Understanding the Parts of a Written Contract (Part I): What are Recitals?
As we have said on this blog many times, San Diego businesses “run on contracts.” That is, nearly everything that a business does is based on some form of contract. In this article, we begin a series of articles describing the “parts of a contract.” Let us assume, for example, that you hire an experienced San Diego corporate attorney to form a California professional corporation for you and your professional partners. As part of that process, you may want one or more agreements among owners to detail the understandings among you and your colleagues with respect to how the California professional corporation will be run, payment and bonus structures, buy-sell provisions, and more.
What are “Recitals?”
Almost always, recitals occur at the beginning of a written contract and can be considered like a preamble or an explanation. The recitals generally identify the parties to the contract in their specific and correct legal form. For example, corporations — like people — have a specific legal name. It is not “Clayton’s Coffee Shop,” but rather “Clayton’s Bakery & Bistro.” The official corporate name for a company can be found at the website for the California Secretary of State and in the corporate records. Often, the contract or agreement is given a date in the preamble.
After the parties are identified, the recital section explains the background of the agreement. In a manner of speaking, preambles/recitals “tell the story.” To do this, contracts will often use a series of paragraphs beginning with the word “whereas.” The “whereas” paragraphs will identify the topic or focus of the contract — such as a certain property — and will state the general purpose of the contract. With a professional corporation, for example, the “story” would begin with recitals similar to this:
“WHEREAS, Dr. Maria Martinez, MD, seeks to form a California medical corporation and operate her practice with other medical professionals; AND
“WHEREAS, Dr. Joseph Johnson, MD, also seeks to form a California medical corporation and operate his practice with other medical professionals; AND
“WHEREAS, the parties to this agreement seek to establish their practice at offices located at 1234 Ocean Street;
“NOW THEREFORE, the parties agree as follows …”
Why are Recitals Important?
Legally speaking, recitals are not necessary for the contract to be binding. However, recitals are useful to give context to the agreement and to provide a convenient method of provided details used later in the contract. The context and these details are important if there is litigation and if, several years later, a contract dispute arises. Courts will want to know why the parties entered into the contract and what their expectations were. That is, what was the “bargain” and what were the “benefits” that were expected. Having that information in the “four corners” of the contract is useful. Further, the recitals are a record of that information made at the time the contract was signed. If a long time elapses, the recitals can also help identify witnesses and help refresh memories.
Call San Diego Corporate Law Today
For more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Contact Mr. Leonard by calling (858) 483-9200 or via email. Mr. Leonard focuses his practice on business law, transactional, and corporate matters, and he proudly provides legal services to business owners in San Diego and the surrounding communities. Like us on Facebook.