Operation of agreement: Overview, definition, and example
What is operation of agreement?
The operation of an agreement refers to how a contract functions, including its enforcement, interpretation, and implementation. This concept outlines how the contract governs the parties’ rights and obligations, how terms are applied in practice, and any conditions that might affect its validity or execution.
For example, a contract might specify that certain clauses only take effect after a specific event, such as regulatory approval or funding being secured. This ensures that the agreement operates as intended under defined conditions.
Why is operation of agreement important?
The operation of an agreement is essential because it sets clear expectations for how the contract will be carried out and enforced. Without this clarity, disputes may arise over how contractual obligations should be performed or interpreted.
Businesses rely on these provisions to ensure smooth execution of agreements, covering aspects such as contract duration, triggering events, and contingencies that affect performance.
Understanding operation of agreement through an example
Imagine a software company enters into a licensing agreement with a distributor. The agreement states that the license is valid only upon payment of the first installment. This means the contract is signed but does not take effect until the specified condition—payment—is met.
In another scenario, a merger agreement might include a provision that the contract only becomes effective once regulatory approval is obtained. If approval is denied, the contract will not operate, preventing unintended legal or financial consequences.
An example of an operation of agreement clause
Here’s how a clause like this might appear in a contract:
“This Agreement shall take effect on the Effective Date and shall continue until terminated in accordance with its terms. The obligations and rights of the Parties shall be governed by the provisions herein, and any conditions precedent to the operation of this Agreement must be satisfied before enforcement.”
Conclusion
The operation of an agreement defines how a contract functions, ensuring clarity in its enforcement and execution. It helps businesses manage expectations, establish conditions for performance, and prevent disputes over how terms should be applied. Including clear provisions on the operation of an agreement ensures that all parties understand their rights and obligations from the outset.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.