First part of an agreement - Weagree

First part of an agreement

The first part of an agreement triggers questions related to:

  1. Contract title: choosing
  2. The “Agreement” defined (where to define, scope)
  3. The date of the contract (where to mention – what is the date)
  4. The parties block (what to include, how define and refer to parties)
  5. The words of agreement (when to use Now therefore, etc.)

All dilemmas related to this first page of a contract are explained and discussed in this chapter:

The contract title #

Each contract should be given a contract title. If the contract has a cover page, it is placed there prominently. Further, the contract title should be at the top of the first page (either as the lead-in to the parties or, if there is no cover page, as a true title) and probably also in the footer of each page. On the cover and first page it is often printed in bold and capitalised (even though it is not referring to a definition as capitalised terms otherwise do). The word agreement in the title is more common than the term contract. There is no difference in meaning.

Choosing a contract title
The title of a contract should simply reflect the nature or central purpose of the agreement, indicating whether it is a licence, confidentiality agreement or other contract. The title should be concise: rather than Agreement for the Development, Implementation and Maintenance of Software use Master Software Services Agreement. However, the chosen title should not be meaningless, such as Agreement (without anything else).

Do not give overly specific titles: a title should enable future users of a contract management system to identify the correct contract (from amongst various contracts as part of one transaction) or retrieve it in the search for a useful precedent for another transaction of a similar nature or purpose. The title should not describe the transaction from both perspectives, as in Agreement of Sale and Purchase.

To avoid the other party is being alarmed (or the in-house counsel of the party being alerted) by a title that suggests the contract is one-sided (i.e. presumably, a Sales Agreement is seller-friendly); use a more neutral alternative (e.g. Supply Agreement).

Do not include the party names in the title. However, mentioning parties may be preferable in cases with two joint venture partners or in an agreement governing the parties’ position vis-à-vis a named party: Sony Ericsson Shareholders Agreement. Avoid the use of abbreviations (jargon); rather than referring to SW, refer to software.

Contract title and subtitle
If so desired, you can add a subtitle to the cover page (e.g. Share Purchase Agreement – related to the sale of Johnson Distribution Services). The subtitle should not however be repeated on the first contract page or in the footers. Financial agreements, such as major term loans or facility agreements, often mention the principal amount as a subtitle (the LMA model agreements recommend that the loan amount is used adjectivally and placed immediately above the contract title).

Title of amendments, supplements and addenda
Amendments, supplements and addenda should be entitled AmendmentSupplement or Addendum, respectively, possibly extended by its chronological amendment number and if desired also by the word agreement (e.g. Amendment Agreement IV). A subtitle could be added to identify the amended agreement.

‘Restated’ agreements
Sometimes, a contract does not anymore reflect the way the parties work together or is amended so often that the complete picture is scattered over various amendments or addenda. Also, long-term agreements, such as successful joint ventures, sometimes provide for a renegotiation after an initial term. In such circumstances, it may well be desirable both to redraft the entire agreement and to emphasise that the existing commercial relationship is continued without inconsistencies or interruptions. To emphasise consistency with past practice, the new agreements would get a suffix Restated in their title (e.g. Restated Joint Venture Agreement).

For example, a restatement of a joint venture arrangement would emphasise that the parties are bound by a high level of good faith, rooted in a historically grown exceptional level of mutual trust. Similarly, a restatement may support discussions with a third person that a post-divestment contractual arrangement is in fact a continuation of previously not-documented intra-company transactions.

Contract title in letter agreements
A letter agreement amending or renewing an existing agreement should not refer to the agreement in the subject line since the amended or extended agreement would be identified in the first sentence.

Definition of ‘this Agreement’ #

To define Agreement?
Many drafters define the term this Agreement (or, as appropriate, this Deedthis Amendment, etc.) in the introductory clause. Defining the term is, as such, not necessary: the mere article this in this agreement (used anywhere in the document) obviates the need for a defined term, because what other agreement would be referred to?

This is even more obvious if in the body text, an entire agreement provision is included stating that the Schedules and Annexes form an integral part of this Agreement and references to this Agreement shall include its Schedules and Annexes. Theoretically, the term this agreement could be interpreted to refer to that particular sentence or contract clause (e.g. the arbitration ‘agreement’) but (i) whether there is any relevancy in it at all, plus (ii) the likelihood that a party argues that this agreement refers to a part only, plus (iii) the likelihood of a court accepting this interpretation, is very remote. Despite it being redundant, personally I prefer to use Agreement as a defined term.

Do not list in article 1.
If you do define (and capitalise) “Agreement”, do so in the title line on the first contract page or in the recitals. Do not define (or repeat or summarise its defined scope) in the definitions article. If anything needs to be elaborated on, do so in an interpretation section that also explains other references in the Agreement, or in an entire agreement clause in the miscellaneous article at the end of the contract.

Date #

Effective date or signing date
The first line often includes a date (on best practices of writing a date in contracts – see the separate subchapter). This would be the date that the contract was entered into or the date that the contract will become commercially effective, unless the contract states otherwise.

Contract date – best practice
Be careful with dating the agreement: if the agreement has a cover page, it will likely contain a date and contract footers will, in many cases, also contain a date. Furthermore, the signature words of agreement (immediately preceding the signature blocks) will often also contain a date and many signatories will (despite the fact that no space is reserved for it) write a date next to their signature. Make sure that at least the printed dates are all the same; but preferably, to avoid any confusion at later stage, insert an effective date only once.

Any such dating discrepancy is often due to logistics. For example, if the closing date of a transaction slips by a day or two from the scheduled date, the parties might prefer not to change the date in each of the transaction documents. And when one party signs a contract on a given day and then sends the contract by courier to the other party to sign, the date in the introductory clause could be the day that the first party signed or could be any other date.

Date of consent
Sometimes, the described discrepancies between the date of signing and the economic effectiveness of a contract can only be repaired by requesting the return of documents or by bothering the other party with another change. In these cases, it may be worthwhile to consider that the meeting of minds or the acceptance of the last offer was probably even a few days earlier. That means that the (oral) agreement existed already and may help in antedating a document.

Made or entered into #

Entered into
In the first line, it is appropriate to state that the agreement is entered into. If you enter into something such as an agreement, discussion or relationship, you become involved in it[14]. An agreement is a psychological meeting of minds resulting from offer and acceptance (i.e. the mental consent required under all European laws to have an agreement) that is eventually reflected (as well as possible) in the wording of a contract.

To make an agreement
In the U.S. common law, an agreement is conceptually considered to reflect a bargain between the parties. This might explain that, since a bargain is ‘made’, drafters use is made as a lead-in. The words is made strongly reflect the objective nature of an agreement: distinct and separate from the minds of the parties. It probably also explains why an entire agreement clause has a relatively strong effect (in view of the legal concept of the parol evidence rule, the explanation of which is outside the scope of this book).

Pragmatically simple
Whatever your preference is, is made and entered into are largely redundant. It is appropriate not to start the contract with an introductory line (which includes the title, a date and the parties’ names and details) but to leave it open and to simply use a heading “THE PARTIES:”

By, between and amongst #

Use between in the introductory clause rather than amongst or a combination such as by and between. It subtly gives the agreement a more personal character, as is more consistent with the nature of contracts (i.e. reflecting the consent of two or more parties, rather than a mere bargain). Semantically, the distinction between between and amongst is not whether you refer to two parties or to three or more; it is whether you refer to one thing and another or to a collective or undefined number. Compare walk between two trees with walk among the trees.

Avoid using by for the same reason as applies to amongst; it turns an agreement into something outside the parties (i.e. the parties are the makers of a contract, being a work). Nevertheless, whether you use between or amongst does not influence the legal effect of the contract.

The contracting parties #

Every contract identifies the contracting parties on the first page (or contains a reference on the first page that refers to a schedule where each party is identified). In a European style contract, the parties would be enumerated and numbered; in a U.S. style, the initial block would, by way of one single sentence, name each party. For example:

Weagree B.V., a private limited liability company established under the laws of the Netherlands, registered under number 34315268 at (Gedempt Hamerkanaal 149, 1021 KP) Amsterdam, the Netherlands (the Licensor);

The sections for identifying the contracting parties should state the information which is required under the applicable civil procedural law to be included in a writ of summons. Obviously, this begins with the (complete) party’s name.

Entities with legal personality
Identify each party by the name as it appears in its articles of association and under which it is registered, including the legal form of the entity (e.g. B.V., GmbH, SA, SpA, Inc., Ltd.) and the jurisdiction of incorporation. Although this would not be a must, many drafters prefer to identify the legal form in its original language (in which case it would be printed in italics), either in addition to the translation in the contract language or without such translation.

Many drafters will also include the incorporation number or registration number (in several jurisdictions, these are two different numbers). It is nonsense to state that the company is “duly incorporated”, because it either is incorporated or not. If a legal entity is not yet incorporated, European member states require that the entity name so states (“in formation”) in addition to the anticipated entity form. In such case, member state law will (formally or effectively) treat the entity-in-formation as a partnership.

If a party is a partnership it is important to know pursuant to which law it is established (i.e. to which the partnership agreement is subjected or, but not necessarily, where it has a registered office). Consider also including the name and title of each (general) partner, or at least of those who execute the agreement.

If a party is an individual use his or her full name, and consider including his or her date and place of birth.

What do you need?
The parties block should contain such information as is necessary to establish where each party has its registered office or address (or, in case of individuals, where they live or have a residence). If that information can be traced on the basis of the name of a town or country only, then such information would suffice (as a minimum). Note that the criteria to be satisfied are those under the applicable civil procedural law (or, in international cases, those of a relevant treaty or convention on the service abroad of judicial documents).

In jurisdictions where the applicable company law would be determined by reference to the ‘real seat’ or (principal) ‘place of business’, the address of the (registered) offices could be inserted. Identify the company’s registered (headquarter) offices if this is different from the address in the notices clause. If a notice clause is omitted, the addresses should be included in the contract parties section.

Registered ‘official’ address
Knowing the applicable law enables the counterparty to verify whether the signatories are duly authorised, by checking their being registered in the public register (or court’s office, depending on the country) and identifying any internal approval requirements (if any) in the articles of association, to make sure that the party-entity is duly represented. Such verification makes sense in European jurisdictions, where the public company or trade registers are reliable sources for such information; in the U.S., such verification would hardly make any sense (which explains in part why parties are often required to provide legal opinions on existence and authority and why a contract would contain various statements expressing the same).

The names of the signatories should be printed in bold and may be capitalised. In the event that a party has changed or anticipates changing its name, it may be helpful to include the past or future name, respectively. In several jurisdictions, also identifying the (local) tax number would be somewhat of a prerequisite.

Do not write out the normally abbreviated legal form of the entity and do not confuse matters by starting the parties block with less relevant information than the entity name, such as in:

The private limited liability company (besloten vennootschap met beperkte aansprakelijkheidWeagree, incorporated under the laws of the Netherlands, with its registered offices at … (Licensor); and

Such wordy phrases may be ‘desirable’ in notarial deeds, but are greatly exaggerated in other agreements.

Representative statements
Sometimes parties prefer to add statements such as represented by its duly authorised managing director to emphasise specifically that the party is duly organized and validly existing. There is no need to include such statements. Such matters are adequately provided for under the applicable law on how a company or principal is represented, as well as what happens if this were not the case.
Such statements are more appropriate to be listed as a warranty. A statement that the contract is binding upon the parties and that the contract restates their agreement is by definition not true and otherwise without meaning: a contract is by definition an incomplete reflection of the parties’ agreement and to the extent that the parties’ consent embodies a broader understanding, they would be free to submit evidence supporting that broader understanding (although the scope is limited under common law by the Parol evidence rule). If it is important to exclude promises made in any preceding letters of intent, such documents should be identified and preferably be excluded specifically (see entire agreement clauses).

Business groups or units
It is nonsense to include a statement that the agreement relates to a certain business group or business unit of the contracting entity. Such groupings have no legal capacity to enter into a contract or the statement is superfluous. If you would like to limit the scope of the agreement express this in the relevant contract provision (e.g. in the first section on scope and authority to submit or accept purchase orders or in an assignment clause restricting transferability of the contract). The effect will probably be negligible in the event of a dispute, since a claimant will not be precluded from being granted rights over assets of other business groups or business units of the same legal entity.

“Also on behalf of Affiliates”
Equally undesirable is a statement in the parties clause that the party also acts on behalf of its Affiliates. Firstly, the same would also need to be reflected in the signature blocks (and there, the affiliates need to be duly represented). Secondly, it is questionable whether it is desirable from a liability-limiting perspective. Thirdly, it is ambiguous because the precise scope and meaning is unclear: it would be much more accurate (and adequate) to stipulate a provision to be for the benefit of an affiliate where relevant. Fourthly, if the reference were to be interpreted narrowly, the surrounding facts will probably be more convincing than the mere statement (in other words, if an affiliate would submit purchase orders or otherwise act vis-à-vis the other party, that would diminish the rather arbitrary boilerplate wording in the parties clause).

The parties defined #

To refer to a contract party in the agreement, either use the functional reference (e.g. Seller, Licensee, Service Provider, Lender) or the short name of the party (e.g. Weagree, Shell, Philips, Sony). It is appropriate to refer to your own party by its short name and to the other by a functional reference.

Do not provide for alternating defined terms to refer to the same party (i.e. not: hereinafter Purchaser or Weagree). It serves no purpose and does not make reading easier (rather, it conceals careless copy-paste work from different contract sources by the drafter). Define either term in the party introduction clause, immediately following the identifying details of each party. Do not include the defined term in the definitions article.

Individuals are typically defined by their family name without title (i.e. without Mr, Mrs, Ms), except in letter agreements, where the title would normally be included. Professors are often defined with their title, abbreviated.

Short name
Whenever possible use a defined term equal to the company’s trade name or one composed of words from the entity name. This is preferred over an abbreviation or fancy acronym. Nevertheless, an acronym is appropriate when the party is known by it, if its name includes that acronym or if the contracting parties are affiliates (with  similar names).

Functional references
Generally, a contract would be easier to read when using the short name as opposed to a functional reference. However, functional references, such as Purchaser or Shareholder, are appropriate in the following contexts:

  • in ordinary course business contracts, to identify the other party, unless that other party is a major company;
  • if, traditionally, the type of contract uses functionally referenced defined terms, such as facility agreements and loans;
  • if a single entity is the subject of the legal document, such as in articles of association, deeds of share transfer and corporate resolutions;
  • when the identity of a signatory is not yet known, for example in case of share purchase agreement used in the context of a ‘controlled auction’.

If you use a functional reference to define a party, the noun should indicate the functional role of the party in the agreement (e.g. Seller, Licensor, Lender). Alternatively, it could refer to the form of legal entity of the party (Company; Corporation). There are contract drafters who prefer to avoid ‘paired’ defined terms that differ only in their final syllable (e.g. Lessor-Lessee, Licencee-Licensor).

When using a functional reference, omit the definite article (i.e. prefer Purchaser over the Purchaser). This will make it much easier when using contract assembly applications, where replacing the reference by a name reference is very easy, but more difficult where the article is used (i.e. requiring two replacement algorithms, for both The and the). Anyhow, be consistent in using or not using the definite article throughout the contract.

Grouped party definitions
Many contracts are between groups of counterparties. It makes sense to define each party individually (and remember to use the specific defined term when referring to that party only) and in addition define each side by grouping the individual parties.

For example, in an Asset Purchase Agreement, there are often several sellers (and purchasers), one for intangible (IP) assets, one for each international tax unit, financing companies for shareholder loans, and often also the parent company for some operational assets. Another example can be found in joint venture agreements (or shareholder agreements), where the ultimate holding company will often be the main party whilst the actual shareholder will be a tax-efficient local entity (or even a shelf company). In those examples, it is recommended to refer to Sellers or to ABC on the one hand and to Purchasers or to XYZ on the other.

If you do group affiliates, be aware that such treatment may also trigger questions regarding joint and several liability for performance of an affiliate’s obligations. In many enterprises this triggers only theoretical issues, but addressing joint and several liability in a separate clause is nevertheless advisable. Where there is joint and several liability, this may trigger questions or notice requirements under (the covenants of) a master loan or facility agreement of that enterprise.

Words of agreement: ”Now, therefore” #

A familiar funny phrase illustrative for the difference between common law governed contracts and European continental contracts are the so-called ‘words of agreement’. The words of agreement signal the start of the binding part of the agreement. A somewhat exaggerated and wordy example:

NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows.

In contracts governed by a European continental legal system (or a law historically based on the Napoleonic-Roman or Germanic legal tradition), it would be sufficient to write:

NOW THEREFORE, the Parties agree as follows:

or any other convenient header distinguishing the parties and the background description. The words now therefore should only be included if the contract has a preamble.

Simplify. Contract drafters increasingly place a simple heading AGREEMENT after the recitals and before the body of the contract. In this pragmatic approach, consistency prescribes that the preamble should also be preceded by something like BACKGROUND and the party clauses by PARTIES.

Terms of Use

I hereby accept (or reconfirm my acceptance of) Weagree’ Terms of use, in which:

Terms of Use

I hereby accept (or reconfirm my acceptance of) Weagree’ Terms of use, in which: