The Recital of Consideration, Again

Everything old is new again. Or something.

Last week I noticed this post on ContractsProf Blog. It’s about a subject dear to my heart—the recital of consideration. So I rattled off a comment, without thinking too hard about it. Well, my comment prompted three vigorous responses, leading me to submit a second comment. Because my second comment might be of general interest, I’ve posted it below, except for the ancillary final paragraph, which I omitted. If you would like some context, I encourage you to read the comments on ContractsProf Blog.

Hmm. Evidently I should have been clearer. Here’s a summary of my position:

For the following four reasons, it’s unhelpful to include a generic recital of consideration as a matter of course in all contracts:

First, in the overwhelming majority of contracts (considering multi-contract transactions as a whole), it’s clear that the contract is supported by consideration. (If it isn’t readily apparent what the consideration is, then consider spelling it out in the recitals. That sort of specific information is very different from a generic recital of consideration.)

Second, it’s well established that a recital of consideration cannot transform into valid consideration something that cannot be consideration, and a false recital of consideration cannot create consideration where there was none. So anyone who thinks that including a generic recital of consideration in a contract would address a lack of consideration could be in for an unpleasant surprise. (That the odd court fails to recognize that precedent is neither here nor there.) Yes, a generic recital of consideration might establish a rebuttable presumption of consideration, depending on the jurisdiction, but that would be of little value—determining whether there was in fact consideration should be easy enough to establish. And relying on the presumption is a distant second to addressing the issue head on.

Third, saying by rote the same thing in every contract is functionally equivalent of saying nothing.

And fourth, even if in a given contract a generic recital of consideration is simply unnecessary, it would still be best to omit it, as it clutters up the lead-in, usually with dysfunctional traditional language (“NOW THEREFORE, in consideration of the premises,” etc.) that also serves to alienate readers.

So instead of lumbering each contract with a generic recital of consideration, drafters should instead determine whether there’s a risk that the contract isn’t supported by consideration. If that risk does exist, the drafter has choices. Here are four:

First, you could restructure the transaction to provide for consideration.

Second, you could have the performing party waive consideration and acknowledge that the other party will be relying on that waiver, although anyone tempted to adopt that approach should probably do some research to see how the relevant courts might respond.

Third, depending on the jurisdiction and the kind of contract, it might be that a sham recital of consideration would be sufficient to support consideration. (Option contracts governed by Texas law come to mind.) But even in such cases, I wouldn’t use a generic recital of consideration; I’ll do a blog post about that.

And fourth, depending on the law in the relevant jurisdiction, you could hold your nose and make the contract one “under seal.”

So that’s why I recommend omitting a generic recital of consideration from the lead-in to contracts, and why I recommend that drafters take more specific steps to address a potential lack of consideration. I see nothing in the earlier comments that brings that approach into question. And yes, I’m exquisitely aware of the need to avoid risk—that’s a fundamental part of what I do.

And as a bonus, here’s an extract from an email I sent someone regarding the above comment:

As regards whether I’m making too much of a fuss, I disagree vehemently. The gist of my analysis is that generic recitals of consideration are unnecessary when there is consideration and are not the solution when there isn’t consideration. Furthermore, the traditional formulations are cluttered with nonsense.

If you’ve never heard complaints about the traditional recital of consideration, it’s because a client is the last person I’d expect to start taking issue with individual elements of the dysfunction that is traditional contract language—that’s my job. But you’ve surely heard people joking, in a disdainful way, about lawyers and their impenetrable contracts.

As regards the length of my analysis, 500 words, or three pages of A Manual of Style for Contract Drafting, is a trivial price to pay in exchange for (1) being able to omit three lines of beside-the-point nonsense from pretty much every contract and (2) perhaps encouraging drafters to address any consideration issues head on.

And my aim isn’t to “make contracts as accessible as possible to non-lawyers.” Instead, it’s to make contracts clearer for everyone, lawyers included. I’ve shown in endless detail that traditional contract language doesn’t work. I’m sure that’s something that I’ll keep having to say, but it’s not open to question.