Understanding Anglo-American contract models (part 4)
23 september 2020
Eliminating the (pretense) function of the traditional recital of consideration in Anglo-American contract models is essential for drafting shorter and easily understandable contracts.
Referring to consideration
Anglo-American contract models usually entail the following 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:
You can also find the phrase ‘in consideration to’ in Anglo-American contract models. For example, ‘in consideration of € 150.000, X hereby sells 100 bottles of wine to Y’. Usage of the term consideration is said to be necessary due to the principle that consideration is required to establish a legally enforceable contract. Simply put, a promise in a commercial contract requires consideration in the form of some benefit or detriment. Notably, civil law jurisdictions do not require consideration. The aforementioned clause and the usage of the phrase ‘in consideration to’ is, therefore, unnecessary clutter when your contract is governed by civil law. But also from a common law perspective, dispensing with archaisms, such as a consideration recital, is something that drafters should consider. This is because a recital of consideration alone does not make a contract enforceable. Moreover, labelling an exchange of promises as consideration is not necessary when the body of the contract clearly states what the deal is. This method of “active drafting” forces contracting parties to fix a transaction when consideration is lacking. For example, a disadvantageous change of the terms of an existing contract requires a clause entailing an appropriate consideration.
Questions about drafting, reviewing and negotiating international commercial contracts? All you need to do is send an e-mail with your question to Paula Kemp, p.kemp@banning or call me at +31 657576290. Wherever you live (or are currently vacationing!) we are looking forward to helping you out!
The fifth blog in our Understanding Anglo-American contract models series discusses the relevance of the traditional recital of consideration in Anglo-American contract models.
Paula Kemp received her master’s degree from the University of Groningen, the Netherlands in 2011. The same year, she started to work as a lawyer (licensed). In 2015, Paula moved to Singapore to expand the international practice and she jumped at the opportunity to start a PhD in her field of interest. After three years working in Singapore, Paula moved back to the Netherlands and continues to work as a lawyer with a focus on international commercial contracting. Paula received her PhD from Leiden University on 23 January 2020.