ACME HOLDINGS, LLC
ACME ACQUISITIONS, LLC
ACME INVESTMENTS, LLC

By:     ______________________
          Richard Roe
          President

I responded that I’d feel more comfortable with the above arrangement if you added the notation “on behalf of each of the three above-named entities,” or some such. But saving a bit of space and sparing the signatory the ordeal of signing a couple of extra times seem negligible benefits. I have no plans to use such a three-for-one arrangement. But what if one person was signing for, say, six or more parties? Hmmm. Does that ever happen? If anyone can point to a publicly available contract that uses this technique, please post a link or email me a pdf.

In this newsletter article, Doug Batey of Stoel Rives considers a recent Washington Court of Appeals opinion that addressed exactly that issue. Here, from Doug’s article, are the facts (citations omitted):

William and Teresa Grover formed Grover International, LLC in 2005 and shortly thereafter acquired a business. In connection with the acquisition they received an assignment of the seller’s real estate lease. Their LLC signed the assignment using a conventional corporate style of signature, as “Grover International, LLC by William Grover member.”

So far so good. But the lease assignment said that the lease was assigned to “William and Teresa Grover as individuals, dba Grover International, LLC” (“dba” of course being the customary abbreviation for “doing business as”). The lease assignment in fact referred five different times to the assignee as “William and Teresa Grover as individuals, dba Grover International, LLC.”

In 2006 the Grovers sold their business, and the new buyer later defaulted on the lease. The owner of the real estate sued the Grovers, the LLC, their seller and their buyer. The trial court ruled on summary judgment that all defendants were liable jointly and severally, including William and Teresa Grover individually.

The Court of Appeals held that the language in the contract trumped the signature block, and that if the signatory in question “did not want to be personally bound on the assignment, he should have insisted on the elimination of the language within the agreement that designated the assignee as ‘William and Teresa Glover as individuals.’”

Doug expresses surprise that the court didn’t treat the inconsistent language as an ambiguity capable of being resolved by means of extrinsic evidence. He also points out that the contract wasn’t entirely clear that personal liability was intended:

The contract language did not refer simply to the Grovers individually, but to the Grovers doing business as Grover International, LLC, which at the time was an existing LLC. The phrase “doing business as” is usually used only for situations where a corporation or LLC does business under an alternate name. In Losh, however, the dba referred to an existing and separate entity, not just an alternate name for the Grovers.

But for drafters, the moral of the story is a simple one: Don’t introduce this sort of inconsistency into your contracts!

For example, a search on the SEC’s EDGAR system quickly retrieved this document, a “forebearance agreement and amendment to indenture” between Gulfstream International Group, Inc. and Shelter Island Opportunity Fund, LLC. Here’s what came after their signature blocks:

ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS The undersigned, each a guarantor of the indebtedness of Gulfstream International Group, Inc., a Delaware corporation ( Company ) to Shelter Island Opportunity Fund, LLC ( Holder ), pursuant to the separate Guaranty of each dated as of August 21, 2008 (each, as amended from time to time, a Guaranty ), hereby (i) acknowledges receipt of the foregoing Forbearance Agreement and Amendment to Securities Purchase Agreement and Debenture (the Agreement ); (ii) consents to the terms and execution thereof; (iii) reaffirms all obligations to Holder pursuant to the terms of the Guaranty; and (iv) acknowledges that Holder may amend, restate, extend, renew or otherwise modify the Transaction Documents and any indebtedness or agreement of Company, or enter into any agreement or extend additional or other credit accommodations, without notifying or obtaining the consent of the undersigned and without impairing the liability of the undersigned under the Guaranty for all of Companys present and future indebtedness to Holder.

[Signature blocks omitted.]

I haven’t previously given any thought to the practice of tacking acknowledgements on to the end of a contract. I invite you to suggest whether or not that practice makes sense and, if it does, when it’s appropriate to use it.

From @Richards1000‘s prolific Twitter outpouring I learned today of this post by the Delaware Corporate and Commercial Litigation Blog noting that in a recent opinion in a long-running lawsuit, the Delaware Chancery Court applied the twenty-year statute of limitations for contracts under seal.

Contract drafters should take into account external irrationality of this sort. For a given contract, check whether by statute the governing-law jurisdiction still recognizes contracts under seal and applies a different statute of limitations to contracts under seal. If it does, you may want to revise the contract in question so as to make it *rolls eyes* a contract under seal.

When is an amendment not an amendment? When it’s a separate agreement!

From the introductory paragraph of a supplier’s attachment to another agreement:

IMPLEMENTATION ASSISTANCE AMENDMENT NUMBER ONE TO BASIC LICENSE AGREEMENT NUMBER [redacted] CUSTOMER: [redacted]

This Amendment, together with the terms and conditions contained int he Basic License Agreement, dated January ___, 2010 shall constitute a separate and distinct Agreement between the parties. All the terms and conditions of said Basic License Agreement continue in full force and effect and shall control this Amendment unless specifically modified hereby.

I’m not entirely sure what this means. From what I gather, what they really intend is for this “Amendment” not to amend anything, but to use the “Basic License Agreement” as a master set of terms and to add additional terms to address “implementation assistance” services. Sort of like an addendum with additional legal terms. Nevertheless, I wonder whether its prudent under any circumstance to refer to something as an “amendment” when you don’t intend it to modify the agreement to which it is attached.

From the world of bizzaro-drafting!

I agree: don’t give anything in a contract a misleading label, because someone—notably a judge—may take you at your word.

Drafting and executing a document after an event occurs, but in a manner that accurately reflects the date on which the event transpired, is a permissible form of backdating. This is backdating that memorializes, something the United States Court of Appeals for the Seventh Circuit has recognized as a legitimate practice. For example, if parties clearly reach an agreement on Dec. 31, 2009, but do not execute a contract formalizing their agreement until Jan.3, 2010, the contract may be dated as of Dec. 31, 2009. This is simply the accurate memorialization of a past event, something that is essential to legal practice.

But just because something might be permissible doesn’t mean that it’s a good idea. I recommend not backdating a contract. Here’s what I said in this May 2009 blog post:

Courts have certainly been willing to hold that a contract exists before a written contract has been finalized. See, for example, this June 2007 blog post. But I’d still use as the date for a written contract the date it was signed. It’s likely that the written contract addresses many more issues than were covered by the oral agreement, making the written contract different from the oral agreement.

Furthermore, giving the written contract its own date simply reflects the reality of how the contract process unfolded, and it’s always good to have contracts track reality. If the date of the oral agreement was reached is somehow significant, then mention it in the recitals of the written contract.

If having a contract accurately reflect how events transpired doesn’t work for you, you’ve got problems that will only be exacerbated if you try to engage in any sleight of hand over dating.

RECITALS

WHEREAS, the parties intend that, subject to the terms and conditions hereinafter set forth ["subject to" phrase occurs several times, but flawed logic—the intent precedes the contract, not the other way round], Merger Sub shall merge with and into the Company (the “Merger”) [appropriate topic for recitals], on the terms and subject to the conditions of this Agreement and in accordance with the General Corporation Law of the State of Delaware (“DGCL”);

WHEREAS, the parties intend that the Merger shall be immediately followed by a merger of the Surviving Corporation (as defined below) with and into Merger LLC (the ” Upstream Merger “) [appropriate topic for recitals], on the terms and subject to the conditions of this Agreement and in accordance with the Delaware Limited Liability Company Act (the ” LLC Act “);

WHEREAS, the parties intend that the Merger be mutually interdependent with and a condition precedent to the Upstream Merger and that the Upstream Merger shall, through the binding commitment evidenced by Section 5.18 , be effected immediately following the Effective Time (as defined below), on the terms and subject to the conditions of this Agreement and in accordance with the LLC Act, without further approval, authorization or direction from or by any of the parties hereto [too much information for recitals, and anyway covered in the body of the contract];

WHEREAS, the Boards of Directors of Parent and the Company each have determined that a business combination between Parent and the Company is advisable and in the best interests of their respective companies and stockholders and accordingly have agreed to effect the Merger provided for herein upon the terms and subject to the conditions set forth herein [standard feature of merger-agreement recitals, but is unnecessary, given that authorization is addressed in board consents and in representations in the merger agreement; if this is in effect PR intended for shareholders, that function is better served by the proxy statement];

WHEREAS, simultaneously with the execution and delivery of this Agreement and as a condition and inducement to Parent’s and Merger Sub’s willingness to enter into this Agreement, Parent is entering into a voting agreement with the Company and certain stockholders of the Company (the “Voting Agreement”) [if this is a condition to entry into the merger agreement, I'd expect to see that stated in the body of the contract; simpler just to say in the recitals that the parties have entered into the voting agreement]; and

WHEREAS, it is intended that the Merger and the Upstream Merger, considered together as a single integrated transaction for United States federal income Tax purposes along with the other transactions effected pursuant to this Agreement, shall qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the ” Code “) [omit, as (1) covered in the body of the contract, in obligations relating to tax treatment, and (2) is misleading, as I gather that it's settled law that intent of the parties doesn't control the tax consequences of their actions; instead, when referring to the merger for first time say that it's structured as a reorganization].

NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and subject to the conditions set forth herein, the parties hereto agree as follows [as always, a joke]:

Johnson told Robinson he signed the agreement on the space where IBM was supposed to sign because he thought it would prevent the contract from taking effect. His lawyers said it was up to IBM’s human resources department to make him to sign the agreement or punish him—something that didn’t happen.

“The notion that Mr. Johnson intended to be bound by that agreement is absurd,” Johnson’s lawyer, Michael Banks, said at the hearing.

In their post, Law Shucks said they hoped that I’d have something to say about this—and I heard the call!

If Johnson’s defense were limited to the fact that he had signed the contract in the wrong place, he would likely have a tough time getting any court to buy his defense. Here’s what 1-2 Corbin on Contracts § 2.10 has to say generally about such matters:

A signature may be operative without respect to its position on the document, although it is customary to sign at the end of the writing and beneath the written provisions. There must be satisfactory evidence that the signature was affixed with intent to authenticate and express assent to the entire document.

And in a few minutes of rooting around on Westlaw, I found a relevant case, Karapanos v. Boardwalk Fries, Inc., 837 P.2d 576 (Utah App. 1992). Here’s the relevant language:

Karapanos argues that because he signed in the wrong place, the agreement was never executed. We disagree. Black’s Law Dictionary defines “execute” as “[t]o perform all necessary formalities, as to make and sign a contract.” 509 (5th ed. 1979). In addition, “it is a general rule that a signature located anywhere on a contract is sufficient to authenticate the instrument if it was placed there with the intent to do so.” Pio v. Gilliland Constr., Inc., 276 Or. 975, 560 P.2d 247, 250 (1976); see 1 Corbin on Contracts 122 § 31 (1950). Karapanos admits he intended and believed the agreement to be enforceable when he signed it. In fact, he assigned his interest under the agreement to Guardian State Bank to secure a loan. He also flew to Maryland to receive training from Boardwalk. Boardwalk similarly conducted itself as if the agreement were fully enforceable. Boardwalk gave Karapanos confidential and proprietary materials, including operation and training manuals, business plans, budgets, and equipment specifications. It was only after Karapanos began having doubts about his decision that he questioned the enforceability of the agreement. Therefore, we conclude the parties executed the agreement, and we will enforce the agreement as it is written.

The lawyers for our former IBM executive would doubtless distinguish Karapanos by saying that Johnson never did anything to suggest that he thought the contract was enforceable. The problem is that the way you comply with a noncompetition agreement is by … doing nothing. So lack of any indication of assent other than Johnson’s signature wouldn’t seem to prove anything.

But there’s more to Johnson’s story that the fact that he signed in the wrong place. Apparently IBM never signed the contract and returned the original to Johnson, who refused requests to sign another. So the story is murkier than it seems at first glance.

But dating signatures can be a nuisance. As I noted in this November 2008 blog post, one problem is that parties sometimes return signed signature pages without filling in the date next to the signature.

Here’s another potential problem: what if the person signing puts in a date other than the date when they signed? Or they sign and date the contract but wait a few days before returning it? In either case, the result could be that the contract is given a date that is different from the date that would have been used if the person signing had put in the actual date and promptly returned the signature page. This could be more of a nuisance than playing games with the date in the introductory clause—the date you use in the introductory clause is something the parties have to agree on, whereas someone signing a contract has unfettered discretion to give their signature whatever date they want.

I have no idea whether this is a real issue. But the simplest fix would be to use a signature-automation solution such as EchoSign or DocuSign.

• It’s commonplace in wills, apparently as a check against substitution of pages.
• It’s required by statute in the case of some contracts. For example, under Ohio Revised Code 1349.55, each page of a contract providing for a non-recourse civil litigation advance must be initialed by the consumer.
• With respect to business contracts, in the U.S. it would be unusual for the parties to initial each page, except in the case of real-estate contracts.
• In Europe, it’s commonplace for the parties to a business contract to initial each page.

Readers, please tell me more, including with respect to jurisdictions outside the U.S. When do you have the parties initial each page, and why?