Using “Parties” as a Defined Term

Regarding use of the word parties as a defined term, MSCD 2.42 says the following:

[D]o not use the defined term the Parties. It ostensibly spares the drafter from having to refer throughout a contract to the parties to this agreement, but one can simply refer to the parties, because such a reference could not conceivably be construed to mean the parties to some other agreement.

After MSCD was published, I came across the following recommended language for a contract provision specifying that no non-party has rights or remedies under a contract: “This Agreement does not and is not intended to confer any rights or remedies upon any Person other than the Parties.”

The authority recommending this language explained that in order to preclude non-parties from being able to enforce any rights and remedies under a contract, you need to make it clear that only the parties who sign the contract have enforceable rights and remedies. If you refer simply to parties, a court might hold that that term includes persons other than the signatories. To address this issue, the provision should name the parties or create the defined term Parties and define it to mean only the signatories.

A party to a contract can indeed preclude intended third-party beneficiaries from bringing a claim under the contract. (You can find a helpful discussion of this principle from an M&A perspective in James A. Smith, Excluding Third-Party Beneficiaries from Merger Agreements, 78 Mich. B.J. 586 (1999).)

This is a useful issue to bear in mind. But in ensuring that a contract doesn’t confer any rights and remedies on third-party beneficiaries, I’d make use of only one of the two recommended mechanisms—I’d name the parties in the provision in question.

A valid alternative would be to refer to “the signatories.” Black’s Law Dictionary defines signatory as follows: “A party that signs a document, personally or through an agent, and thereby becomes a party to an agreement.” It would certainly be more concise than listing all the parties, particularly if there are more than two.

Creating the defined term Parties would accomplish the same goal as naming the parties, but in the process would force the drafter to use throughout the contract an unnecessary defined term. That’s never a good thing. Defined terms can help make a contract much shorter and can help ensure internal consistency. But they’re also distracting—on encountering a defined term, part of the reader’s attention is diverted to recalling the definition. You should make a defined term pay its way—the benefits it offer should outweigh the momentary distraction it inflicts on the reader. To my mind Parties doesn’t meet that standard.

By the way, bear in mind that precluding non-parties from being able to enforce any rights and remedies under a contract is only an issue if the contract contemplates intended third-party beneficiaries.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.