CBN Contract Clause Drafting 3 — Questions and Answers
Question 1: In a software services agreement, which clause type best addresses ownership of custom code developed by the vendor?
- Confidentiality clause
- Intellectual property assignment clause (Correct answer)
- Service level agreement clause
- Indemnification clause
Correct answer: Intellectual property assignment clause
An IP assignment clause explicitly transfers ownership of custom-developed work from the vendor to the client.
Question 2: Which drafting technique makes a contract clause more likely to be interpreted in the drafter's favor under contra proferentem?
- Using highly technical legal jargon throughout
- Drafting ambiguous language strategically
- Stating terms precisely and unambiguously to avoid the rule applying (Correct answer)
- Inserting contradictory provisions for flexibility
Correct answer: Stating terms precisely and unambiguously to avoid the rule applying
Contra proferentem resolves ambiguities against the drafter, so precise drafting eliminates the rule's application entirely.
Question 3: A 'liquidated damages' clause is enforceable when:
- It penalizes the breaching party far beyond any actual loss
- The amount reflects a reasonable pre-estimate of anticipated harm and damages are difficult to prove (Correct answer)
- It is inserted solely to coerce performance
- It applies only to consequential damages
Correct answer: The amount reflects a reasonable pre-estimate of anticipated harm and damages are difficult to prove
Courts uphold liquidated damages clauses when the amount was a genuine pre-estimate of loss, not a penalty.
Question 4: What does an 'entire agreement' (integration) clause accomplish?
- It incorporates all prior oral and written agreements into the contract
- It prevents parties from introducing prior negotiations or representations to vary written terms (Correct answer)
- It requires all amendments to be approved by a regulator
- It extends the contract term automatically upon expiration
Correct answer: It prevents parties from introducing prior negotiations or representations to vary written terms
An integration clause establishes the written contract as the complete agreement, barring extrinsic evidence of prior discussions.
Question 5: Which type of clause in a construction contract protects an owner when a subcontractor files a mechanic's lien?
- Lien waiver clause (Correct answer)
- Milestone payment clause
- Delay damages clause
- Mobilization clause
Correct answer: Lien waiver clause
A lien waiver clause requires contractors and subcontractors to waive lien rights upon receiving payment, protecting the owner's title.
Question 6: When negotiating a renewal clause, which structure gives the buyer the most control?
- Automatic renewal with 30-day cancellation window
- Seller's unilateral right to renew at new pricing
- Buyer's option to renew at pre-agreed terms within a specified notice period (Correct answer)
- Rolling month-to-month with no written notice requirement
Correct answer: Buyer's option to renew at pre-agreed terms within a specified notice period
A buyer's renewal option at pre-agreed terms gives the buyer certainty on price and timing without being locked in automatically.
Question 7: A 'carve-out' in a confidentiality clause typically excludes information that:
- Was disclosed under a prior NDA with the same party
- Is independently developed, publicly available, or received from a third party without restriction (Correct answer)
- Contains trade secrets regardless of public availability
- Was labeled 'confidential' by the disclosing party
Correct answer: Is independently developed, publicly available, or received from a third party without restriction
Standard NDA carve-outs exclude information already public, independently developed, or lawfully received from third parties.
CBN Contract Clause Drafting 3
In a software services agreement, which clause type best addresses ownership of custom code developed by the vendor?