Have a weird contracts question if anyone's available?

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jmaggio16
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Joined: Tue Dec 10, 2013 3:20 am

Have a weird contracts question if anyone's available?

Postby jmaggio16 » Tue Dec 10, 2013 3:27 am

The professor doesn't give us hypos really, he gives us fact patterns where he wants us to try to find the best outcome possible which includes not going to litigation if possible. Anyway it's kinda long so anyone who actually takes the time to look at it would be amazing.


Worldwide Hang Gliding, Inc., owns 109 hang gliding businesses and operates on everycontinent. You can call this company WHG. WHG is interested in buying Stratoglide, and Stratoglide’s owners are interested in selling their company. The parties met for two days and negotiated all the business terms for this purchase: price, closing date, etc. The parties have now turned the deal over to their lawyers to settle the legal issues. The lawyers draft the written contract as they negotiate the legal issues. (This process is described in the photocopy supplement on pages 16–22.)


WHG isn’t buying property from Stratoglide. It’s buying Stratoglide itself. Lawyers call this type of contract — in which one business acquires another — an acquisition contract. WHG is buying all the shares in the Stratoglide corporation. Shares are investment securities under UCC § 2-105.


You represent WHG. You’re communicating with Stratoglide’s lawyer by phone and email. Everyone wants to be able to sign the contract on December 16. You’ve asked that Stratoglide represent and warrant in the written contract that its financial statements are accurate. Financial statements are documents that, among other things, list a company’s assets and liabilities, its revenue (the money it takes in), and its expenditures (the money it spends).


Financial statements are one way of measuring whether a business is healthy. For example, if expenditures exceed revenue, the business is losing money. And if liabilities exceed assets, the business is insolvent. In response to your request, Stratoglide’s lawyer said, “I don’t see why you need that. We’ve given you all the financial statements. They’ve been certified by Stratoglide’s accountant, and we had them audited by another accountant. So you have two accountants vouching for their accuracy. That should be good enough. If you insist on getting my client to make this rep and warranty, my client will be insulted and both accountants will be insulted. You should just believe it. The financial statements are accurate.”

An accountant is a professional who prepares financial records. An accountant might also audit financial records created by someone else. An audit is an inspection of financial records to determine their accuracy. Stratoglide’s lawyer is saying that one accountant created the financial statements and another accountant checked the first accountant’s work to make sure it’s accurate.
Now Stratoglide’s lawyer has sent you the following merger clause and asked that it be included in the contract:


Section 12.4. Merger. This Agreement expresses the parties’
entire final agreement and supersedes all prior promises and
statements, including warranties and representations, written or oral,
concerning this transaction.


The capitalized word “Agreement” means the written contract. The uncapitalized word “agreement” means a meeting of the minds: the terms parties and their lawyers agree to. A written contract becomes effective at the moment the parties sign it. In a merger clause, the word “prior” means before that moment.

What should you do now? Why?

Thanks in advance, anyone.

jmaggio16
Posts: 3
Joined: Tue Dec 10, 2013 3:20 am

Re: Have a weird contracts question if anyone's available?

Postby jmaggio16 » Tue Dec 10, 2013 3:27 am

Here's what me and a buddy have been talking back and forth so far about:

Because there's a merger clause being added in here, it seems like this is a Parol Evidence Rule question, and presumably there parol evidence here that will be at issue are the oral statements about the accuracy of the financial statements. I think the trap is that you would say that if you sign the contract with the merger clause, there would be no way for you to introduce evidence of those assurances, in case they turn out to be bogus. However, an exception to the PER is when the evidence is regarding a misrepresentation about the contract, so I think you would be able to get it into court anyway. But you would want that assurance, either way.
If you're looking at it from a not-really-legal standpoint, that a lawyer would refuse to warrant the validity of the financial instruments at the heart of a deal because it would hurt an accountant's feelings should be a huge red flag that might signal that you don't really want to go through with this at all.

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BarbellDreams
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Joined: Thu Mar 19, 2009 6:10 pm

Re: Have a weird contracts question if anyone's available?

Postby BarbellDreams » Tue Dec 10, 2013 11:37 am

Assuming thats the actual assignment I hope you realize that asking for advice/answers on assignments your prof gives you is an honor code violation. This has been covered to death on TLS since I was a 1L. When you post the fact pattern and ask people to solve it for you thats about as much of an honor code violation as you can find.




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