So far, our sample commercial contract looks like this:
INTERNATIONAL DISTRIBUTION AGREEMENT [The Heading]
THIS AGREEMENT IS ENTERED INTO ON THIS 18th DAY OF FEBRUARY 2021 [The Date and Commencement]
BETWEEN [The Parties]
HAPPY SKIN Inc (hereinafter referred to as “HSI”), a Company registered in the State of California, having its office at 9876 Slick Boulevard, San Jose, California
THE DISTRIBUTOR CAMDIS Limited, (hereinafter referred to as “CAMDIS”) whose registered office is at 12 Mountain Road, Cambridge, England, and whose registered number is 49820912.
WHEREAS HSI is the manufacturer of a range of high-quality skin care products, including skin creams, lotions, and moisturisers designed to promote healthier skin;
WHEREAS CAMDIS is an international distributor and is engaged in the marketing of skin care products to various international markets;
WHEREAS CAMDIS, which is engaged in the marketing of skin care products in the United Kingdom (hereinafter referred to as ‘the Territory’) has proposed to distribute various skin care products produced by HSI, including skin creams, lotions, and moisturisers that are designed to promote healthier skin (hereinafter called ‘the Products’) [The Recitals]
WHEREBY it is agreed as follows. [The Words of Agreement]
In this agreement,
“Agreement” shall mean this Agreement
“Product” shall mean and refer to the items listed in Schedule 1, annexed hereto.
“Territory” shall mean and refer to those parts of the United Kingdom outlined in red on the plan in Schedule 2, annexed hereto.
In this post, we are going to concentrate on the section in the contract in bold.
Like books, some commercial contracts will be very short (George Orwell’s ‘Animal Farm’) and some will be very long (Leo Tolstoy’s ‘War and Peace’). As we saw in Part 3 of this series (‘Parties’), it is inevitable that many words and phrases (including the names of the parties to the contract themselves) will be used many times in the contract.
The section in bold is called the ‘definitions section’. In essence, you can think of the definitions section of a contract as a kind of dictionary of the contract. The defined words and phrases in the definitions section allows the parties to precisely explain what they mean when those words and phrases are seen in the contract.
In our sample contract, for example, we can see that one of the defined terms is ‘Territory’. Now, we know that ‘territory’ is a word that has its own dictionary definition. If you look in the Cambridge English Dictionary, for example, you can see that one of the definitions of ‘territory’ is:
‘an area of land (or sometimes sea) that is considered as belonging to or connected with a particular country or person’.
However, for the purposes of our contract, the two parties (HSI and CAMDIS) are using ‘Territory’ for a different purpose – namely, to refer to a specific area of land in which CAMDIS will be distributing ‘the Product’ (another defined term) under the terms of the Distribution Agreement. Using a definitions section allows the parties to clarify exactly what they mean by a ‘defined term’ – such as ‘Territory’ - and, in the process, to shorten the contract by using a simple word or phrase, rather than a much longer one.
‘Territory’ is, of course, a noun. Normally, nouns in English are not capitalised. However, when a term is defined, every time you see it in the main part of the contract (the body of the contract) it will be capitalised. Capitalising defined terms makes them easy to identify. You then know they are ‘defined’ in the definitions section and have the meanings which the definitions section gives them. Every time the word ‘Territory’ appears in the main part of the contract, it will have the meaning the parties have given to it in the definitions section.
In our sample contract, we can see that the ‘Definitions’ are the first part of the contract. However, they do not have to be. Sometimes, the Definitions Section will be at the end of the contract (before the signatures). They will not – or should not – be found in the middle of the main part of the contract.
Another possible way of dealing with definitions is to place them in a special ‘Schedule’ at the end of the contract. This is usually done if there are a lot of definitions needed.
Definitions must be very carefully drafted. In our post of 17th November 2020 (‘Seven Top Tips for Drafting Better Definitions in Commercial Contracts’), we go into more detail about drafting definition sections. You can find it here:
In the next part in this series, we will look at the ‘main part’ of the contract and how it is structured.
© Cambridge Legal English Academy 2021