It’s been awhile and I thought that I’d take this festive opportunity (well, yesterday’s festive opportunity) (1) to discuss some practice pointers for drafting the preamble to your contract and (2) to include an apostrophe in a blog title. So pick up a beverage of your choice, sit back, and have a read.
Let’s have a look at a sample preamble:
This Licensing Agreement (this “Agreement”), dated March 17, 2013 (the “Effective Date”), is made between Tasty Ale House, LLC, an Ohio limited liability company (the “Licensor”), and Give Me Beer Co., an Idaho corporation (the “Licensee” and, collectively with the Licensor, the “Parties”).
Some things to note:
1) The preamble should be a sentence. The preamble should be a grammatically correct sentence, not a sentence fragment. (There’s a verb in there.) Alternatively, you could state all of the information in somewhat of a tabular format. For example:
Agreement: License Agreement
Effective Date: March 17, 2013
Licensor: Tasty Ale House, LLC, an Ohio limited liability company
Licensee: Give Me Beer Co., an Idaho corporation
I’ve seen that approach in UK contracts, but not in US contracts. But it seems like a sensible alternate approach.
2) Include jurisdiction and entity type. When identifying the parties, I include each party’s jurisdiction of organization and entity type. By doing so, I precisely identify an entity. There could, for example, be a New York limited liability company named “Tasty Ale House, LLC” or an Idaho limited liability company named “Give Me Beer Co.”
3) Use between. There’s authority out there that says that between will do the trick when describing who is party to a contract, even if you’ve got more than two parties to that contract. So I’ve given up on distinguishing between between and among. On a related point, if I’m dealing with more than two parties but only two “sides,” I use the on the one hand…on the other hand cadence to emphasize who’s on whose side for purposes of enforcing rights (although I admittedly also specify this in the operative provisions, as well). Thus:
…between Party A and Party B, on the one hand, and Party C, on the other hand.
That’s not a hard and fast rule. It starts to break down when you’ve got more than two “sides” (e.g., a multi-member operating agreement).
Whatever you do, do NOT use by and between or by and among. The by and is just rhetoric.
4) No need for an “as of” date. The parties can elect when a contract is to be effective between them. Using as of doesn’t make the contract more or less retroactive or prospective. If there is a genuine concern about the time difference between the date on which a contract is signed and the date on which that contract is to be effective, then address the issue head on in the operative provisions. And remember: the contract should reflect the true intent of the parties. If, for example, the parties are “papering” an oral contract between them, then the contract should not claim that the oral contract came into existence before it actually did in order to gain some advantage vis-a-vis a third party. Retroactive effectiveness is fine between the parties. But don’t expect the IRS to believe that a transfer pricing agreement signed tomorrow has been in place for three years.
5) Omit descriptive relationships between the parties. To keep the preamble lean, I tend to save descriptive relationships between the parties for the recitals. For example, in the phrase
…and SubCo., a Delaware corporation and a direct and wholly owned subsidiary of the Parent,..
I would omit: and a direct and wholly owned subsidiary of the Parent.
If the relationship is important, then I’ll include in the operative provisions of the contract a representation as to that relationship.
6) Define “Parties”. I usually define the term “Parties.” This is also not a hard and fast rule. But I have encountered enough contracts for which I need to use “party” (lowercase) in the contract to mean something other than a person that is party to the contract at issue. Also, in certain instances, I might have one or more persons as a party to a contract for limited purposes. In those instances, I find it helpful to include those persons within the definition of ”Parties” (e.g., in provisions to which all persons signing the contract are bound).
7) Define “Effective Date”. I find that this is a useful term to have defined in most contracts. At a minimum, I end up using the term on the signature page:
The Parties are signing this Agreement as of the Effective Date.
It’s not as long as (and also not as potentially ambiguous as) the date of this Agreement, the date hereof, and the date first written above.
So there you have it. Nothing earth-shattering. But some food for thought the next time you start drafting a contract.