What are recitals in a contract?
Recitals are paragraphs that generally appear at the beginning of a contract. They are the generally descriptive paragraphs at the beginning of the contract that provide some background circumstances related to the agreement. They function to not only provide context but also to explain and set out the intent of the contract.
Recitals can come under various names depending on the jurisdiction such as "whereas," "recitals," "it is understood that", or "in consideration of the promises and agreements contained herein." Regardless of what they are called, they are commonly referred to as "recitals." Although they are not required, they will generally relate to the background facts of the contract and the intention of the agreement .
In the law firm context, two recitals might be worded as: "This Agreement is made and entered into as of the ___ day of ______, _____ between T. Lawyer, Attorney at Law, a sole practitioner and The law firm of A. Attorney, a professional corporation." They would describe the parties to the agreement, as well as the nature of their relationship.
They have been described as "an intermediate part of a deed explaining the nature of the property, the time of conveyance, etc." and "prologue to a written instrument in which is stated the considerations moving the parties to enter into the agreement." Their purpose is to provide contractual context and background that avoids lengthy terms in the background and to assure that the Contract is interpreted in light of these contextual explanations.
Legal Effect of Recitals
The recitals of a contract address the factual background. Their purpose is to provide the reader with the context in order better to understand and interpret the more technical operative provisions. They may be relevant to interpretation and admissible as an aid to interpretation only where the operative provisions of the contract are ambiguous or lack clarity. They cannot override the express terms of the operative provisions, but there is no barr to their use for the purposes of interpreting the operative provisions. The recitals may contain an implied contract between the parties, breach of which will render the party in breach liable. A party to a contract is entitled to judge its possible liability by the words used in the contract, and where the substantive provisions of the contract consistently state that the parties do not intend to be bound until the occurrence of a condition precedent, it would be unreasonable to suggest that the same parties are bound by a pre-contractual representation loosely incorporated into the contract.
Are Recitals Legally Binding?
The parties and judges alike will often refer to and quote from a recital in a contract as evidence of their understanding of that contract. However, recitals are not automatically legally binding. That said, there is no universal statement or rule that would apply universally. A preliminary view may be that a party to a contract is bound by the representations made in a recital, but this view does not hold if this will lead to an absurd result or inconsistency. The recitals must be read in conjunction with the whole contract. In other cases, recitals, although not legally binding, may be relied upon by a party where such reliance is specifically contemplated by the contract (and also where clear evidence of reliance on the recital exists, otherwise commonly referred to as "reasonable reliance"). Similarly, a recital may be considered a representation or state of affairs, upon which the parties intended to give rise to contractual obligations. To this effect, in The Commissioner of Public Works for the State of New South Wales v The Commonwealth of Australia & Others [2001] NSWSC 63, it has been held that: "if a contract can be completely performed without regard to the recital, then the recital should not be treated as part of the operative provisions of the contract unless the circumstances are such that the parties must have intended it to have some contractual force." Similarly, in Laybutt v Langham Hill Holdings Pty Ltd (1965) 113 CLR 477, it has been held that "an application of the trial judge’s reasoning would lead to a nonsensical or impracticable result and consequently to a deadlock in the whole system of commercial relationships which operate to make the declarations in each species of clause [in lay of a recital] contractual." The reasoning above makes it clear that a recital may be considered a separate clause, however this is not always the case, as discussed below. In Jajura Pty Ltd v Karai Pty Ltd at [34] the authorities show that a recital cannot be construed as a separate clause. Further, in McKellar Constructions Pty Ltd & Anor v Parkes Shire & Ors the NSW Court of Appeal held, in referring to several authorities, that not all recitals can be treated similarly, and that the boundaries between them and operative provisions are inherently and intentionally blurred, so that a construction of those provisions as harmonious and consistent is adopted. Indeed, in Colas Middle East Co v The General Manager, Public Authority for Housing Welfare, reported in [1998] CLC 845, the Court of Appeal of the State of Kuwait held that: "where the recital of agreement states that it is drawn up in implementation of a prior contract, the recitals should be interpreted as being operative clauses." In CALS Paperdales LPP v G G Kearney International PLC, the court held that where a contract contained a definition section and did not list any of the recitals or appendices amongst the defined terms, these ended up being binding on the parties to the contract, as such documents must have been the intention of the parties to bind them. The above cases indicate that a recital may be legally binding if the contract explicitly contemplates this occurrence. Further, it is clear from the authorities that if six or more different titles or categorizations are used to classify a section of a contract (such as covenants, warranties, stipulations, representations, undertakings, qualifications, disclaimers, etc.), then recitals are legally binding after considering the intention of the parties to the contract, or where the contract specifically contemplates this to be the case.
When recitals can affect the interpretation of contracts
Other courts have found value in the recitals and considered them when interpreting that contract. Armani v. EagleLand Investments Inc., 107 A.D.3d 508, 508 (N.Y. App. Div. 2013). The court can consider the recitals even when they are "at odds" with the rest of the contract. Lichtenstein v. W. Calcasieu Cameron Hosp., 198 So.3d 689, 693 (La. 2016).
Importantly, recitals have been considered by the court despite language that states "the statement of facts and matters of fact..are not deemed to form part of the parties’ agreement." Wells Fargo Fin. Leasing Inc. v. Pool’s Place LLC, 207 F. Supp. 3d 227, 233 (D. Me. 2016), aff’d, 854 F.3d 23 (1st Cir. 2017).
In another habeas corpus case, the Supreme Court of Louisiana has warned that it would consider the recital in the application for the writ of certiorari. In re Crayton, 44 So.3d 234, 237 (La. 2010). In Crayton, the State argued that a precatory recital about the waiver of "recused" DA conflicted with the express waiver of the right to recusal, and that the inconsistency was sufficient to invalidate the contract as a whole. Id. Recitals can be erroneous, and an erroneous recital can render the contract invalid under certain circumstances. In re Bastarache, 181 B.R. 767, 783 (Bankr. D.R.I. 1995).
The Fourth District Court of Appeal in Florida has stated that the recitals must be brought forward into the body of the contract as "materially add[ing] to the prior material agreement." See Marvin Tr. I Ltd. P’ship v. Huntington Nat’l Bank, 208 So.3d 773, 778 (Fla. Dist. Ct. App. 2016).
In some instances, courts have stated that the recitals in a contract may limit the terms of the contract. Magee v. Magee, 219 So. 3d 39, 43 (La. Ct. App. 2017).
Drafting recitals: things to think about
The discussion above makes it clear that in order to avoid creating ambiguity about the binding nature of the recital, it is as important to be explicit about what a recital is doing as it is to set the right context. Much of this is common sense, but some observations are worth setting out:
- Be explicit that the defining aspect of the recital is that it is an introductory clause. This can be further emphasised with words such as this is expressed in the following recital, or similarly: whereas (a) and (b) now appear as in [] .
- Make it clear what the purpose of the clauses are. As well as the usual whereupon, now therefor, be clear about scope, location, revisions, and other functional aspects.
- Structure should be consistent. Decide on a format, and stick to it.
- A general rule is to keep recitals shorter than clauses, but that is not an absolute rule.
- Try to word things using plain English, ideally those that are clear and unambiguous – see below.
Illustrations of recitals in contracts
Examples of Existing Contract Recitals
The preamble often includes those who the contract is between. For example:
"THIS AGREEMENT is made the [ ] day of [ ] 20[ ][insertion year] BETWEEN [ ] (1) [ ] ("Seller") whose registered office is [ ] and [ ] (2) [ ][‘s] ("Purchaser"), whose registered office is [ ]."
The preamble may include recitals which specify a history/reason for the contract. For example, A contract may be structured as:
"THIS [Insert type of contract, i.e. SUPPLY/SUPPLYING etc.] AGREEMENT (this ‘Agreement’) is made as of [Insert date (the ‘Execution Date’)] between:
BUYER: [Insert full name], a [ ] company limited by shares, who has a registered office at [ ](‘) and SELLER: [ ] Company Limited a [ ] company with a registered address at [ ] ("Seller").
WHEREAS Seller is engaged in the business of [summarise business activity]; and
WHEREAS Buyer desires to acquire and Seller desires to sell [specify what is being sold] subject to the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained and intending to be legally bound hereby, the parties hereto agree as follows:"
The preamble may include definitions of the parties. For example:
"BETWEEN:
(1) [ ] Limited (‘the Company’), whose registered office is at [ ];
AND
(2) [Insert full name] of [ ] ("Buyer") whose registered office is at [ ].
RECITALS
A The Company is a private limited company incorporated under the Companies Act 1985 having issued share capital all the issued share capital of which is beneficially owned by [Insert Name].
B The Buyer is a private limited company incorporated under the Companies Act 1985 having issued share capital, the entire issued share capital of which is beneficially owned by [Insert Name].
C The Company wishes to sell and the Buyer wishes to purchase [number] ordinary shares of £[ ] each in the capital of the Company ("the Sale Shares") on the terms and conditions set out in this agreement ("the Agreement")."
Conclusion: why recitals matter
It is clear that recitals are a crucial part of any contract and their interpretation can significantly affect the operation of that contract. Parties must therefore ensure they are properly drafted and understood from the outset.
While they may not be binding per se, the courts will interpret and apply recitals according to the intentions of the parties, and care should be taken to ensure that recitals clearly express the circumstances in which the obligations will be binding . When drafting recitals, clients should avoid using complex and ambiguous language and should resist the temptation to copy clauses from one of their other agreements.* It is important that the reader understands the key facts that have prompted the need for that particular contract. Draftspeople should also avoid adopting inflexible short-hand formulations and should draft recitals that are specific to the transaction. Ambiguous recitals will lead to ambiguity of interpretation and are more likely to prompt litigation or costly disputes as to the meaning of the agreement, rather than the issue(s) itself.