What are Recitals in a Contract?
The term "recitals" refers to a common clause or section within legal agreements where the author will provide the reader with some background context and information at the start of a legal document. The recitals/preamble typically include a statement of purpose to explain the legal instrument or transaction being contemplated and how the parties came to be bound or agree to the subsequent actions in the body of the agreement.
Recitals may assume a particular meaning or significance within the body of the agreement. In some agreements, recitals are quite lengthy and detailed and in such cases, a reader may spend significant time reading through the recitals whereas in other instances, they are short and succinct and as a result, carry relatively little significance . The recitals should be interpreted in accordance with the rules of construction governing the agreement. Preamble definitions are often used as an introduction to define particular words, phrases, terms or expressions used subsequently in the balance of the agreement. However, the use of definitions may be quite limited depending on specific draftsman provisions included next in the sequence of recitals (i.e. "The parties agree as follows:"). Draftsmen generally use the terms "hereinafter" or "herein" before or after the defined phrase or term. Using "hearsbyn" (or similar term) is one method used to incorporate rest of agreement into the recital.
The Significance of Recitals
As a general proposition, parties to an agreement are free to negotiate the contract terms most appropriate to their unique circumstances and interests. Because this freedom extends to recitals, you might conclude that the issue of including recitals is therefore only relevant in the context of a particular transaction or set of circumstances. However, there are two important reasons to include recitals whenever you are drafting an agreement. First, a recital can be used to shed light as to the purpose of a provision which is unclear on its face. In particular, recitals can be used to avoid undesirable interpretations of language selected by the parties to describe their legal or factual obligations. Second, a recital can be used as an interpretive guide when issues arise over particular provisions in the agreement. A recital should always be interpreted "to fit within the four corners of the document", that is, without a recital the court would have the same problem as with a recital to figure out whether a particular provision was mandatory or discretionary, how certain terms are defined (if at all), etc. When such issues do arise, there may be competing recitals, to the extent a recital is included at all (i.e., where you have some recitals on the first page, and some recitals on the last page). In such cases, courts give meaning to the explicit language of a provision where that meaning is consistent with the recitals, punctuation and structure of the entire document.
How to Craft a Good Recitals Clause
Before drafting recitals, consider what the relationship looks like after the agreement is signed, and tailor recitals to fit that.
The best blending of standard clauses and bespoke clauses is usually to err on the side of tailoring even standard clauses to suit the specific deal. This will help minimise disputes in the future. Recitals can be a good opportunity to tailor a standard clause to the particular deal and to avoid some of the pitfalls that can arise if it is a generic clause imported "off the shelf" into an agreement. For example, in a typical IP assignment agreement, you will see something like: "The Vendor has developed certain Intellectual Property Assets which are used in the operation of its business and which are assumed to be wanted or acquired by the Purchaser and which have been agreed as suitable to be transitioned to the Purchaser by the parties." This clause makes no sense for a transfer of IP assets under an asset sale agreement, as the IP Laws vests in the owner of the asset, and does not remain vested in the supplier (e.g. vendor/seller) regardless of whether a contract is in place. Tailoring can help eliminate extraneous clauses that may have arisen from the cut-and-paste drafting of the lawyer before you. Many of us have seen recitals that go into great detail in explaining the purpose of the agreement, but do little to focus the mind of the reader(!). Recitals should be used for what they were intended and not just be an add-on to the preamble. A few key elements to consider in drafting recitals are: Recitals are often reviewed with a fine tooth comb by directors or other senior persons who tend to reject complex or lengthy recitals as being more of a waste of time and space than anything else. Keeping recitals to a minimum and focusing on the key elements will ensure that the reader’s interest is kept. Recitals should not be seen as a "space filler", but rather as a vehicle to articulate and convey the scope of the agreement that is entering into and its context vis a vis the overall aim of the agreement, rather than to stipulate detailed technics about the agreement itself.
Recitals in Various Contracts with Examples
Recitals can be included in a variety of agreements. For the purposes of example, considerations of recitals are discussed in a commercial contract, real estate contract and an employment agreement.
Commercial Contract
The undersigned (the "Purchaser") hereby agrees to purchase from XYZ, LLC (the "Seller") and the Seller hereby agrees to sell to the Purchaser an invented widget (the "Widget"), all as more specifically described in the attached Schedule A. Whereas, the Seller is in the business of providing widgets in the territory of North America for a period of X years; and Whereas, pursuant to the sales representative agreement dated X between the Seller and the Purchaser (the "Sales Representative Agreement"), the Purchaser has agreed to sell, on a non-exclusive basis and subject to the terms and conditions of the Sales Representative Agreement, the Widget in the territory of North America;
Real Estate Contract
This Agreement made X, 20XX between X (the "Seller") and Y (the "Purchaser") . Where parties all agree to certain things including the following as an inducement to the other to enter into this Agreement: Whereas, the Seller is the registered owner in fee simple of the Property; and Whereas, the Purchaser warrants and represents that it is a bona fide purchaser who has examined the Property including the availability of services and the Purchaser has not relied upon any representations of the Seller except those set out in the Agreement; and Whereas, the Seller warrants and represents that no work has commenced and that no work will commence following the execution of this Agreement by the Seller without the prior written consent of the Purchaser; and Whereas, the Seller warrants and represents that the Property has been taken with full knowledge and acceptance of any limitations, if any.
Employment Agreement
In consideration of the mutual covenants, conditions and agreements set out in this Agreement, the parties agree as follows: The Employee acknowledges that the Employer is in the business of selling X and in the course of its business will be disclosing its Trade Secrets to the Employee. The parties further recognize that the Employee will be exposed to the confidential methods of the Employer in carrying out its business and the Employee’s obligation to the Employer with respect to such Confidential Information will continue so long as the such information will be kept confidential.
Recitals Considerations
While it may often be overlooked as little more than a historical preamble, the inclusion of precise language in recitals can play an important role in the enforceability of an agreement. Careful consideration of recitals may lessen the risk of future litigation, particularly when an agreement is signed by a party that was not the original counterparty. The effect of a recital on the interpretation and enforcement of a new contract is a complex issue. Courts have not uniformly interpreted recitals. In some instances, the recitals are seen as admissible extrinsic evidence that should be used to assist with interpreting ambiguous or contradictory clauses in the body of the agreement. Courts have at times taken the opposite approach, finding that recitals should not be used to supply contractual terms or to create obligations where none exist. As has been recognized by the UK Supreme Court, there remains "no universal approach to the role of recitals… [and] their role in this respect is often a matter of circumstances and degree." Consequently, it is difficult to advise clients on the role that recitals can play in specific cases, and on whether it is acceptable to rely on recitals even in the face of conflicting provisions in the body of the agreement. One difficulty in assessing the degree to which courts will be influenced by recitals is that treaties are rarely subject to judicial interpretation. In In re Tibet, Croatia and Iceland, the Supreme Court of Canada explained that there was "no doubt that a recital cannot be used as a substitute for an express agreement in the body of the treaty." Such views were also expressed by the ICC International Court of Arbitration in ICC App.No.14514/JRF/CK. In that case, the court stated that the recital "does not avail as an alternative to what the parties have expressly agreed" but can be useful in interpreting the scope, intent and purpose of the parties’ obligations. For many jurisdictions, however, what the parties actually agree to in a recital is unclear. For example, while the UK Supreme Court has held that recitals should not be used to supply contractual terms or to create obligations where none exist, they have also held that recitals can alter contractual obligations in the body of an agreement. Consequently, whether or not a court will enforce a recital may be influenced by the court in question when the jurisdictional issues set out above are relevant in the case at hand. Some drafters regard recitals as so conflating what the parties have agreed to that employers should take care not to inadvertently create obligations where this had not been the intention. An example of this is provided by Heller v Accenture, 2001 ONSC 1598. In the context of a computer systems maintenance agreement, the following was included in the recitals: "Whereas the parties agree that the current IT systems and operation procedures at ___ location ___ are materially similar to those employed during the ___ years." A court found that as a result of this, certain IT operations at an acquired business had become obligations to continue to operate those aspects of the business in a materially similar way. It can be seen therefore that when drafting recitals, and recalling the expressed intention of the parties, careful attention to the way in which a recital is worded is important.
Frequently Asked Questions on Recitals
Do recitals form part of the contract?
In the usual course, yes. Normally recitals will be taken into account by a court or tribunal providing their meaning can be reconciled with a construction in accordance with the more modern approach for the interpretation of contracts. However, where it is clear from the face of the contract that a matter is dealt with in a particular operative clause, there may be a stronger argument that the relevant recital should not be taken into account.
The question of whether an individual recital forms part of the contract or is simply a statement of background fact is a matter of construction of the particular contract. A contract may provide that the recitals are not to form part thereof or that they are to be taken to be expressly excluded from the operative part of the document. Nevertheless, in the absence of such a provision , it is generally the case that a recital is indicative of the factual matrix from which the rest of the contract is drafted. This will still be the case where the parties have substituted the recitals with representations.
A party has said that a particular recital in the contract is untrue. Is this a misrepresentation?
It is important to note that a recital does not amount to an express term or representation on the facts until the court has determined its meaning. It may however amount to an implied representation.
Can recitals be used as an aid to interpretation of a contract?
Recitals may provide context in which the particular operative clause should be viewed. However, recitals are not conclusive as to the parties’ intention. Rather, recitals can inform the reasonable person’s view of the factual matrix from which the operative clauses are drafted. Recitals (properly interpreted) will of course be taken into the process of interpretation so far as required to give effect to a reasonable interpretation of the operative clause.
Why put recitals in an agreement?
Recitals can set out the factual context of the contract clearly from the outset. This can assist in the interpretation of the operative clauses and can aid in the construction of the contract as a whole if a dispute arises between the parties. Recitals can also ensure that information is put on the record in the event that a party makes a statement to a third party about the agreement.
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