Recitals of Consideration Under Canadian Law

In MSCD (¶¶ 2.64–71) and a Business Law Today article on the subject, I recommend strongly that drafters dispense with the traditional recital of consideration.

The traditional recital of consideration is the consideration language that clogs the lead-in to the body of the contract in a majority of contracts. The language varies, but here’s an example of a lead-in containing a relatively full-blown recital of consideration: 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.

I recommend that instead you use as your lead-in The parties therefore agree as follows.

Shari Elliott, a Canadian lawyer with the law firm Graham Wilson & Green, of Barrie, Ontario, recently emailed me on this subject. Shari participated in my recent two-day contract drafting workshop in Toronto for Osgoode Hall Law School’s Professional Development Program, and she told me that she had followed my suggestion and removed the traditional recital of consideration from her contracts, but that she was meeting some resistance. Could I point her to any Canadian authority on the subject?

Without being in a position to consult it myself—it’s the end of the semester, so I won’t be visiting Penn Law School’s library for a while—I suggested that Shari consult The Law of Contracts, by John D. McCamus, a professor at Osgoode Hall Law School. She did so, and she reported back that because Professor McCamus’s book indicates that under Canadian law contracts for nominal consideration, such as $1, are enforceable, she’d be reinserting the traditional recital of consideration in her contracts.

I replied to Shari as follows: My position is that the traditional recital of consideration serves no purpose—a recital cannot create consideration where there was none. The question of whether $1 constitutes sufficient consideration is a different matter, because there is at least some consideration, even if it is nominal. But if the $1 was never actually paid, you’d have a situation analogous to that raised by the traditional recital of consideration.

I ran my reply by Professor McCamus. He agreed with me, and he pointed out that page 200 of his book notes that under an exception to the parole evidence rule, even if an agreement recites that consideration has been received, evidence showing that in fact no consideration was received would be admissible. Consequently, Professor McCamus continued, the recital is irrelevant—if the agreement otherwise lacks consideration, the recital doesn’t solve the problem. He noted that the validity of nominal consideration is a different question—if one states in an agreement that the consideration is $5, “receipt of which is hereby acknowledged,” the $5 would traditionally be considered to be good consideration, but merely reciting that it had been received wouldn’t be enough.

So the bottom line is that the recommendation I make for purposes of U.S. law—avoid like the plague the traditional recital of consideration—applies equally under Canadian law. I’ll go further and wager that my recommendation would apply equally under English law and any other law. That’s because for the traditional recital of consideration to work, the law would have to recognize a sham. (For some minor nuances under U.S. law, see MSCD and the Business Law Today article.)

If there’s any question whether a contract is supported by consideration, don’t look to the traditional recital of consideration to get you out of trouble. Instead, specify clearly in the recitals or the body of the contract what the consideration is. And make sure that any consideration is actually received.