Contracts are a form of risk management. They define the terms and conditions under which goods, services, or other considerations of value are exchanged among parties involved in a transaction.
The Purpose of Contracts
- Contracts state the obligations of the parties involved in the transaction, and the course of action should any of the parties fail to meet the stated and agreed upon obligations.
- Contracts allocate the risk among the parties involved in a transaction based on which party is in the best position to manage the risk.