A recent case in the office brought up an interesting question about the effect of information appearing in the recitals at the beginning of a contract but nowhere else in the contract. Opposing counsel based its case on the argument that because one of the “whereas” clauses of a loan agreement said that the borrower contemplated using the proceeds of the loan for a particular purpose, the alleged failure to use the proceeds for thatpurpose constituted a breach of the agreement - even though the paragraphs of the agreement defining “events of default” made no mention of how the loan proceeds were to be used.

    Research on this point revealed that a term appearing in a recital but nowhere else is not part of the contract. Burr v. American Spiral Spring Butt Co., 36 Sickels 175, 81 N.Y. 175(1880)(affirming order granting judgment for plaintiff publisher in anaction to recover from defendants for price of advertisement inplaintiff’s book: plaintiff’s failure to prove that it conducted sales in the manner described in a recital clause, but not appearing anywhere else in the contract, did not preclude recovery by plaintiff); see also  Jones Apparel Group, Inc. v. Polo Ralph Lauren Corp., 16 A.D.3d 279, 791 N.Y.S.2d 409 (1st Dept 2005)(recitals in contract are not part of operative agreement); Trump Village Section 3, Inc. v. New York State Housing Finance Agency, 292 A.D.2d 156, 739 N.Y.S.2d 37 (1st Dept 2002)(recital clause of contract did not impose contractual obligations beyond those specifically set forth in the contract); Ross v. Ross, 233 A.D. 626, 635, 253 N.Y.S. 871, 882 (1st Dept 1931)(“recitals in a contract form no part thereof, and at most indicate but the purposes and motives of the parties”).
                          

News

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Intellectual Property

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Litigation

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Technology

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Insurance

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Employment Practices

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International

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Civil Rights

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Supreme Court

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Pharmaceuticals

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Business

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Corporate Finance

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