Purpose: Overview, definition, and example
What is purpose in a contract?
The purpose of a contract refers to a statement or section that outlines the specific objectives or intent behind the agreement. It explains why the parties are entering into the contract and what they aim to achieve through the relationship. The purpose section is usually included in the recitals or preamble of the agreement and provides context for the contractual terms.
For example, the purpose of a distribution agreement might be to set out the terms under which one party distributes the products of another.
Why is purpose important?
The purpose of a contract is important because it provides a framework for interpreting the terms and clauses of the agreement. By clearly stating the intent, the parties ensure there is a shared understanding of the contract’s goals, which can help resolve ambiguities or disputes about specific provisions.
For SMBs, a well-defined purpose clause helps set expectations, align objectives, and ensure that the agreement addresses the intended business relationship.
Understanding purpose through an example
Imagine a franchise agreement between a franchisor and a franchisee. The purpose section might state:
- “The purpose of this Agreement is to grant the Franchisee the right to operate a franchise using the Franchisor’s brand, trademarks, and proprietary systems within the defined territory.”
This provides a clear understanding of the relationship and objectives of the agreement.
An example of a purpose clause
Here’s how a purpose clause might appear in a contract:
“The purpose of this Agreement is to define the terms and conditions under which the Supplier shall provide goods and services to the Buyer, ensuring timely delivery and adherence to agreed-upon quality standards.”
Conclusion
The purpose section of a contract defines its overarching objectives and provides context for the agreement. It helps align the expectations of the parties, supports interpretation of the terms, and reduces the risk of disputes.
For SMBs, including a clear purpose statement in contracts is essential for ensuring that the agreement reflects the intended business relationship and goals. It lays the groundwork for a well-structured and effective contract.
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.