Contract Party Definition: Everything You Need to Know
A contract party is an individual or business who enters into a binding agreement with another contracting party.3 min read
Searching for a contract party definition? A contract party or contracting party is an individual or business who enters into a binding agreement with another contracting party, thus accepting the obligations, responsibilities, and benefits specified within the agreement. Before a contract is considered valid, every contract party involved must be deemed competent.
Identifying Contract Parties
Parties involved in a contract must be properly identified. A contract should contain a contractual parties clause defining each party entering into the agreement. Many contractual parties clauses are written as follows:
“This contract is made on [date] between [Person 1], [Person 2], and [Business A].”
However, the clause should contain uniquely identifying information about each party, such as whether the business is a limited liability company, the company's registration number, and the individuals' full names, addresses, and contact information.
For businesses, identify them in contracts using their:
- Full legal name.
- Registration number.
- Registered office address.
- Country of incorporation.
For individuals, identify them using their:
- Full legal name.
- Trading name.
- Current address.
- Passport number or ID number.
Identify small partnerships the same way as you would an individual but include information about each partner. With larger partnerships, you can identify one or two representative partners instead of all of them.
Defining the Term “Parties”
When drawing up a contract, it's best to steer clear from using the word “parties” throughout the agreement. For instance, consider the clause: “this agreement does not confer any remedies or rights upon any individual other than the parties.” This language is usually used to exclude non-parties from enforcing any remedies or rights under the agreement, but a court might insist that the term “parties” includes individuals or businesses other than those who signed the agreement.
Instead, name the parties involved and define the term to mean only the contract signatories. When you ensure that an agreement doesn't give any remedies or rights to a third-party beneficiary, you focus solely on those who signed the contract. As such, a smart alternative would be to refer to the parties in the contract as “the signatories.”
According to legal dictionaries, “signatory” refers to any party that signs a document either personally or through an agent, thereby becoming a party to a contract or agreement. When more than two parties are involved in a contract, it makes more sense to refer to the parties as “signatories” rather than constantly listing all parties throughout the document.
Defining the term “parties” in the contract would accomplish a similar goal, but the writer of the contract would need to unnecessarily define a term, which is never a good idea when drawing up a legal agreement. Defined terms are helpful in making a contract shorter, but the reader must frequently recall the definition. As a result, defining the term “parties” may draw attention away from the document itself.
Remember, preventing non-parties from enforcing any remedies or rights under contract is only an issue if the agreement contemplates intended third-party individuals.
A more appropriate way to refer to a contract party is to use a functional reference, such as “Service Provider,” “Licensee,” “Seller,” “Lender,” etc. You can also use the party's short name, such as a portion of a company name or a surname. Refer to your own party by a short name when using functional references for other parties.
Avoid alternating defined terms when referring to the same party, because it makes reading the contract more difficult. An example of alternative defined terms is: “hereafter known as Seller.” Instead, define the terms in the contract party introduction clause right after listing each party's identifying details. Do not include the contract party defined term in the definitions article of the contract.
How to Refer to Contract Parties
Individuals are generally defined by their surname without the Mr., Mrs., or Ms. title, except in letter agreements where the title should be used. Professors are often defined using their abbreviated title.
Companies should be referred to by their short name. Use a term equal to the business's trade name or abbreviation when possible. An acronym is also acceptable if the party is known by that acronym.
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