Details about an Agreement
What do you mean by preamble of an agreement
Most contracts include a set of paragraphs that cover a few significant aspects
of the agreement, the linked transaction, or the parties' businesses, and that
assist the reader comprehend the context before diving into the definitions
section. The prelude is another name for this section. A contract's preamble is
the first paragraph in which the parties to the agreement are identified.
Recitals are usually placed after it (also called the background section).
"Whereas" is a common label for these recital paragraphs. The preamble and
recitals, when combined, reveal who, what, when, and why the transaction is
taking place. To put it another way, they should tell the reader who the parties
to the agreement are, when it was signed, and what the parties hoped to achieve
by doing so.
Only goals, desires, or declarations of fact should be included in
the preamble. It is common to confine these declarations to topic matters that
could directly impact the contract's legality or enforceability. Other details
that illustrate the wider picture of the proposed transaction, such as the
contract's interdependency with other agreements (if any) or the requirement
that certain critical conditions be met or regulatory clearances be granted, can
also be addressed here. The things mentioned in a preamble should be of such
importance that if any of them are false, the contract should be voidable under
the legal doctrine of 'mistake' ('error').
The general purpose of this Agreement is to establish and maintain collective
bargaining relations between the Hospital and the employees covered by this
Agreement; to provide for ongoing communication between the Union and the
Hospital, as well as the prompt resolution of grievances and the final
settlement of disputes; and to establish and maintain mutually satisfactory
wages, hours of work, and other employment conditions in accordance with the
provisions of this Agreement. It is understood that staff want to collaborate
effectively with the hospital in order to provide the greatest possible
treatment and health protection for patients.
Clause is used to explain backdrop of an agreement
The recitals, or 'Background' clauses, of a contract are usually clearly
specified to be non-binding. They are intended to highlight the agreement's
commercial context and so aid in the accurate reading of the parties' rights and
responsibilities under the agreement's main section (or 'Operative Provisions').
Intentions, desires, or declarations of fact should be the only information
presented in the background clauses. It is common to confine these remarks to
topics that could have a direct impact on the contract's legality or
enforceability. Obligations, conditions, warranties, policy norms, or duties
should never be included in background-clauses.
The recitals provide background information on the parties and the agreement's
context, as well as introducing the agreement itself.
While clauses come in a
variety of forms:
Recitals relating to the parties: one or more while clauses can reflect each
party's relevant business operations.
Background recitals or context: these explain the events or conditions that led
to the transaction. They might be viewed as a continuation or expansion of the
Compliance-related recitals: the parties may wish to state in one or more
whereas provisions that those involved have met particular conditions or
prerequisites for entering into the agreement.
Recitals on transaction structure: in non-standard, complex transactions, it is
occasionally necessary to clarify the numerous processes conducted in accordance
with the contracts.
Recitals about related transactions: a prologue may include one or more recitals
about agreements that are being entered into at the same time.
A step-up recital: many drafters state an overarching aim that the parties want
to represent the preceding thoughts in writing. In truth, such a lead-in is
superfluous and unnecessary.
The OIDF makes it easier to create technical specifications and other papers
around digital identity. Under the terms of this Agreement, Contributor wishes
to participate in the development of certain technical specifications and
Is it a good practice to draft binding obligation in recitals
So basically, binding obligation means , with respect to a Party:
- any oral or written agreement or arrangement that binds or affects such
Party's operations or property, including any assignment, licence agreement,
loan agreement, guaranty, or financing agreement;
- the provisions of such Party's charter, bylaws, or other organisational
- any order, writ, injunction, decree, or judgement of any court or Governmental
Authority entered against such Party or by which any of such Party or A legally
obligatory obligation in connection to premises, whether deriving from an
agreement or otherwise, is referred to as a binding obligation (not contained in
Now let's know what recitals are: Recitals are the opening statements in a
written agreement or deed, usually included at the start and comparable to the
prologue. They lay forth the parties' intents in detail, including what the
contract is for, who the parties are, and so on.
Recitals are frequently found after the words 'whereas' and before the words
'now it is hereby agreed as follows,' the latter phrase establishing the
agreement's operative or primary conditions. It's also worth noting that the
parties' intentions, as expressed in the recitals, may be significant to the
court's decision on whether or not to insinuate a term into the contract.
We already know about binding obligations and recitals so which are explained
above in brief. So now let's talk about how important is to draft the binding
obligation in recitals? So, if we talk about binding obligations are a legally
obligatory obligation in connection to premises, in recitals we should draft the
binding obligation in brief as recitals are opening statement in a contract. So,
it would be easier for the reader to under the obligation which are binding
while reading the opening statement which is recitals. So, it is a good practice
to draft binding obligation in recitals.
Different kinds of Covenants
A covenant, in legal and financial terms, is a commitment made in an indenture
or other formal debt arrangement that specific acts will be carried out or that
certain thresholds will be met. Covenants in finance are clauses in a financial
contract, such as a loan instrument or a bond issue, that specify the maximum
amount a borrower can lend.
Types of covenants:
A positive covenant, also known as an affirmative covenant, is a phrase in a
loan contract that mandates a borrower to take particular acts. Affirmative
covenants include requirements to maintain acceptable levels of insurance, to
provide the lender with audited financial accounts, to comply with applicable
laws, and to keep accurate accounting books and credit ratings, if applicable.
Normally, a breach of an affirmative covenant results in outright default.
Certain loan contracts may include stipulations that provide the borrower a
grace period to correct the problem. Creditors have the right to declare default
and demand immediate repayment of the principal and any accrued interest if the
situation is not addressed.
Negative covenants are used to compel debtors to refrain from taking specific
acts that could harm their credit score and capacity to repay existing debt.
Financial ratios that a borrower must maintain as of the date of the financial
statements are the most typical types of negative covenants. Most loan
agreements, for example, stipulate that the ratio of total debt to a specific
measure of earnings not exceed a set threshold, ensuring that a firm does not
take on more debt than it can service.
An interest coverage ratio is another typical negative covenant, which states
that earnings before interest and taxes (EBIT) must be greater than interest
payments by a particular number of times.
A breach of a bond's covenants is referred to as a bond violation. Bond
covenants are designed to safeguard both parties' interests when they are
included in the bond's indenture, which is a legally enforceable agreement,
contract, or instrument between two or more parties. A bond issuer is regarded
to be in technical default when it violates a bond covenant.
Downgrading a bond's rating is a common penalty for breaking a bond covenant,
which can make it less appealing to investors and raise the issuer's borrowing
costs. One of the major credit rating agencies in the United States, Moody's,
for example, ranks a bond's covenant quality on a scale of one to five, with
five being the worst.
How is 'Language of Obligation' different from 'Language of discretion' under
several categories of contract language.
Language of obligation:
The contract's obligations are described using the language of obligation. The
use of the words "shall," "must," and "has a duty to" are typical of this
language. The meat of the contract, or the terms that will compel a party to act
or refrain from acting, are the clauses that contain this Language.
Language of Discretion:
The term "discretionary language" is used to express the options accessible to a
party. Not all future events are certain, and a party may pick one choice over
another based on the circumstances. Phrases like "has discretion to," "is
permitted to," and "may" are examples of this terminology. Because the passive
voice frequently takes more verbiage and is less obvious, these statements are
best employed in the active voice (John may choose vs. the choice may be made by
Difference between Language of obligation and language of discretion is:
So basically, language of discretion is a language which states that a party has
a discretion to take or not take a given action. May, which expresses
permission, is the most common way to convey discretion. Using at its discretion
in discretionary language implies that:
- the discretionary phrase in issue does not offer entire discretion and
- that tacking on at its discretion fixes this.
The language of commitment is the language of the victim. Even when we make
such statements, some of our spirits rebel against implicit missions, and the
weight of our previous work hinders our progress.
Credit Law and Language is the first work of its kind to examine the basic
language used by courts, legislatures, and academic critics in explaining credit
law. I prefer the second option. The use of discretionary language indicates a
possible violation if the customer purchases the widget in any other way. It
doesn't make sense. There is no other way to buy.
What is the consequence of using the word 'may' while discussing the
obligations of parties to an agreement?
At its basic level, contractual obligations are the obligations of the
contracting parties through the terms and conditions of the contract. Therefore,
the nature of the obligations of the contracting parties is primarily based on
the terms and conditions of the contract.
All contracts include the exchange of almost any valid consideration for goods,
services, money, etc. Each contracting party has various obligations associated
with this exchange of consideration. This usually leads to breach of contract if
one of the contracting parties fails to fulfil its contractual obligations in
accordance with the contract.
In Mansukhlal Vithaldas Chauhan v/s. State of Gujarat
[(1997) 7 SCC 622]
"Mandamus, which is a discretionary remedy under Article 226 of the
Constitution, is requested to be issued, among other things, to compel the
fulfilment of administrative, ministerial, or statutory public
responsibilities." A statutory duty can be optional or mandatory.
The usage of the words "shall" or "must" in statutory responsibilities indicates
that they are intended to be mandatory. However, this is not definitive because
"shall" and "must" have been understood as "may" in the past. The scheme of the
statute in which the responsibility has been set out determines the character of
the duty, whether it is obligatory, mandatory, or directory. Even though the
"obligation" is not stated explicitly in the statute, it may apply. Even if the
"duty" isn't stated explicitly in the statute, it can be inferred as a corollary
to a "right."
Written By: Samriddhi Tiwari
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