When a Contract Is Between Fewer Than All Listed Parties

At one of my recent Asia seminars, someone asked me about the practice of making a contract between fewer than all the listed parties, presumably when some drop out.

I haven’t encountered that. I would have thought you simply revise the contract to eliminate those who are dropping out, instead of manually striking their signature blocks and any other references to them.

But there might be more to this than I’m aware of. 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.

7 thoughts on “When a Contract Is Between Fewer Than All Listed Parties”

  1. I don’t know whether the following qualify as thoughts, but for what they’re worth:

    1/ This made me think of contracts, such as realty sales contracts, where brokers or escrow agents are involved — I think you call them ‘parties for limited purposes’). This thought goes nowhere.

    2/ Perhaps the possibility of listed parties not signing could be dealt with in the effectiveness provision. Didn’t the U.S. Constitution take effect when 7 of the 13 states ratified, whether the rest ratified or not? Maybe that or a variation on that would work for certain kinds of deals without requiring crossouts.

  2. I might be misunderstanding the question, but this makes me think of a shareholder agreement that contemplates at some point in the future a shareholder might cease to own shares. If an original party sold their shares, the agreement would terminate in respect of that person (assuming no provision remains enforceable after share ownership), and the agreement would remain in effect for the remaining shareholders. No need to amend the agreement just because a shareholder departs, so the agreement would then be “between fewer than all the listed parties.”

    Along a different vein, the question also reminds me of third party beneficiaries to contracts: on occasion we see a third party beneficiary explicitly listed in the contract (though rarely in the introductory clause) and described as being able to sue under, for example, an indemnity (e.g. parent company of a party). So in a generous sense the contract would be “between fewer than all the listed parties.” I think this is kind of what AWrightBurkeMPhil was saying in his first point.

  3. On further reflection, I seek clarification of the terms ‘listed parties’ and ‘drop out’. Are the ‘listed parties’ entities that ‘drop out’ without ever signing, who therefore are never ‘parties’ at all, or parties who ‘drop out’ after signing by, say, exercising a right to withdraw from the contract?

    I’ve seen promissory notes that were never delivered. When the deal went south, the maker’s signature was crossed out to avoid mishaps (belt and braces types would then shred the thing).

  4. Generally, if there’s a contract, such as a shareholder’s agreement as used as an example below, there would be an amendment to remove the listed parties that dropped out.
    A more perplexing situation is when there’s a contract with a large number of parties, such as a master agreement, and there are going to be services that will be provided to only some of the parties, or an amendment to a schedule that will only impact some of the parties. Do all of the parties have to sign?

    • In federal government contracting, I have drafted contractor teaming arrangements (CTA) which combine the capabilities of multiple companies to meet a government procurement. Under CTAs the government asserts that each CTA member has privity of contract with the government, unlike a traditional prime contractor/subcontractor arrangement.

      CTAs typically have provisions and procedures for dropping and/or replacing non-performing, or breaching parties, while the remaining partners agree to continue being bound by the agreement. Adjustments to workshare/areas of responsibility are made when modifying the contract.

      There are of course variations based on whether the CTA is in the form of a master services agreement under which task orders may be issued, or whether the CTA is for a discrete statement of work. I have used both flavors. These types of agreements are rare though.

  5. Shareholder agreements, partnership agreements, and LLC operating agreements frequently purport to be amendable by fewer than all of the investors. (As noted above, they usually also say that the agreement terminates with respect to an investor that ceases to hold securities in the entity in question, but these non-unanimous amendments also purport to bind investors that hold securities on an ongoing basis.)

    Courts have upheld many such amendments, but not all of them (see, e.g., Abbey v. Fortune Assocs.), and there appear to be few bright-line rules established as to enforceability. But in general, a drafter should not assume that these provisions give carte blanche to all amendments.


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