What is the Preamble in a Contract?
The term preamble refers to language at the beginning of a contract that provides context or background information about the document. It is not always called a preamble, but within the industry, many individuals and entities refer to these sections as a preamble, which is consistent with how they are commonly defined.
Preambles usually contain introductory or context-setting information about the parties, the subject matter of the contract, and/or the purpose of the contract . The language in a preamble, whether standard or bespoke, will be persuasive before a court or arbitrator, so it is important to understand its contents when negotiating a contract. Although courts generally construe all clear and unambiguous provisions in contracts against the drafter of the contract, this principle does not apply to all contract terms in every jurisdiction. In some jurisdictions, a preamble will be construed against the drafter even though it is not a provision in the contract and may only provide context for the agreement.
Contract Preamble Features
The typical elements that are included in the preamble of a contract include:
Parties to the contract. The preamble usually identifies the parties to the contract. The preamble may include a statement of capacity of the parties, including whether they are individuals, corporations, governments, etc.
Intentions of any signatories to the contract. Statements of intention commonly follow the identification of the parties. These statements indicate the purpose or reasons for entering into the contract.
Context of the agreement. A statement of context commonly follows the statement of intention. The statement of context gives the background of the contracting parties and reasons why they are entering into the agreement.
Supplementary clauses in the preamble clause. Some other statements may subsequently follow such as:
The preamble, typically located at the beginning of a contract, summarizes information regarding the parties and their intentions while giving context to the agreement.
The Reason for Including a Preamble
The use of a preamble in a contract is not mandatory, but the inclusion of a preamble can be helpful to both parties in the contract because it essentially lays out the road map for interpreting the contract. The preamble section is helpful in ascertaining the intent of the parties and/or the purpose of the contract. This is particularly important in instances where meaning of a provision contained in the contract is disputed by one or both of the parties. It also comes into play where the scope of a contract is being evaluated and the parameters of the contract are in dispute. In either situation, the preamble would be a factor in determining how the rest of the contract should be interpreted and applied.
Legal Repercussions of a Preamble
A preamble is crucial for interpreting a contract, especially when the terms and the operative provisions in a contract do not completely complement each other. Failing to draft a proper preamble can lead to disputes while interpreting a contract. A typical situation would be one where the consideration agreed upon in a contract does not match with the tenure of the contract. In such a case, the preamble can resolve the issue. The use of preamble has been suggested by the Supreme Court in several cases, indicating how preamble is used to set out the clear intention of the parties without ambiguity. In the Supreme Court decision of State of U.P. v. Renusagar Power Co Ltd (AIR 1994 SC 1644), the Hon’ble Court observed: "….a good preamble throws a flood of light on the intention of the parties and therefore no better elucidation can be offered than the one which is occasionally found in the very beginning of the deed itself." The court went on to state the importance of a preamble by stating: "Thoroughly good preambles are rare and therefore exceptional illustrations can be counted on fingers. Too many prefaces damage the substance of the text." Therefore, the preamble creates the key factor in resolving situations where there is ambiguity or discrepancy between the terms and the provisions in a contract. As was held by the Supreme Court in ABC Laminart Pvt. Ltd. v AP Agencies (1975) 3 SCC 707, par.19 – a case authored by the current Chief Justice, Dipak Misra and a judge, Uday Umesh Lalit: "Ordinarily, the preamble is the key to understand the intention of the draftsman of the document which has to be taken into consideration while interpreting the document." In the case of Gherulal Parakh v. Kalidas Mundhra AIR 1967 SC 456, the court was concerned with scheduling goods in accordance with the Indian Sale of Goods Act and the Indian Tariff Act . In this case, the Supreme Court observed: "in a situation when the context is in dispute ie. the basic law relevant to the contract, the situation and the circumstances under which the transaction has come about, there may be a need for a phrase of introduction." In Board of Control for Cricket in India v. Lalit Kumar Modi 2015 (3) Arb.LR 157 (SC), the Supreme Court held that the preamble of the particular agreement in question was used as an ambiguous ‘key’ to let the words work in tandem with the rest of the contract’s clauses with equal force. These statements were given over and beyond the normally understood use of the term ‘preamble’ – introducing the agreement. The Supreme Court in the case of Satyavir Singh v Union of India AIR 1980 SC 1162, provides us the background in which the utility of a preamble is coined when it notes: "Now, the position in law is well settled that a preamble may be referred to for the purpose of finding out the intention of the Legislature in enacting an instrument or of the parties executing an instrument, by using it as a guide. The preamble gives the background to the Act. If any Section is to be construed, the preamble of that Act may be referred to as an instrument and as a tool for construction of the Act. …The preamble may be called a tool for construction of the statute when we have to find out the effect and the force of the instrument. …In the field of private agreements, the preamble may be used to gather the intention of the parties." Resultantly, the use and relevance of a preamble for the interpretation of a contract or agreement cannot be overlooked. The preamble opens up an agreement to more than one interpretation and interpretation can be reversed if a good preamble is omitted from the agreement.
Preamble Drafting Tips
A preamble is a short introductory text that states why you are entering into a contract. In many cases where the purpose of a contract is clear, the preamble can be omitted entirely. On the other hand, if a contract is complex or unusual, a preamble can be very useful. So best practices when drafting the preamble are to decide whether it is needed, and if it is, to keep it short and relevant. Try to avoid unnecessary legalese.
The preamble should not be a complete description of the agreement, but rather a very high-level overview. Avoid adding specific details that are covered in other sections of the contract. Some lawyers like to include definitions in the preamble, but there’s no generally accepted reason for doing this.
It’s sometimes useful to include the date of signature and the names of the parties, but this is usually not required. You can also explain why the contract is not dated. If you are writing an amendment or update to a contract that was drafted by someone else, you might want to briefly describe the original contract.
Sometimes an entire section in a previous version of a contract will suddenly vanish, or an objection that the parties have discussed and seemingly resolved will crop up again. A clarifying statement in the preamble can be effective in preventing this from happening.
Preamble Samples
Effective preambles are carefully drafted to support the contract that follows. Here are some examples, for different kinds of contracts.
Agreement To Relocate Facilities
Almost all contracts for the sale and lease of real estate contain some type of preamble. Not only is a preamble used to refer to other documents that are incorporated in the contract, it can also be used to set some context for the transaction. In the following example, "the Project" referred to in the preamble was incorporated in full into the contract. The preamble was a helpful introduction to what the document was intended to do.
THIS RELOCATION/LEASE AGREEMENT (this "Agreement") is made and dated November 20, 2018, by and between Stanford Health Care ("Landlord"), a California non-profit public benefit corporation, and Stanford Health Care Mountain View, a California Corporation ("Tenant"), as an affiliate of Landlord and as successor in interest by operation of law to Tri-County Health Care District, a California public hospital district, for and in consideration of the mutual covenants and agreements herein recited, and the full and complete performance hereunder of each party (Landlord and Tenant, from time to time, as the context may require, being singular or plural, and being referred to individually as a "party" and collectively as the "parties").
Description Of Services
Many preambles to IT services agreements start with the following type of language:
In consideration of the mutual covenant and agreement set forth herein, the parties hereto agree as follows:
Except as modified herein, this Master Services Agreement (this "Agreement") is made and dated as of June 1, 2023 (the "Effective Date"), by and between xxxxxxx, a corporation organized and existing under the laws of the State of California with a principal place of business at xxxxxxx ("Master Service Provider"), and xxxxxxxx , a corporation organized and existing under the laws of the State of California having a principal place of business at xxxxxxxx ("Customer"). Master Service Provider and Customer may be collectively referred to as "Parties" or individually as "Party."
Ground Lease
The following preamble is similar to the relocation agreement above in that it includes a reference to another document that was incorporated in full into the agreement. A preamble in a ground lease may also refer to a "ground lessee" that will be the owner of the improvements on the property after construction is complete.
THIS GROUND LEASE ("Lease") is made and dated of , 20__, between LANDLORD: REIT, a _______ corporation, who is severally known as LANDLORD, with a principal office address at , and TENANT: PARKING INC., a ________ corporation, who is severally known as TENANT, with a principal office address at _________ (Landlord and Tenant may each be referred to as a "Party" and collectively as "Parties").
Loan Agreement
The preamble below is longer than the examples that came before it, but it encompasses fewer clauses so that the remaining provisions could have space for longer, more detailed sentences. In this example, the parties’ names were shortened or replaced with "Lender" and "Borrower" to keep the focus on the overall structure of the agreement.
AGREEMENT made this __ day of ___, 20__, by and between _______________________________, whose place of business is located at ________________________ ("Lender"), and _______________________, whose place of business is located at __________________________ ("Borrower").
ln consideration of the mutual covenants and agreements contained in this Agreement, the parties agree as follows:
SECTION 1 CITATIONS
A card, "card", or number, "number", assigned to the cardholder by the issuer, "issuer", and it must be a national credit card, shall be valid as provided in this Section 1. Any card issued prior to the effective date hereof is hereby revoked, and the cardholder shall not attempt to use any such card at any merchants in which the issuer is participating. The cardholder’s name must be embossed on the card. No card issued after the effective date shall by used under the terms of this Section 1 to purchase goods or services which are not of a nature and grade satisfactory to the lender.