WHEREAS part one of my two blogs on recitals (also called preamble, background or considerations) addressed the contents of this part of a contract, this blog addresses the drafting techniques (do’s and don’ts) relating to this subject.
(For part one, click here.)
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 failing which the validity or enforceability of the contract would be affected directly. Other particularities explaining the big 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 use popular or loose language to describe a subject matter that is otherwise well-defined in a definition; this creates an undesired ambiguity.
A drafter should refrain from filling the recitals with various other definitions (e.g., the Shares, the Company or the Product) or with many references “(as defined in Article 1)” immediately following a defined term. Instead, it is appropriate to have the first defined term followed by “(capitalized terms are defined in Article 1)“.
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 continuing the Whereas by which the entire preamble initiated. 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. Especially in view of contract assembly software, such as Weagree’s Wizard, where paragraphs are automatically inserted or left out, the full stop is preferable.
Recitals in European stylish contracts are often enumerated by a capital (A), (B), (C) etc. or Roman numbering. Recitals should not be bulletpoints. US style contracts will often start each recital by the word Whereas,….