This begins an occasional series of posts on basics of business contracts, principles that apply broadly to most types of business and commercial contracts, regardless of the subject — merger agreements, stock purchase agreements, asset purchase agreements, construction contracts, professional service contracts, generic independent contractor agreements, advertising agency agreements, software and other intellectual property licenses, publishing contracts, equipment leases, office and retail property leases, procurement contracts (both master agreements and single-purchase agreements), employment contracts, and others. Although there can be a subtle legal distinction between a “contract” and an “agreement,” I will use terms interchangeably.
Let’s start at the beginning, with the preamble clause, the first paragraph that appears after the title of most business and commercial contract. There is no universally recognized name for that part of a contract, but preamble is a good descriptive name. Here’s an example:
This Consulting Agreement (“Agreement”), dated March 22, 2018, is between John J. Doe, an individual with a place of business located at 11650 Lantern Road, Fishers, IN 46038 (dba J.J. Doe Consulting) (“Consultant”) and Jane Roe & Associates, LLC, an Indiana limited liability company (“Client”).
Identifying the Parties
The most important purpose of the preamble is to identify the parties unambiguously.
Ideally, individuals are identified by the full legal name, by which we mean the name that the person uses to identify himself or herself in legal contexts, typically (but not always) by first name, middle initial or name, and last name. Even so, use of a nickname does not invalidate the agreement. Of course, it is entirely possible for two people to have exactly the same legal names, so some additional identifying information is often added. Words such as “an Indiana resident” are helpful but a specific residential or business address is better.
Entities should be identified by the full legal name. In most states and for most types of entities, the full legal name will include a designation such as “LLC,” “Co.,” “Corp.,” “Inc.,” “Ltd.,” or the complete version of those abbreviations. In other words, if the name doesn’t include one of those indicators, it is probably not the full legal name. In addition, it is important to identify the precise entity that is the party to the contract, which can sometimes be a problem in large businesses that have several subsidiaries. For example, General Electric International, Inc. is a different entity than General Electric Company.
The name of an entity is usually followed by the name of the state in which it is organized and the type of entity. Although there may be more than one company in the United States with the same legal name, there will not be more than one company in the same state with the same legal name. The full legal name and the jurisdiction of organization should be enough, but the vast majority of contract drafters include the type of entity in addition to the jurisdiction of organization.
Adding an assumed business name, or a “dba” (doing business as) name, can be helpful but it is not necessary for either an individual or an entity, and the contract should not identify any party solely by an assumed business name. Although assumed business names are sometimes exclusive, it is fairly common for two or more businesses to use the same assumed business name, even two businesses in the same state.
Using the parties’ full legal names throughout the contract would be cumbersome, so most preambles include shorthand names. A shorthand name can be anything, but most drafters select either shorter versions of the legal names or words that describe the roles of the parties. In the above example, the parties could have been referred to as Doe and Roe rather than Contractor and Client, and there’s nothing wrong with mixing the two methods, for example by using Doe and Client. It’s purely a matter of the drafter’s preference.
“By,” “Between,” or “By and Between”?
Bottom line, it doesn’t matter, but in my view, either “by” or “between” is enough. You don’t need both. I generally use “between.”
Putting a date in the preamble can be confusing, and I generally avoid it. In my view, a date listed in the preamble should be used only as convenient way to refer to the contract later, as in, “the Consulting Agreement dated March 22, 2018,” which is not necessarily the date the contract takes effect or the date the contract is signed. I prefer to specify the effective date in the body of the agreement, and to record the date that each party signs the contract (remember they may sign on different dates) next to the party’s signature line. One reason for that preference is that the date in the preamble is often left blank for the parties to fill in when they sign the agreement, and it is not uncommon to find executed contracts that still have the blank in the preamble.