Corporate & Securities Law

When Performance Under a Contract Is by a Division

By Ken Adams

Here’s yet another issue regarding the introductory clause that I haven’t previously written about: How, if at all, should you address in the introductory clause the fact that performance under the contract will be by a division of a company?

You could ignore it. After all, the company will be on the hook, not the division, which isn’t a separate legal entity. And anyway, the fact that performance will be by the division would probably be addressed in the recitals and in the notices provisions.

But I think it’s appropriate to reflect in the introductory clause that a division will be performing under the contract, given that it’s a fundamental aspect of the day-to-day operation of the contract.

You’d accomplish that by adjusting how you refer to the party in question. Here are three alternatives:

• ACME WIDGETS, a division of Acme Corporation, a Delaware corporation (”Acme”)
• ACME CORPORATION, a Delaware corporation represented by its Acme Widgets division (”Acme”)
• ACME CORPORATION, a Delaware corporation acting through its Acme Widgets division (”Acme”)

The third option gets my vote. I don’t like the first one, because the division isn’t a separate legal entity. And I don’t like the second, because represented by is more appropriate for a lawyer, or a trustee.

What do you think? Also, do I say in MSCD2 that you should always reflect in the introductory clause the role of the division, or do I suggest that it’s optional?

Finally, I’m inclined to recommend in MSCD2 that you not adjust any signature block to make mention of the role of a division. I think that would be overkill.

Full post as published by AdamsDrafting on February 07, 2008 (boomark / email).