Definition of a Preparatory Contract

A preparatory contract is one that is not an end in itself but serves as a means for the execution of another principal contract.

Characteristic Related to Purpose

The characteristic of a preparatory contract is that its purpose is to enable the parties to enter into another future contract. For example, a contract of option is a preparatory contract. An agency is also considered a preparatory contract because the purpose is to enter into other contracts through the agent.

Example

• A contract of option is defined as a preparatory contract where one party grants the other the power to decide, within a fixed period and under specified conditions, whether or not to enter into a principal contract.
• Agency is a preparatory contract because its purpose is to enter into other contracts.