The New York Law Journal has just published my article Reconsidering the Recital of Consideration. You won’t be surprised to hear that after reconsidering it, I remain of the view that recitals of consideration should be terminated with extreme prejudice. Go here for a PDF version; go here for the online version, although at some point it might end up behind a paywall.
This is hardly the first time I’ve written about recitals of consideration. In addition to what’s in MSCD, there’s this 2003 article and perhaps a dozen blog posts. What prompted me to revisit the topic yet again was this 2013 post on ContractsProf blog: it made me realize that my analysis was lacking.
This reflects my general approach: I write about a topic, then I continue gnawing at it over the years, and with luck what I have to say about it gradually makes better sense.
That 2013 post pains me. A classic law professor/anti-practice approach – there’s a consideration problem, so let’s throw in some generic words to rely on a possible presumption. Your answer — *solve* the consideration problem — is so obviously better that it’s embarrassing to read someone argue that “when you know there’s a potential risk and you can protect against it by drafting, why wouldn’t you do it?” and then come out with the absolute wrong answer. Maybe not the worst possible answer, but definitely wrong.
How right Rick is.
Generic recitals of consideration are unnecessary because consideration is obvious whenever the contract text shows an exchange of promise for promise, promise for performance, or some mix of the two.
When the contract text doesn’t make obvious that each party is giving consideration for consideration received, it’s prudent to spell out the actual consideration, or enough of it to support contract formation (confidentiality may limit how much the parties say in the contract).
But perhaps one can weakly defend generic recitals on the same ground as uses of language of intention, that they ‘remind the parties what the dynamic is’.
I don’t think this adds anything to my article.
You do mention a couple of instances (e.g. options/guarantees and ill-informed court decisions) whereby recitals of consideration do hold some amount of weight. Thus there does seem to be at least some advantage to including recitals of consideration.
Conversely, what is the benefit of eliminating “NOW, THEREFORE, in consideration of the premises
and the mutual covenants set forth herein
and for other good and valuable consideration,
the receipt and sufficiency of which are hereby
acknowledged, the parties hereto covenant and
agree as follows:” and replacing it with “The parties agree as follows:”?
This may save one line in a word document. I don’t really even consider this a benefit as the cost of additional ink/storage space is infinitesimally small. Other than that are there any benefits?
This seems to me like a Pascal’s wager type of problem. It is in one’s own best interest to include your disliked language, since the possibility of some benefit (however remote) outweighs any advantage of not including the language (since there is no real benefit). Am I missing something?
In my view there is a major benefit in not including wording that uses non-standard English and archaic legalism, and is offputting to non-lawyers. WTF (might someone who hasn’t learnt the code ask) are premises? or covenants?
You raise a good point when dealing with consumer contracts (e.g. consumers are less likely to raise objections when they understand what they are signing – encouraging more efficient contract flow). I had not thought of this previously. Good point.
I am thinking of this more from a commercial context between two business entities and specifically with regards to the “recitals of consideration” (not other terms throughout the body of the contract). In general, I 100% agree that using non-standard English and archaic legalisms in the body of the agreement generally is a bad idea. However, from a purely commercial standpoint I really see no benefit in switching this clause as it is not substantive (e.g. the business people don’t read this clause) and it has at least some minor benefits.
How about this argument for using the 5-word version over the traditional long form in most cases:
1/ If the considerations are obvious — that is, if the body of the contract shows an exchange of considerations — the long form duplicates what the contract shows. Why say things twice, even if doing so costs nothing? If twice, why not thee times, or ten?
2/ Whenever the considerations are not obvious (ie, the text of the contract shows no mutuality of obligation, as in an option or guarantee), fix that, but don’t use the long generic form. Use a concrete statement in clear modern style, perhaps like this: ‘The consideration Widgetco is giving Acme for this agreement is the first Option Payment, and the consideration Acme is giving Widgetco is the Option’.
Persuaded, NPT?
Didn’t your mother tell you not to talk to strangers, particularly those spouting nonsense?
Regarding your notion that there’s “at least some advantage to including recitals of consideration,” I disagree, for the reasons stated in my article.
It follows that you have the burden for showing why one should include three lines of unspeakable crap in a contract, as opposed to my one-line lead-in.
And if you wish to comment in the future, comment as yourself, not in your current guise.
Apologies for a comment on a very old post – but I’m wondering today, when faced with a question. In a contract where the consideration is present, but not obvious, does it make ever make sense to describe the consideration in the recitals? As a minimum, it saves a court digging to figure it out. E.g., where signing contract A between parties 1 and 2 is a condition of party 1 entering into a separate contract with, say, 3, who is 2’s related company.