 2013).
Vincent received a J.D. from the University of Chicago Law School and a B.S. in
Economics (with concentrations in Finance and Operations & Information
Management), magna cum laude, from the Wharton School at the University of
Pennsylvania.
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