I'm having occasion to point people to (the latest version of) a paper I've been using in some live- and Webinar presentations: Drafting a Workable Contract. The paper proposes an expansion of the well-known S W O T analysis, which stands for Strengths, Weaknesses, Opportunities, and Threats. The paper uses the following acronyms:
- T O P S P I N: For identifying threats and opportunities that can arise from various "players" in the business ecosystem;
- I N D I A T I L T: For planning and preparing to respond to particular threats and opportunities;
- W H A L E R analysis: An enhanced version of the classic 5W+H mnemonic (who, what, when, where, why, how).
Get the paper.
A Third Circuit opinion issued yesterday provides a teaching example of how a contract can be drafted to vary payment obligations in ways that motivate particular behavior.
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Consider: Northbound Group, Inc. v. Norvax, Inc., No. 14-1651 (7th Cir. July 28, 2015) (affirming summary judgment). In that case:
- Northbound Group was a company that generated leads for life-insurance sales. Facing financial difficulties, it agreed to sell its assets to Norvax, which generated leads for health-insurance sales.
- The actual asset-purchase agreement was not between Northbound and Norvax, but between Northbound and a newly-created subsidiary of Norvax.
- Northbound later claimed that both Norvax and its new subsidiary breached the asset-purchase agreement in various ways. When Northbound filed suit, though, it sued only Norvax and not the subsidiary, which apparently had no assets and (presumably) was judgment-proof.
The Seventh Circuit affirmed summary judgment dismissing Northbound's breach-of-contract claim against Norvax. The court said, "[i]t goes without saying that a contract cannot bind a nonparty. … If appellant is entitled to damages for breach of contract, [it] can not recover them in a suit against appellee because appellee was not a party to the contract." Id., slip op. at 4 (internal quotation marks and citations omitted, ellipsis and alterations added).
Lesson: Drafters should take note of the Seventh Circuit's remark to the effect that if Northbound had wanted Norvax to guarantee its new subsidiary's performance under the asset-purchase agreement, then it (Northbound) could have negotiated for such a guaranty. See id. at 8.
A Nebraska case reinforces the lesson that incorporation-by-reference language must be clear:
- A school district issued a request for proposal (RFP) for architectural services that would be rendered in connection with the construction and renovation of three schools. See Facilities Cost Mgmt. Group v. Otoe Cty. Sch. Dist., — N.W. —, 291 Neb. 642 (2015) (affirming partial summary judgment).
- After an architecture firm submitted a response to the RFP, the school district followed up with additional written questions. One of those questions was whether the architectural firm guaranteed a maximum price — to which the architecture firm responded "yes." See id., 291 Neb. at 647.
- The architecture firm was awarded the contract, which stated that "[t]he Architect’s Response to the District’s Request for Proposal is attached to this Agreement for general purposes including overviews of projects and services." Id. at 645-46 (emphasis added).
- But the architect firm's response to the RFP wasn't attached to the contract; for that matter, it wasn't even titled as stated in the contract provision. See id. at 654.
- After cost overruns, the school district stopped paying the architecture firm's invoices; the firm sued for the unpaid balance.
- The school district defended in part on the ground that the contract was subject to the guaranteed maximum price stated in the architect firm's "yes" response to the school district's question.
- The trial court granted partial summary judgment in favor of the architecture firm, holding that the firm's RFP response was not incorporated by reference into the contract.
- Agreeing with the trial court, the state's supreme court held that "[t]he expression 'for general reference purposes,' interesting though it may be, contrasts with a provision, common in contract law, which incorporates another document by reference. … [The contract language] simply does not incorporate [the architect firm's] responses into the contract." Id. at 653-54.
(The supreme court reversed on another point, though, and remanded for a new trial.)
Caution: It's not hard to see how another court might have held that the contract did incorporate the architecture firm's guaranteed-maximum-price response.
Still, the contract's drafters, who presumably worked for the school district, might have been more clear about their client's intent.
Longtime Subway sandwich shop pitchman Jared Fogle agreed to plead guilty to child-pornography charges, among others. Subway had previously suspended its relationship with Fogle. The case, along with the attendant bad publicity for the already-troubled Subway, is a sad reminder of the value of including an appropriate "termination for business-reputation risk" clause in a contract of this nature, such as the Common Draft clause on that subject. I'll be updating the commentary to that clause accordingly.