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.
This blog is part one of two on recitals. I categorised part two under topic ‘do’s and don’ts’ (click here).
The preamble should be placed immediately after the party blocks and is usually headed Whereas or Preamble or simply Background. Many U.S.-contracts start with the archaism Witnesseth.
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 license, or clarify why a preceding agreement is amended and restated. Such background recital may well touch in broad terms upon the transaction purpose, 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 achieving milestones 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 into writing. Such lead-in serves a similar purpose as the words of agreement and is redundant.
The preamble of a contract normally consists of one up to four or five paragraphs outlining the entire transaction. In most type of relatively standard contracts, the list of recitals is limited to a few recitals. 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.