“Whereas” Clauses – The “Introduction” Clauses – Don’t be Hoodwinked

 “The large print giveth, and the small print taketh away.”
 Tom Waits

ACTUAL “CASE HISTORIES”: For over 20 years, Mario had been employed in the construction industry, during which time he had three different employers. He had learned the business as a boy, working first as a laborer on the weekends, and eventually rising to an executive level. He was well-known and highly-regarded by all he worked with. On each job, no matter how small or large, he worked hard and did well, but eventually he felt he was not getting treated right, or paid his real value. This time it would be different: this time he was going to be a business owner.

Teaming up with Sheldon, who had a small but growing construction firm, the two decided to join forces and be partners. Mario was going to invest a good portion of his savings in Sheldon’s construction company and Sheldon was going to give Mario a one-half ownership in the firm. The firm’s assets – including equipment and all pending contracts – would be owned by the new company, and they would be Sheldon’s contribution to their partnership. Sheldon had his attorney draw up the corporate and partnership papers, and the attorney showed them to Mario.

They seemed straightforward, and sensible. To avoid the cost of an attorney, Mario asked his neighbor, an attorney, to give them a quick look-over. His neighbor, who specialized in slip-and-fall accident cases, told Mario that they “looked fine to me.”

Three years later, though their construction business was growing quite fast, Mario and Sheldon were at odds with each other. In fact, the situation grew so bad that Sheldon simply changed the locks on the doors, and called Mario to tell him he was “fired,” and that he was not due anything. Mario’s lawyer-neighbor couldn’t help him, so he was referred to us.

When we looked over Mario’s “legal papers” we were surprised: though they made a vague reference to Mario becoming an owner, nowhere did they say that Sheldon was giving him a one-half ownership interest in the company. I read the papers over and over, but just couldn’t find language that required Sheldon to give Mario any shares in the company.

In response, Mario was quick to point out certain language in the papers that said the following:

Whereas, Mario and Sheldon are both experienced in the construction business, and

Whereas, Mario and Sheldon would like to join their efforts together, and

Whereas, Mario and Sheldon would like to become partners,

Now, therefore, to accomplish that, Mario and Sheldon enter into this agreement . . .

These words, Mario insisted, showed that he was a one-half owner of the company. The problem was this: it was not true. We explained to Mario that, language in the “Whereas Clauses” of a contract are of little or no meaning or effect, but are generally considered non-binding, and deemed by most Courts to be “background” to the transaction.

This is especially the case if the “Whereas Clause” refers to either a different document or something that supposedly happened in the past. We also explained to Mario that nowhere else – either in this particular agreement or any other – did Sheldon agree to hand over one-half of the business to him. So, as a Judge would likely say, “Where did Sheldon promise that?”

The result: Mario went on to retain another law firm and he pursued a very nasty lawsuit in which Mario had no real good argument. While it was eventually settled, the litigation costs made the settlement more like a defeat. Mario never got over being tricked by the legal language of his agreements, financially or otherwise.

LESSON TO LEARN: In legal agreements, language that appears in the beginning, which merely “sets the stage” or “describes the background” of the transaction, is not considered an operative or integral part of the agreement. Whether or not the word “Whereas” is used, this language is commonly referred to as “Whereas Clauses,” “recitals” or “decretal language.” The word “decretal” comes from the words “decree,” that is, a “pronouncement without binding effect.”

“Whereas” means literally “given the fact that,” and seems to be the way so many lawyers think it is best to begin a contract. The “Whereas Clauses,” even if they don’t use the word “whereas,” is generally viewed to be an introduction or preamble to a contract, and not a part of the contract’s operative provisions.

When appearing in front of a Judge, this is the problem: (a) The “Whereas Clause” almost always says what happened in another agreement or at an earlier time, and (b) if there is no other document previously or contemporaneously signed that creates the obligation referred to, the obligation just never and nowhere came into being. That is why the suggestion in a Whereas Clause that an obligation has been created, where it has not, is so deceptive.

While “Whereas,” “decretal” or “recital” language can sometimes be used to interpret the intended meaning of an agreement, it cannot be used to contradict those other terms, or to create an obligation where none is ever clearly stated.

Using “Whereas Clauses” to make a false suggestion or intended perception of a legal right or interest, where that right or interest is not given anywhere else (either in this document or another) is an old lawyer’s trick. Watch out for it. While I cannot offer exact words or wording to either insert or to look out for, look for the difference between “the parties intend” or “somewhere else they agreed,” and insist on simple language like “Sheldon promises Mario,” or “Sheldon hereby gives to Mario.” Perhaps better yet, consider the wisdom of a paid legal consultation on matters of importance that are “legal” in nature.

WHAT YOU CAN DO: Here are four thoughts to help you prevent damage or destruction from a wily “Whereas Clause”:     

1. Always insist that words in agreements must be clear to you, and to all others. Lawyers sometimes seem to have a strong desire and an irrepressible tendency to confuse, intimidate, and obfuscate. Just don’t put up with it. Insist on words, phrases and language that are so clear that no one can mistake them. If you have to say to a lawyer “What does that mean?” then there is already at least the beginning of a problem. One time I was having a lawyer prepare a Will for me. I told him that I could not understand what he wrote, and that made me believe that, in the event of my passing, my children would probably not understand it either. His response: “They can always call me to explain it to them.” I immediately left him, and went to another attorney, who then completed my Will in good old “plain English.”

When I draft contracts, I aim for language that is so simple and clear that a person with an eighth-grade education can easily tell you what it means. Why do I do that? Because many jury members have about that level of education. And writing so clearly makes other lawyers refrain from even trying to mischaracterize what was written.

2. Remember that language in “Whereas Clauses” is not generally binding. No matter what anyone tells you, language in “whereas clauses” or similar introductory paragraphs is not binding. Don’t accept words in such clauses as proof that you received what you bargained for. It’s just not the case. While a Court might review words in “recital paragraphs,” and possibly even take the position that the words have some meaning, who needs to get into Court in the first place? Placing language in “Whereas Clauses” to make non-lawyers think they received a promise when they did not is a common legal trick. And now that you know about it, don’t fall prey to it.

3. Understand, too, that the title of an agreement, as well as the titles of sections or paragraphs, are also of little, if any, meaning. It is often the case that I review an agreement with a title of “Agreement Regarding Inventions,” and I find that it is not about inventions at all, but rather about, as examples, non-competition or repayment of education grants if the employee ever leaves his or her employer. Titles just don’t mean anything.

It’s the same thing when it comes to titles of sections or paragraphs. They might be used in interpreting the parties’ intentions when entering into an agreement, but they sure are not binding. Regarding agreements of all kinds, I often say to clients, “Make a list of two things: (i) What did I give? and (ii) What did I get?” And then find where, exactly, in the agreement those things are supposedly said. Nothing else really matters. Don’t fall for a “lawyer’s fog,” or be intimidated by it.    

4. Generally, legal consultations cost far less than do litigations. While I am a proponent of people trying to use lawyers as little as possible, and only when necessary, any agreement that is important to you should be reviewed by an attorney experienced in those matters. So, for example, don’t use an immigration attorney for a patent application. And remember that “favors” from neighbors or friends who are attorneys are often worth less than they cost.

These four thoughts about “Whereas Clauses,” “decretal” and “recital” language in agreements, can prevent an awful lot of heartache. Bear them in mind, and refuse to be hoodwinked by lawyers who may tell you otherwise. Do all you can to help yourself, and be an “educated consumer” when it comes to lawyers and legal services. This you can do for yourself, by yourself,  and represents great value at no risk. And don’t be afraid or reluctant to get a paid legal consultation when the need arises. Protecting yourself, by education and effort: that’s what  Sklover Working Wisdom™ is all about.

SkloverWorkingWisdom™ emphasizes smart negotiating – and navigating – for yourself at work. Negotiation of work and career issues requires that you think “out of the box,” and build value and avoid risks at every point in your career. We strive to help you understand what is commonly before you, and know what to “watch out” for. Regarding “Whereas Clauses,” this is what you need to know. Now the rest is up to you.

Always be proactive.  Always be creative.  Always be persistent.  Always be vigilant. And always do what you can to achieve for yourself, your family, and your career. Take all available steps to increase and secure employment “rewards” and eliminate or reduce employment “risks.” That’s what SkloverWorkingWisdom™ is all about.

*A note about our Actual Case Histories: In order to preserve client confidences, and protect client identities, we alter certain facts, including the name, age, gender, position, date, geographical location, and industry of our clients. The essential facts, the point illustrated and the lesson to be learned, remain actual.

Please Note: This Email Newsletter is not legal advice, but only an effort to provide generalized information about important topics related to employment and the law. Legal advice can only be rendered after formal retention of counsel, and must take into account the facts and circumstances of a particular case. Those in need of legal advice, counsel or representation should retain competent legal counsel licensed to practice law in their locale.

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© 2012 Alan L. Sklover, All Rights Reserved.

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