Many contract drafters use hereby all over an agreement, everywhere where the Parties [hereby] agree something (!). A more focused use of the word, reserving it for specific contexts, would be appropriate.
The word hereby refers to an act or formality on the moment of signing and which is fulfilled by operation of the contract provision itself. The word hereby should be used sparingly and carefully. If there is no need to use it, leave it out. Examples of contexts in which the use of hereby is appropriate are:
- the establishment of a contractual right:
Licensor hereby grants a license to Licensee and accordingly, Licensee hereby accepts such license, against payment of the royalty in accordance with Article 4.
- the establishment of ownership:
Seller hereby sells and shall transfer on Closing Date and accordingly, Purchaser hereby purchases and shall accept on Closing Date the Shares.
Legal considerations. The word hereby should be used carefully, because the legal effect might well be unintended: in Roman law oriented countries, the completion of a sale requires (i) a ‘valid title’ (or legal ground) for the transfer of rights or ownership, such as the parties’ consent on a sale or grant of license, (ii) a ‘patrimonial agreement’ that such rights or ownership actually transfers, and (iii) the fulfillment of the transfer formalities under the applicable law. For the actual transfer, the applicable legal formalities must be fulfilled; this may be a notarial deed of transfer (for shares or immovable property) or merely the handing-over of the product.
The provision containing the word hereby would normally qualify under the applicable law as the (valid) title for the transfer (i.e., requirement (i)) and may also embody the patrimonial agreement (i.e., requirement (ii)). The EU-dividing criterion is whether (a) the patrimonial agreement is a separate transfer requirement or whether (b) it already ‘resides in’ the requirement of party consent on the (valid) title. The first doctrine (a) considers the inter partes consent as one element and requires for the erga omnes effect an additional action (possibly reflected in the same contract). This option is found in Germany, The Netherlands, Scotland and Greece. The second doctrine (b) would require that the transfer of the ownership is in one way or another made conditional on the payment of the purchase price. This second doctrine is found in, and elaborated in one way or another, in France, England, Italy, Belgium and Luxembourg.
Also the effect or legal consequences of hereby sells differs from jurisdiction to jurisdiction: in all European countries except for Germany, a ‘causal system’ is adopted. This implies that if there are defects in the consensus on sale (i.e., reflected by requirement (i) above), this affects the entire transfer including any transfer acts subsequently undertaken by either party. Under the denominator of the ‘abstract system,’ German law only allows such defects to affect the consensus, whereas the patrimonial agreement (i.e., reflected by requirement (ii)) and other consequences of a defective sale and transfer are treated differently. This is visible in the way German law deals with retention of title provisions and how a defective sale must be reversed (i.e., quasi-contract or restitution; partly grounded on unjustified enrichment).
Drafting practice. In a framework or master agreement, the above property law issue would normally be avoided by requiring that Seller and Purchaser establish sale and delivery obligations in a purchase order as opposed to hereby (in the agreement itself). Several legal systems require that for establishing certain (ownership) rights additional formal requirements must be met (e.g., a notarial deed – compare requirement (iii) above). In such cases, the word hereby is redundant.
Other than for hereof or herewith, you should not replace hereby with by this Agreement: hereby typically relates to the particular sentence rather than to the Agreement as a whole.
