Recitals Explained in a Contract: The Basics

What are recitals?

Recitals in a contract typically appear on the first page or first several pages. They normally start with the word Whereas, or its plural form, Whereas, or similar language. Recitals are in a section of a contract usually titled Recitals and Background, or Recitals, or Preamble, or Background. Contracts may also use the alternatively titled sections, and the language used in the recitals may start with words other than Whereas. Courts normally consider such language to be recitals, as long as they take the same form as Whereas.
The language typically found in this section is relatively straightforward and is not complex. Contracts generally include recitals , in order to provide basic information about the parties to the contract and their reasons for entering into the contract. Since many contracts contain complex provisions, the recitals help in introducing the subject matter of the contract to the court, in order to help resolve the meaning of the contract.
Recitals are typically presented in the form of paragraphs that are numbered. The recitals in a given contract are typically numbered consecutively in the order in which they are presented. The recitals are generally understood as being interdependent, such that the omission of language in one paragraph may, in some cases, resolve an ambiguity in another paragraph of the contract.

The role and importance of recitals

Recitals are an extremely useful element of any contract. They can help to clarify the intention of the parties as well as provide important background and context to a contractual arrangement. In many ways, the recitals create a scene for the rest of the agreement to follow. Recitals may also be helpful in clarifying the positions of the parties to a contract in the event of a dispute, particularly where it is arguable that the terms of the contract itself do not address the question or problem arising.
Both common law and the Civil Code of Quebec have generally long recognised the importance of recitals and their usefulness in establishing the background of an agreement. In Canada, it is generally accepted that recitals may broadly serve as parol evidence of an agreement, and recitals can be relevant in the interpretation of the terms of an agreement. In this respect, recitals may be useful for: Recitals in a contract can also be found to be more persuasive to a judge to consider – that is, they can be given a greater weight in interpretation – than other clauses. In particular, recitals may be persuasive because they are said to be a neutral statement regarding the context and purpose of the contract, and thus are less likely than similar clauses within the body of the contract to have been included merely to suit the interests of one of the parties. This shows their potential importance in an interpretive exercise and why they should be carefully drafted (even if they are called something else, such as "background", "introductory words"), with the same rigour as other clauses in a contract.

Key aspects of recitals

Components of effective recitals include relevant background, mutual intentions and parties. Recitals have certain elements, or ingredients, common to most useful recitals. Undoubtedly, recitals are often used in coordination with each other. Nevertheless, these ingredients are important to the final result. Relevant background. General statements containing relevant background for either or both parties (particularly the drafter) are the first of the "ingredients." As mentioned above, this is a means of providing context to the transaction, even if it is only a reminder as to what is significant. While there are no hard rules that govern how the recitals section is prepared, relevant background can often be a critical component of the recitals. Especially when the final contract is expected to be the definitive source of the parties’ agreement, the relevant background comments should not be ignored. Relevant background can include any sufficiently specific description of previous agreements or discussions that are material to the transaction, even if that is nothing more than the other side’s acknowledgment that there have been previous, related communications. Contrary to popular misconceptions, such recitals can govern over subsequent agreements in defined circumstances. See (old-fashioned????) Existence of Recital of Fact in Chancery Act, 18 C.J.S. Contracts § 237 (2015) ("Where it is a matter of interpretation at issue, the recital of fact in an incorporated contract is preferable to the fact as stated in the writing adopted as a part of the contract, and controls the writing in the event of a conflict.") Accordingly, if a general background comment might help interpret the contract down the road, it is likely worth including. Therefore, the next ingredient of recitals is the general background. Mutual intentions. The third "ingredient" is a statement of the mutual intention of the parties in respect to the transaction. For example: The parties intend to enter into commercial and consultant relationships under a franchise license. As further examples, recitals could also be used to identify particular "formalities" in the manner in which the contract shall be performed. For example: The parties will hold a minimum of three bi-weekly meetings in a year. Finally, the fourth "ingredient" of a useful recital is the parties to the transaction. Your contract should reflect who the parties are. This is often done in the introductory paragraph, by describing them as Seller, Buyer, Employee, etc. However, when needed, your contract should repeat this information in the recitals section. In sum, the "ingredients of recitals" in a contract generally include the relevant background, the mutual intention of the parties, statements regarding "formalities" (if needed) and the parties. Again, while recognizing that recitals are not, strictly speaking, controlling over inconsistent terms expressed in the body of a contract, they have a much greater legal significance than is commonly believed. See generally, Stanley P. Klugman, The Use of Recitals in Commercial Agreements, 62 NY St. B.J. 32 (1988) (Recitals set out background facts presumed known to the parties and in the nature of the transaction, the intention of the parties and the circumstances surrounding their execution of the agreement); see generally, David A. Kaufman, The Efficiency and Effect of Recitals In Contracts: A Theory, Battenfeld & Kaufman, 3 Bus. L. Briefs 1 (1996). In preparing and negotiating the recitals section in a contract, take your time and give careful attention to this section of a contract. You may be surprised at how useful – and controlling – the recital language can be.

The legal implications of recitals

The legal effect of recitals can be substantial, especially when the clauses of a contract leave doubt as to the intention of the parties. "They are legal evidence of the contract between the parties and [have] a great value as an aid to construction when the meaning of the document is in question," writes Lord Justice Goff in the case of Reardon Smith Line Ltd v. Ministry of Agriculture, Fisheries and Food 7. In this case relating to the extent of a ship’s seaworthiness obligations, Goff LJ said the recital made it clear that the owners’ duty regarding seaworthiness did not change when the vessel became a bareboat charterer’s vessel. "For the purposes of construing the contract, I think that it must be taken that the merchants knew the facts disclosed," he said. Recitals and warranties usually go hand-in-hand, according to the case of Trident General Insurance Co Ltd v. McGee 8, as warranties only relate to present facts or condition, not to the past. As recitals are written in the past tense, the inclusion of the two will generally create an estoppel against a party who denies the facts were as set out in the recitals. Case law shows the importance of recitals in determining the enforceability of a contract and thus it is important to pay particular attention to them at the time of drafting, which can impact on the substantive issues and questions of law later down the line. "Recitals have a dual purpose: 1. they should state the background and context of the agreement to help interpret any ambiguity in the operative provisions of the main agreement; and 2 . they provide a record of the true intention of the parties," says Craig. A recital should clarify the commercial context of the transaction, providing the reader with an understanding of the reasons for it and how it is intended to work. It should also flag any third-party involvement, the scope of the transaction and any sale of assets, and the identity of key individuals involved, so as to provide a complete picture of the transaction. Plain language should be used as much as possible, meaning legal jargon or complex sentences should be avoided. Information must be presented in chronological order and events must be supported by facts so as to help the reader understand what happened in the past and why. According to the Law Commission, recitals should contain the following essential points of information: The above is not an exhaustive list but is the minimum a lawyer should include to ensure the recital contains all the necessary information. It is also important to remember that recitals are subject to the principle of contra proferentem, meaning any ambiguity in the wording will be interpreted against the party that drafted the recital. "Recitals should succinctly state the parties’ intentions and the key factual background which would help to inform a court or tribunal as to the factual basis underpinning the agreement in the absence of strong extraneous evidence," said Craig. There is not a "one size fits all" when it comes to the drafting of recitals, however, and each contract must, therefore, be assessed on its merits in terms of the level of detail and the commercial requirements.

How to draft recitals

Drafting Recitals
As with much of contract law, drafting effective recitals requires a careful balance of managing the substance of the agreement while maintaining a good structure. Recitals generally do not deal with interpretation issues, therefore, they should not be too long. You want them to be as short as possible, but with enough detail to explain the transaction.
There is no legal requirement for the level of detail required to be included in the recitals, and they are largely a matter of style. However, a general rule of thumb is as few recitals as possible, but must make sure you have outlined the essential reasons behind the terms of the agreement. Generally, recitals only provide a brief history of the parties and the background of how the agreement was reached. Recitals should be in the past tense ("WHEREAS, both parties wish to….), whereas the body of the contract should normally follow in the present tense.
Many contracts contain phrases such as "Parenthetical Statements" or "Subject Heading" at the beginning of each recital, but these are not necessary, nor are they recommended. Too many recitals can drag down the contract, or can be unhelpful if they are not relevant to the subsequent terms of the agreement. Therefore, only include recitals that are necessary for later cross-reference, and ensure that you’ve adequately covered why you’ve included them. If you have included redundant clauses, amend the recitals so their substance is not duplicated in the definitions section.
As a general rule, recitals should be drafted from the perspective of either party depending on who has the bargaining power. For example, if you are trying to sell a business, then the selling party should control the drafting of the recitals. They will have more negotiating power, and it should be in their best interest to control the drafting.
Be cautious of what language is being used in the recitals, as this can help define the interpretation of the contract. Even though recitals are not usually binding and they are only an aid to interpretation, the courts have found exceptions to the rule, and there have been instances where they have held recitals to be binding in the following circumstances:
Sometimes, if certain circumstances are not explained in the recitals, it can hurt your case. One common example of this is in merger agreements, where the agreement sets up a new entity, but does not state that funds raised by the new company are first applied to the pre-existing debts. Consequently, even if these debts are known and understood between the parties, if this is not stated in the recitals, then a court might find that such funds should be used to repay the existing debts.
Recitals should not be confused with preamble provisions as these are just contractual conventions, and sometimes called "tits". They are included to outline the relationship of the parties and the purpose of the contract in the opening part of the contract. These are usually not one paragraph, however, in longer contracts, one paragraph should suffice.

Contract recital examples

Looking at some examples of contract recitals can help to clarify what is meant by them. The following examples will provide an overview of how recitals operate in practice.
Example 1
A company plans to buy a commercial building from an individual. A recital would be included at the beginning of the contract that recited details about the building, such as:
"The Building is a commercial building located at XX XXXXXX XXXXXX, XX XX XXX."
Example 2
A new business venture involves two companies who plan to enter into joint ownership of the venture. A recital would recap those details in the preamble to the contract:
"The Parties now wish to enter into a Joint Venture agreement to establish and operate [the Venture]."
Example 3
The Parties plan to collaborate on developing technological innovations related to driverless cars. The recital would outline that relationship:
"The Parties have agreed to enter into this Agreement to set out the terms upon which they shall collaborate over certain technologies relating to driverless vehicles."
Example 4
A recital could be used to set out the context of why a contract is required. For example:
"The Purchaser has acquired the business and assets of XXXXXX Limited, and requires a strategy for implementing an exit agreement for XXXXXX".
Example 5
A recital may also be used to provide context about the parties . The following example provides information about the type of services being provided:
"XXXX XXXX Limited (the "Supplier") is a company which is engaged in the provision of landscaping services for residential and commercial businesses, and XXX XXXX Limited is a local business engaged in the building industry which requires a local supplier to provide it with landscaping services (the "Premises")."
Example 6
Where members of a community plan to work together on a given project for mutual benefit, a recital could be used to facilitate that process:
"On 30 January 2017, the Parties held a meeting and agreed to establish a joint venture ("XXXXXXX") for the purpose of [XXXXXX]."
Example 7
A recital could be used to explain the reason for the contract, and the parties that it is focused on:
"The Parties have agreed to enter into this Agreement to set out the terms upon which they shall work together on the Development of XXXXXXX with respect to XXXXXX and XXXXXX (the "Locality")."
Example 8
A recital might describe the relationship between the parties, especially if one party is a commercial entity and the other a private individual. An example of such a recital might begin as follows:
"The Purchaser is a wholly owned subsidiary of XXXXX Holdings Limited (the "Holding Company"), with its registered office at XXXXXX, and having a place of business at XXXXX, England, England (the "Head Office")."