Key Takeaways

  • The term parties agree refers to individuals or entities who mutually accept and are legally bound by the terms of a contract.
  • Each party must be clearly identified by name, entity type, address, and other distinguishing details to avoid ambiguity or unenforceability.
  • Parties can be referred to functionally (e.g., "Seller") or by short name, but consistency is critical throughout the contract.
  • A joinder provision allows new parties to join an existing agreement without amending its core terms.
  • Affiliates may be referenced in a contract, but including them creates liability, authorization, and enforcement complexities.
  • Parties can agree to virtually any term—as long as it’s not illegal, against public policy, or unconscionable.

Identification of Agreement Parties

A common mistake in contract identification clauses is the insufficient identification of the parties involved. For example, the contract may list an individual with a common name such as Robert Smith with no additional identifying information such as a middle name or initial. A company name may not list whether it is a partnership, a corporation, or another type of entity.

Without knowing exactly how to identify and reach the parties to the agreement, the court cannot determine who can attempt to legally enforce this contract.

Individuals should have their full legal name identifying them without a title such as Mr. or Mrs. When identifying professions, you may use an abbreviated title.

Companies and partnerships identified in the agreement should have:

  • The full, official name of the company
  • The official registered business address
  • The registration number of the company
  • The state where the company's formation occurred

Sole proprietors should have the following identifying them:

  • The full legal name
  • The name under which they do business
  • The current address
  • A unique identifier such as a tax ID

References to Agreement Parties

After the initial identification of each party, referring to them throughout the agreement either with a short form of the company name or with a functional reference such as lender or seller is permissible. It is proper form to use the short name for your own company and the functional reference for the other party. Use the same reference every time throughout the agreement.

The short name is preferable over an acronym or abbreviation unless the company is already commonly referred to by the acronym in question. Short names are easier to understand than functional references; however, the functional reference is most appropriate when:

  • The contract in question is a business contract
  • The contract uses defined functional reference terms
  • The document refers to a single entity, such as a corporate resolution
  • The signor's identity is as yet unknown

Omit the definite article when using a functional reference (Seller, not the Seller).

When referring to groups of counterparties, define each one individually, and define each group. This is common with shareholder agreements, which refer to Sellers or the company name and to Purchasers and the other company name. Keep in mind that this type of contract may raise questions about liability.

Adding New Parties to a Contract

A joinder is a contract attachment specifically for the purpose of adding a new party to an agreement. This document is often used when the identities of the parties have not yet been determined, during the signing of the original agreement. This is common with a partnership, operating, and stockholder agreements.

Joinders are also used to subcontract work to a third party. If a contractor can delegate work to a third party, the company hiring the contractor could stipulate in the agreement that any subcontractor must sign a joinder making them subject to the original agreement's terms and conditions. This is known as a joinder provision and it's included in the most appropriate section of the original agreement.

Signed joinders become part of the original agreement and are kept in the official records. A joinder is not technically an amendment to the contract because it does not substantially change its terms. A change to agreement terms requires an official amendment.

Affiliated Parties

Some contracts contain the language "together with its affiliates" after naming a party to an agreement. This is often used to refer to members of the same corporate group in corporate and/or intellectual property agreements. However, adding these affiliates to the contract can raise several legal challenges. For example:

  • Are the affiliates considered parties to the agreement?
  • If not, what is the point of including them?
  • If so, is the signing party authorized to sign on behalf of all the affiliates? If not, who is responsible for the subsequent misrepresentation?
  • Which companies are responsible for the contract's performance?
  • Are the affiliates considered liable?
  • Do they have the necessary assets to take on this liability?
  • Will the parent company provide a guarantee?
  • Will royalties be paid to every affiliate?
  • If a company is no longer an affiliate, is it no longer a party to the agreement?
  • What happens if a new company becomes an affiliate?
  • What happens if an affiliate breaches the contract?

What It Means When Parties Agree

When parties agree to a contract, they voluntarily enter into a legally binding relationship that imposes specific obligations and grants specific rights. This mutual consent is a fundamental principle of contract law. For the agreement to be enforceable:

  • Each party must demonstrate intent to be bound by the contract.
  • The agreement must include valid consideration (an exchange of value).
  • All parties must have the legal capacity to contract.
  • The agreement must be for a lawful purpose.

Even in informal agreements—like those based on verbal commitments—courts look for clear evidence that both parties agreed to the essential terms. This is especially relevant in settlements or amendments where parties may try to argue that they did not agree to a particular clause.

Can Parties Agree to Anything in a Contract?

While it’s often said that parties can “agree to anything” in a contract, the reality is more nuanced. Yes, parties have broad freedom to negotiate terms, but that freedom is not absolute.

Courts will not enforce contract terms that:

  • Violate the law or public policy (e.g., agreements involving criminal acts).
  • Are unconscionable—grossly unfair or one-sided.
  • Conflict with mandatory statutory protections (e.g., labor laws or consumer rights).
  • Are vague or ambiguous to the point of being unenforceable.

For example, if parties agree to waive all liability—regardless of negligence—courts may strike down that clause depending on the jurisdiction and context. Likewise, if the parties agree to a penalty that’s excessive or disproportionate, it may be deemed unenforceable.

In settlement agreements especially, courts will evaluate whether the parties clearly and knowingly agreed to all essential terms. A judge may refuse to enforce a term if there's a factual dispute over whether the parties truly reached an agreement on it.

Types of Parties That Can Agree to a Contract

Contracts can involve a wide range of parties, each with different legal characteristics and capacities:

  • Individuals: Must be of legal age and mentally competent.
  • Corporations: Can enter into agreements through authorized agents (typically officers or directors).
  • Partnerships and LLCs: Usually require agreement by one or more managing members or partners.
  • Government Entities: Require adherence to statutory contracting procedures.
  • Trusts or Estates: Agreements must be executed by a trustee or executor with proper authority.

Ensuring the correct party is named and that the signatory has proper authorization is critical for enforceability.

Common Mistakes When Parties Agree

Parties commonly make the following mistakes when forming contracts:

  • Ambiguity in Naming Parties: Failing to include legal entity designations like “Inc.” or “LLC” can result in personal liability.
  • Incorrect Signatories: Individuals who lack authority to sign may render the contract void or voidable.
  • Overreliance on Boilerplate: Using standard language without customizing for specific party types or jurisdictions can introduce legal risk.
  • Failure to Clarify Affiliate Obligations: Simply naming "affiliates" without defining their roles can create uncertainty and disputes.

To avoid these issues, it's advisable to consult legal counsel when drafting or reviewing an agreement.

Frequently Asked Questions

  1. What does it mean when parties agree to a contract?
    It means all named individuals or entities have mutually accepted the contract’s terms and are legally bound to fulfill them.
  2. Can parties agree to waive all liabilities?
    They can, but courts may strike down overly broad or unfair waivers, especially if they violate public policy or statutory protections.
  3. Are verbal agreements enforceable?
    Sometimes. If the essential terms are clear and supported by evidence, courts may enforce a verbal contract. However, written agreements are more reliable.
  4. Who can be a party to a contract?
    Any individual or legal entity with the capacity to contract, including corporations, LLCs, partnerships, trusts, and government bodies.
  5. Can a party be added to a contract later?
    Yes, typically through a joinder agreement, which allows new parties to adopt the original contract’s terms without renegotiating the entire agreement.

If you need help with parties agree, you can post your job on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.