(h) Preamble

Most contracts contain, following the title and parties block but before the body text, a group of paragraphs known as the preamble, recitals or whereas provisions. The preamble should be placed immediately after the party blocks.

Preamble title. The preamble is usually given the heading Recitals, Whereas or Background[16], written in all-caps or bold. They address a few key characteristics of the agreement, the related transaction or the parties’ businesses and help the reader understand the background before digging into the definitions section.

Types of recital clauses. The recitals give background information about the parties, about the context of the agreement and an introduction to the agreement itself. There are several kinds of whereas clauses:

  • Party-related recitals: one or more whereas clauses can reflect the relevant business activities of each party.
  • Context or background recitals: they describe the events or circumstances, which led to the transaction. This is somewhat of an extension of or elaboration on the contract title: for example, it may explain particularities of a sale, specify the patents or trademarks of a licence, or clarify why a preceding agreement is amended and restated. Such background recital may well touch in broad terms upon the purpose of the transaction, which the parties seek to accomplish.
  • Compliance-related recitals: in one or more whereas provisions, the parties might want to express that certain requirements or prerequisites for entering into the agreement have been complied with. For example, a whereas clause may express that an external party has approved the transaction or that regulatory requirements or works council regulations have been complied with.
  • Transaction-structure related recitals: in non-standard, complex transactions, it is sometimes inevitable to explain the various steps taken pursuant to the contracts (for instance when a sequence of events is of particular importance).
  • Related-transaction recitals: a preamble might well include one or more recitals regarding agreements being entered into at the same time.
  • A step-up recital: many drafters prefer to express a general intention stating that the parties desire to reflect the preceding considerations in writing. Such a lead-in serves a similar purpose as the words of agreement and is redundant.

The preamble of a contract normally consists of between one and five paragraphs which outline the entire transaction. In most types of relatively standard contracts, the list of recitals is limited to a few. On the other hand, settlement agreements and highly bespoke (complex) agreements might have a dozen or more recitals, listing each fact or event, the uncertainty to be settled or each party’s point of view regarding a dispute.

Contents. The information addressed in the preamble should be limited to intentions, desires or statements of fact. It is customary to limit these statements to subject matters which may result in the validity or enforceability of the contract being directly affected. Other particularities which explain the bigger picture of the envisaged transaction, such as the interdependency of the contract with other agreements (if any) or the requirement that certain crucial conditions be fulfilled or regulatory approvals be given, can be addressed here as well. Altogether, the matters addressed in a preamble should be of such importance that if any of them were not true, the contract should be capable of being nullified on the legal ground of ‘mistake’ (‘error’).
Recitals may be helpful to define (in non-legal terms) the “Transaction”. Do not however use popular or loose language to describe a subject matter that is otherwise well-defined in a definition as this creates ambiguity.
A drafter should also refrain from filling the recitals with various additional definitions (e.g. the Shares, the Company or the Product) or references “(as defined in Article 1)” immediately following a defined term.

No obligations. Whereas-clauses should never contain any obligations, conditions, warranties, policy rules or duties whatsoever.
Recitals are phrased as traditional paragraphs with grammatically complete sentences rather than several clauses leading on from the initial preamble. Accordingly, there is no need to limit the recitals to one sentence only. It is good practice to end each recital with a full stop rather than a semi-colon. This is also preferable in view of contract assembly software, where paragraphs are automatically inserted or left out. For example, do not write:

(A)       that Seller is a major supplier of Products in the semiconductor industry;
(B)       that Purchaser desires to establish reliable principles for forecasting, ordering and accepting Products; and
(C)       that the Parties desire to put the terms and conditions of their agreement in writing.

Presentation. Recitals in European style contracts are often enumerated by a capital (A), (B), (C) etc. or Roman numbering. Recitals should not be bullet points. U.S. style contracts will often start each recital by the word Whereas,… Furthermore, recitals are typically treated as an enumeration: each recital would end with a semicolon, whereas the first recital reads as a continuation of the lead-in (which could be the preamble header “whereas”. See also section 5.2(d) (enumerations).