“Purchase Price” Has Two Meanings

I’ve long observed that the defined term Purchase Price is used two convey two meanings:

First, the price at which something is to be sold, as in this example:

Subject to the terms and conditions hereof, the Company hereby agrees to issue and sell an aggregate of one hundred nineteen thousand nine hundred forty (119,940) shares of the Preferred Stock (the “Purchaser Shares”) to Purchaser for an aggregate purchase price of $40,000,000.00 (the “Purchase Price”).

And second, payment of an amount of money equal to the price at which the thing in question is to be sold, as in this example:

The Buyers acknowledge and agree that the Sellers’ receipt of the Purchase Price and the other sums payable to them under this Agreement shall be a condition precedent to the Sellers’ obligation to procure the discharge and deletion of the Mortgage and the issuance of the Certificate or Transcript of Registry referred to in the preceding sentence.

A given reference to Purchase Price could express both meanings, as in this example:

Purchaser shall pay to the Company the Purchase Price by wire transfer of immediately available U.S. funds.

To distinguish these meanings would require using one or both of two different defined terms, Purchase-Price Amount and Purchase-Price Payment. Or you would define Purchase Price to mean the amount and refer to the payment by saying an amount equal to the Purchase Price. I’m favorably inclined to distinguishing somehow between the price and the amount, simply because it’s clearer. Any thoughts?

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.

8 thoughts on ““Purchase Price” Has Two Meanings”

  1. I think you’re right that there is a distinction to be made between the purchase price as a value assigned to a thing and the purchase price as an amount of money changing hands when the thing is bought and sold, but I’m not sure that it makes a practical difference. That is, I’m not sure there’s a situation where it wouldn’t be apparent what meaning is intended from the context or that making the distinction more precise is going to have any bearing on the obligations of the parties. I’ll give it a little more thought the next time I’m drafting a PSA.

  2. Do the sum a buyer is to pay and the same sum when actually paid really need different defined-term names?

    Alternatively, if you’re contrasting the price with the payment of the price, won’t it do to use ‘Purchase Price’ and ‘payment of the Purchase Price’?

  3. I believe you are correct in distinguishing between price and the amount of money that equals the price. I think you could kill two birds with one stone by removing the concept of price from the definition of Purchase Price as follows, “… to Purchaser for an aggregate amount of $40,000,000.00 (the “Purchase Price”).”

    This approach removes the concept of price from the definition. The concept of price is not useful in the context of a contract ready for signature. Price is useful in the offer/acceptance stage of contract formation. Once the price has been negotiated and accepted (usually before the contract is even drafted), price as a concept has reached the end of its usefulness. The price is now the buyer’s obligation to pay an amount that is equal to the negotiated price, which, generally, is the only thing the seller is concerned about when it comes to the price.

    • I wonder about distinguishing between a “price” and “a sum of money equal to the price”; it feels like distinguishing between a meter of cloth and a quantity of cloth exactly equal to a meter.

      (It also makes me think of the theory that Shakespeare’s plays weren’t written by Shakespeare but by another poet of the same name.)

      But I agree with your distinction between the price and the buyer’s obligation to pay the price. The first is a sum of money and the second a duty to pay that sum.

    • I agree with AWB that the distinction you offer is perhaps a little too cute. You say the concept of price isn’t useful, yet you stick with the defined term “Purchase Price”. I’m not sure there’s an alternative; replacing it with something like “Purchase Amount” wouldn’t accomplish anything.

      • I appreciate the feedback. After more reflection, I think I would leave the definition as proposed, with a different explanation.

        One of the definitions of price is, “the amount of money given or set as consideration for the sale of a specified thing.” Since the amount of money given as consideration is the same thing as the price, I don’t think a distinction is necessary. Also creating a distinction may create ambiguity where none would have otherwise existed.

        The only reason I would leave the definition as I originally proposed would be to avoid using a word I am defining in the definition of that word, but, “…to Purchaser for an aggregate price of $40,000,000.00 (the “Purchase Price”).” is equally correct because the terms ‘amount’ and ‘price’ mean the same thing in this instance.


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