What Does It Mean to Enter into a Contract “With” Someone?

I was pleased that Mack Sperling, who maintains the blog North Carolina Business Litigation Report, told me about this post on his blog. It discusses a recent North Carolina case that turns on what it means to enter into a contract “with” someone.

Here are the relevant facts, as reported by Mack:

HCIM, one of the Defendants, had acquired a 55% membership interest in Hatteras Alternative Mutual Funds (HAMF). At that time, HCIM became the sole managing member of HAMF per an Operating Agreement. Four years later, HCIM signed an Asset Purchase Agreement to sell all the assets of HCIM and HAMF to two unrelated entities.

The HAMF Operating Agreement said in Section 2.03 that the consent of the non-managing members of HAMF was required before “the entering into any contract . . . with the Managing Member or an Affiliate of the Managing Member.”

HCIM and HAMF were both parties to the Asset Purchase Agreement, but they were both sellers, on the same side of the transaction.

The plaintiffs argued that HCIM and HAMF’s entry into the asset purchase agreement conflicted with the operating agreement. Sensibly, the judge disagreed.

But I don’t want to win fights, so as always, the question is how this dispute could have been avoided.

I wouldn’t rely on adroit use of propositions to distinguish (1) my entering into a contract on the same side of the transaction as Acme from (2) my entering into a contract on the other side of the transaction (or another side, in the case of a transaction with three sides).

Sure, using between might make it harder to argue meaning (1), but it might not preclude a fight.

So perhaps it would be safest not simply to refer to entry into a contract, but also to state that the provision applies only to a transaction entered into for one or more specified purposes.

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.