In Drafting A Release, You May Want To Define “Affiliate”

It is not uncommon for a release to include not just the released party but affiliates of the released party.  I suspect that it is far less common for a release agreement to actually define what is meant by “affiliate”.  Such was the case in Cacique, Inc. v. Reynaldo’s Mexican Food Co., LLC, 2014 U.S. Dist. LEXIS 15773 (C.D. Cal. Feb. 7, 2014). 

The California Corporations Code provides a definition of “affiliate” in Section 150:

A corporation is an “affiliate” of, or a corporation is “affiliated” with, another specified corporation if it directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the other specified corporation.

But does this definition carry the day?  In Cacique, U.S. District Court Judge Otis D. Wright II cited Section 150 but found that when it comes to contract interpretation, the contracting parties’ intent and prior dealings can supersede strict legal definitions such as Section 150.  In support, Judge Wright cited Civil Code Section 1644 which provides:

The words of a contract are to be understood in their ordinary and popular sense, rather than according to their strict legal meaning; unless used by the parties in a technical sense, or unless a special meaning is given to them by usage, in which case the latter must be followed. 

I’m not sure if there is an “ordinary and popular sense” of the meaning of “affiliate” and one might even argue that the definition in Section 150 is the ordinary meaning since it is similar to the definitions given in other rules, such as in SEC Rule 144.

 

Topics:  Affiliates, Contract Drafting, Contract Interpretation, Release Agreements

Published In: General Business Updates, Finance & Banking Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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