When Performance Under a Contract Is by a Division

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. The first one is a bad idea: a division lacks capacity to enter into a legally enforceable contract, so conceivably the company could subsequently claim that the contract isn’t enforceable. 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.

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.

9 thoughts on “When Performance Under a Contract Is by a Division”

  1. Mr. Adams – For what it is worth, my opinion is that role of the division should be noted in the introductory clause of the contract if correspondence, business cards, invoices, “pay to” on the invoices and the like either refer only to the division or prominently mention the division. As for MSCD2, I would suggest that disclosure of the role of the division depends on the circumstances and, thus, is optional. Likewise, my opinion is that the signature block should also refer to the division; I don’t think that is overkill.

  2. I also prefer the third alternative. However, I know that a number of the divisional managers with whom I work think of their division as being a separate business and would prefer that documents emphasise the division over the corporate entity. Similarly, the counterpaties that we deal with will often identify the division as their contractual partner, and not the corporate entity. While not entirely satisfactory from a lawyer’s point of view, I would often use the first alternative in the interests of business efficacy.

  3. One thing to be careful about in this scenario is any right or duty attached to a change of control of the provider (e.g., where the customer reserves the right to terminate upon a corporate change of control of the provider). Where the signatory is the provider’s parent, any spin-off of the operating division providing services needs to be called out in drafting the termination right.

  4. Mr. Adams: I’m in a city attorney’s office, and I, too, prefer your third alternative. It’s the form I use for city departments that enter into contracts for services and supplies. For example: City of Metropolis (the “City”), a California municipal corporation acting through its planning department, . . . And like you, I prefer not to have the signature block reflect the contracting department.

  5. If any, I’d go for your third option.

    However, for MSCD2 I’d suggest not to incude the role of the division in the introductory clause.

    9 out of 10 you don’t care about the source, what you want is the product. And if you do want to specify the source, the important part isn’t the name of the source, but the characteristics of that source causing it to be preferrential to other sources.

    What I see in the oil and gas industry is that the agreement is made with the legal entity, while the characteristics of the division is specified in the “Scope of Work” attached to the terms and conditions.
    For instance, a client in the Gulf of Mexico may require us to perform services from a location in Houston (this saves shipping to Europe and back). If such a condition is agreed we would perform the services through our US division, which happens to be in Houston, at a higher rate to compensate for having to maintain an over seas workshop.
    But what if the agreement specified the US division and not the location? Then we would be free to move our division to the west coast and the client would be left with an expensive agreement and with little cost and time saved compared to shipping back to Europe.

    So to sum up:
    – State the legal entiry as party
    – Specify the characteristics of the division that will fulfill the obligations.

  6. Ken, in your three examples regarding how to deal with a division in the introductory clause, what does the defined term “Acme” modify? How would your example read if the division were the Emca Widgits division of Acme Corporation? Thanks. LMB


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