What are Recitals in a Contract and Why They Matter?

What are Recitals in a Contract?

Defining the term recital in a contract

Generally speaking, the recitals contained in a commercial agreement tend to be the bits of text that come near, or at the start of, a contract before it goes on to list "the operative provisions" of the document. The term "recital" does not in any way appear in the legislation or in case law, but is something that is taken for granted as having a particular form and structure. For example, the terms introductory phrases "Whereas" or "Background" are often followed by descriptive phrases such as "the provision of Parts 1 to 6 of the Wildlife and Countryside Act 1981" ("WCA91" is the abbreviation commonly used for this statute . )

The idea of the recital is that there is an element of context required before the substantive part of a contract is read, without concern for how that context may in fact be interpreted, and without concern for the role that such context may in fact play in the real world.

It is also accepted that the recitals traditionally have no strict legal effect and do not tend to form the substantive basis for the real live operation of the substantive part of a contract.

Although there are many pages of text written around this topic, you’ll find that there are few precendents and that it is often not very clear at all just how much value can be placed on the recitals themselves.

What is the Purpose of Recitals in a Contract?

Recitals in legal agreements and contracts are incorporated to provide a clearer understanding of the purpose behind a legal agreement or contract. Sometimes, with the parties’ consent, they provide background information about the reason the parties have entered into the agreement. Generally speaking, recitals are included to inform third-parties of relevant details about the parties, transaction, or situation that triggered the agreement. Even though recitals can be helpful, it’s always important to remember that the provisions of the agreement itself are what ultimately govern the relationship between the contracting parties.
Recitals should ideally make it easier for a third party to understand the situation and the intentions of the contracting parties. They can be useful during a dispute as well by explaining the situation and on-going intent of the parties, which will provide guidance to a court looking to resolve a dispute. It is suggested that a careful review of the recitals section is taken by business owners before ultimately signing a contract.
In general, recitals in legal agreements or contracts can be widely considered to be an integral part of the agreement. They really assist with understanding the purpose behind the various clauses within the agreement.

The Essential Elements of a Contract Recital

The parties: A recitals clause should clearly identify all of the parties to the agreement. It should also clearly state their full legal name and clarify the entity type – for example, the full name of a corporation followed by "a corporation organized under the laws of (Province)". Every entity has its own legal status and the form of the legal entity will also affect liability on the agreement.
The background of the agreement: It is also helpful to outline the background of the agreement in a recitals clause. This may include why the parties are entering into the agreement and the for their motivations behind having the agreement signed.
Any critical facts: Some agreements will outline matters that are true and important to the agreement itself. For example, if one of the parties is not yet incorporated, this may be important to communicate in the agreement, as the person or company may not have any protection from liability if the company does not yet exist. A recitals clause will ensure that anyone reading the agreement will know about this fact, and will be fully informed when considering the enforceability of the agreement. If the company was not yet incorporated but was required to be in order for the contract to be valid, a court may find the entire agreement invalid.

Legal Repercussions if a Contract does not Contain Recitals

The legal implications of recitals can be significant. Courts may rely on them to help interpret the meaning or scope of the provisions of a contract, or the intent of the parties. For example, their effect on the legal and financial obligations of the parties may be resolved by considering the recitals in conjunction with the other provisions of the agreement. The recitals may be used as an aid to construction of a contract and can assist with the determination of the meaning and effect of the contract, including what is to be inferred from the contractual parties. Giving effect to a recital may give rise to an obligation or a right, although the circumstances in which this occurs vary from case to case and the approach differs among domestic and international jurisdictions.
Whether the recitals are binding on the parties will depend on their interpretation. If the recitals are only factual statements then they have no standing on the parties’ obligations that arise under the rest of the contract when it becomes effective. However , if the recitals are a relevant consideration to the operation of the rest of the contract, then they may be construed as forming part of the contract. It has been stated that it is "generally the case that recitals are not to be treated as operative parts of a contract [but]…in some instances that principle does not hold."
The recitals in an agreement may amount to representations and therefore, if so, the recitals should be "truthful or not capable of being fulfilled." Recitals may be informative, limiting or explanatory. Using limiting or explanatory words such as "whereas" instead of including the background in the body of the contract may undermine the construction of the agreement and its enforceability and may mean the recitals operate to limit or expand the application of a provision in the contract. Recitals may also limit other provisions in a contract where this is not the intention of the parties.

Important Tips for Drafting Recitals

When drafting the recitals section of a contract, it is important to keep in mind that the provisions are often subject to judicial interpretation. Therefore, it’s important not to make any assumptions about intentions that are not explicitly stated within the text. Some best practices when drafting the recitals section of a contract are as follows: For starters, all parties should refer to the same recitals. Thus, it is a good idea to avoid referencing other contracts and chapters or articles within the same contract, as this language can create confusion. Furthermore, unnecessary verbiage should be avoided, as this will add to the length of the contract, and many courts do not like long contracts. Additionally, the preamble should begin with the names of the parties and the date that the document was entered into. The heading should be followed by a section that has some brief background information and an "attestation" clause. The attestation clause lets a court know that all parties entered into the contract willingly and with free thought, providing important context to the terms detailed herein. When reviewing the recitals for a contract, clear statements regarding the interests and intentions of the parties will be apparent, along with an articulately outlined explication of the reasons for entering into the contract.

Recitals – Common Pitfalls to Avoid

Common mistakes to avoid with recitals include:
Too much detail. Recitals are the place to briefly set out the background and context of an agreement. The agreement (body of the contract) is the place to set out the commercial terms and details of the transaction. So, in the recitals, do not go into too much detail.
Dispute over what is excluded. Sometimes, a party will want to exclude a specific situation or type of liability from the application of the contract. An example would be where a party wants to exclude liability for pre-existing liabilities towards a related entity or a parent company. If this fact is not mentioned in the recitals, then, as stated above , such a party runs the risk that the application of the agreement (using the description of "the event/s specified in recital 3") applies and it is deemed to have waived its right to claim on that issue.
Recitals used for the wrong purpose. Recitals should give a brief summary of the major matters relevant to the contract. Breach of a written term of a contract does not give rise to a right to terminate the agreement and a party cannot terminate a contract because of misrepresentation unless the agreement says it can. Therefore, if a party to a contract wants to terminate a contract because of a breach of the terms of a contract or misrepresentation, it must make it very clear in the body of the contract that this is the case. Recitals are not the place to contract out of these recognised contractual rights.
It’s too vague. Using vague terms and language often results in parties trying to retrospectively insert their own meaning to those terms and language. Therefore, ensure that the meaning of all terms is clear and that an objective third party dealing with the matter would not be left scratching his head.