By Osman Aboubakr

One of the areas of a contract, which is often overlooked is the Recitals area. Here is an example I found on the internet, lets discuss.

LC ADVISORS, LLC

INVESTMENT ADVISORY AGREEMENT

This Investment Advisory Agreement (the “Agreement”) is dated as of [DATE REMOVED] (the “Effective Date”), by and between  [NAME REMOVED] (the “Client”), and LC Advisors, LLC, a California limited liability company (the “Advisor”) and a subsidiary of LendingClub Corporation, a Delaware corporation (“Lending Club”). [1]

RECITALS [2]

WHEREAS, the Client wishes to invest in prime consumer loans, or portions thereof, originated through the online platform operated by Lending Club (“Loans”); and

WHEREAS, LC Trust I, an entity affiliated with the Advisor (the “Trust”) has been established to issue global certificates in series (each a “Certificate”) for purchase by investors, to use the proceeds from the sale of each such Certificate to purchase specific selected Loans directly from Lending Club on behalf of such investors, and to hold such Loans, whereby payment on such Certificate is dependent upon the receipt by Lending Club of payment on the corresponding underlying Loans; and

WHEREAS, the Client wishes to maintain an investment account with the Advisor (the “Account”) to acquire and hold a Certificate along with cash contributed by, returned to or distributed to the Client in connection with the Client’s investment activities (collectively, the “Assets”), as may be modified by the Client from time to time in its sole discretion; and

WHEREAS, blah blah blah; and

WHEREAS, blah di blah blah blah.

NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, the parties hereby agree as follows: [3]

Did your eyes glaze over? I know … it is boring, but it is important! Here is why your General Counsel obsesses over this section:

[1] The identity of the agreement and the parties:

·       Identify the type of agreement. It makes it harder to refer to and locate an agreement if it doesn’t have a title. Make the title relate to its purpose e.g. “Exclusive Distribution Agreement” not “Agreement”.

·       Date the agreement. The date represents when your rights and obligations become effective – sure, you can piece together the date later from emails and your diary, but if you are trying to do this 2 years later, it can be a nightmare.

·       Use the full legal name, company number or passport number and address of the parties as these appear in the company incorporation documents or individual’s passport and residential lease. If things go bad, this is who you will bring a claim against, if you do not have clear, correct and complete information it will be very difficult to initiate legal proceedings. How can you sue the person who signed the contract if you cannot prove that it is this person that signed the contract?

[2] The background, context, purpose and spirit:

·       Most contracts are signed and then thrown in a drawer and forgotten about.

·       But if there is a problem, you will have to pull it out and piece together your rights and obligations. An important aspect of this is: why was the agreement entered into in the first place? Use this area to provide a summary, which, although not specific enough to be actionable, will be a handy reminder of the good old days at the start of the relationship and can easily clarify any misconceptions and errors in memory regarding why the agreement was entered into.

·       Think of these as similar to marriage vows.

[3] The agreement:

·       This is the point from where the agreement starts.

·       Make sure that all defined terms, rights and obligations are referenced or come after this point. If not, an argument could be made that the matters appearing in the contract before this point were not meant to be part of the agreement.

Hope this helps…

Argentum Law is an international advisory firm built on leveraging technology and connectivity to provide legal services through virtual offices. With years of experience working remotely, our lawyers are available to provide counsel with minimal disruption during this time of crisis.