“The common law doctrine of privity of contract means that a contract cannot (as a general rule), confer rights or impose obligations arising under it on any person except the parties to it.”
2004 edition of Chitty on Contracts
In my last post, I dealt with indemnification clauses. This time, I want to deal with something simple but vital to any agreement: the parties. I know, I know….this sounds really dry and you could certainly have more fun staring mindlessly at the screen on your Facebook page (not that I have any experience with that….). But trust me, this is important. One of the things I’d like to do with my blog is help you SUNsters get educated so you are better prepared in your day-to-day business dealings and better able to negotiate with confidence. Hey! Stop snoring….bear with me and keep reading.
Step one: Identify the Parties
The idea of identifying the parties properly may seem so obvious as to not warrant a posting on it, but I’ve been surprised at how many times this has been an issue. Don’t skip over the step of being thorough and clear about who is to be bound by the contract. To determine this, think through who you intend to be responsible for performing obligations under the terms of the contract. And then think about who you want to be able to go after if the contracted is breached. That party is the one who must be a party to the contract.
Step Two: Properly Add that Party’s Name to the Contract
Make sure that when you enter into a contract, you include the proper parties in the beginning of the contract. For example, make sure that you know whether or not you are dealing with an entity or an individual. If you are dealing with an entity, such as an LLC or Corporation, make sure the entity’s legal and full name is identified in the contract.
Next, make sure that that same party or parties are the ones identified throughout the contract. Take the time before you sign to review every line of the contract to be sure that the parties listed at the beginning of the contract are the same ones mentioned in each provision and in the signature line.
Step Three: Confirm Authority of Signatory
Once you have clearly identified the party, confirm (preferably with documentation, although that isn’t always practical) that the person(s) signing the contract has/have the appropriate authority to sign the contract on behalf of that entity. If they don’t, there is a chance that the contract could be unenforceable. Also, make sure the person(s) signing lists their official title.
Next time, I’ll deal with the “Definitions” section of a contract, which is equally important and the significance is not often clearly understood by business people. Now, back to my Facebook page….er…I mean my billable work.
