Editor’s Note: This is the second installment of a series of articles providing background to smart contracts coders about how contracts work in real life. The articles reference this sample sales contract. This guide is intended for general informational purposes only. If you need legal advice about a specific situation, contact a lawyer.
Nearly all contracts begin by identifying the people or businesses that are making promises that are memorialized in the contract. You’ll see in the sample that it has a blank for “STATUS OF BUSINESS.” Yipes! What I think that really means is the type of business (in the U.S., this generally is a corporation or a limited liability company) so that it would say Acme, Inc.” or “Acme, LLC”, but considering the sample is pretty old-school, it’s also likely expecting that you’ll include the state of registration so that it would say “Acme, Inc., a Delaware corporation” or “Acme, LLC, a New York limited liability company.” Trust me, you can skip that information if it’s not readily available. Lawyers waste a bunch of time trying to track down the state of incorporation including too often for subsidiary companies of their own employer. I supposed this information could be useful in a lawsuit, but I think it appears in contracts mostly because people are afraid of the unknown consequences of leaving it off. God forbid if you’re the first person to not include the state of incorporation in a contract. The Law doesn’t like change.
In addition to identifying the parties to a contract, the introductory paragraph usually also identifies the start date of the contract. Until you’ve done a contracts due diligence review, you have no idea how often people screw up the date of the contract, and people looking years later can’t figure out when then contract was supposed to start or, generally more importantly, end. Was a contract that was sent by email on December 28, 2018, really meant to start on January 1, 2018 or was that a typo? Or then there are the contracts with a missing date. Again, you may need to look back at emails (if you have them) to see when it appears the parties intended the contract to start. The lesson here for coders is make sure you’re capturing the intended start for the contract you’re working on, and remember that is usually, but not always, the day the parties are signing the contract.
The next part of the introductory section of the contract is the recitals paragraph. I hate the term recitals. It sounds as bad to my ears as an afternoon of listening to little kids playing Chopsticks on the piano. Some people call them the “whereases,” but that is even more awful. As-es? You can’t be serious. If you know what you’re doing, you call this the background section, you write it in plain English (or whatever the native language is for your contract) and you actually make this useful. With high-volume sales contracts, there shouldn’t be much doubt about the background, but with customized, one-off contracts it’s really helpful to have a good description of why the parties were entering into the contract and what they intended to accomplish.
Next up: Part 2 — The Scope of Work