Posted by : Malthe Vinter 09.01.2025
Contract Lingo
Contracts are packed with legal jargon that can be confusing if you're not familiar with the terms. Below is a brief explanation of some commonly used contract terms, which contract types they're typically used in, and their meanings.
Index of Terms
- Parties
- Term
- Termination
- Confidentiality
- Indemnity
- Force Majeure
- Consideration
- Liability
- Breach/Default
- Ab Initio (Ab Init)
- Alternative Dispute Resolution (ADR)
- Bona Fide
- Deliverables
- Key Performance Indicator (KPI)
- Cure Period
- Jurisdiction/Arbitration
- Intellectual Property (IP) Rights
- Entire Agreement Clause
- Waiver
- Assignment
- Amendment/Modification
- Severability
- Scope of Work (SOW)
- Warranties/Representations
- Non-Compete Clause
- Covenant
- Escrow
- Liquidated Damages
- Notice Period
- Non-Solicitation Clause
- Mitigation of Damages
- Time is of the Essence
- No Oral Modification Clause
- No Challenge Clause
- Change of Control
- Tangible Assets
- Intangible Assets
- Liquidation
- Good Faith
Parties
Used in: All contract types
Meaning: Refers to the individuals or entities entering into the contract.
Term
Used in: All contract types
Meaning: The duration the contract is in effect, whether fixed or ongoing until terminated.
Termination
Used in: All contract types
Meaning: Outlines how and when the contract can be ended, either for cause or convenience.
Confidentiality
Used in: Non-Disclosure Agreements, Consulting Agreements, Service Agreements, Franchise Agreements
Meaning: A provision ensuring one party keeps certain information secret.
Indemnity
Used in: Service Agreements, Lease Agreements, Consulting Agreements, Franchise Agreements
Meaning: One party agrees to compensate the other for losses, damages, or legal costs arising from the contract.
Force Majeure
Used in: Lease Agreements, Sales Contracts, Service Agreements, Franchise Agreements
Meaning: Covers unforeseen events (e.g., natural disasters) that prevent fulfilling contract obligations.
Consideration
Used in: All contract types
Meaning: The value exchanged in the contract, such as money, goods, services, or promises.
Liability
Used in: Sales Contracts, Service Agreements, Lease Agreements, Franchise Agreements
Meaning: Refers to the legal responsibility for damages, losses, or injuries caused by a breach or actions.
Breach/Default
Used in: All contract types
Meaning: Failure to fulfill contractual obligations, either actively (breach) or passively (default), potentially leading to legal consequences.
Ab Initio (Ab Init)
Used in: All contract types
Meaning: Latin for 'from the beginning,' indicating that something is invalid from the start.
Alternative Dispute Resolution (ADR)
Used in: All contract types
Meaning: Non-litigation methods such as mediation or arbitration used to resolve disputes.
Bona Fide
Used in: All contract types
Meaning: In good faith; genuine and sincere actions or statements.
Deliverables
Used in: Service Agreements, Consulting Agreements, Sales Contracts
Meaning: The specific products, services, or outcomes to be provided under the contract.
Key Performance Indicator (KPI)
Used in: Service Agreements, Consulting Agreements, Franchise Agreements
Meaning: Measurable values used to assess whether contractual goals or milestones are met.
Cure Period
Used in: Sales Contracts, Service Agreements, Lease Agreements, Franchise Agreements
Meaning: A period allowed for a party to correct a breach before further action, including termination, is taken.
Jurisdiction/Arbitration
Used in: All contract types
Meaning: Jurisdiction refers to the location or legal authority to resolve disputes. Arbitration is a form of dispute resolution by a neutral third party instead of a court.
Intellectual Property (IP) Rights
Used in: Consulting Agreements, Service Agreements, Franchise Agreements, Investment Agreements
Meaning: Refers to ownership and rights to intellectual creations like patents, trademarks, copyrights, and trade secrets.
Entire Agreement Clause
Used in: All contract types
Meaning: A clause stating that the written contract represents the full understanding between the parties, overriding previous agreements or negotiations.
Waiver
Used in: All contract types
Meaning: When a party voluntarily gives up a right or privilege under the contract.
Assignment
Used in: Service Agreements, Lease Agreements, Franchise Agreements, Investment Agreements
Meaning: The transfer of rights and obligations from one party to another, sometimes requiring consent.
Amendment/Modification
Used in: All contract types
Meaning: Changes or additions to the original contract, requiring mutual consent to be valid.
Severability
Used in: All contract types
Meaning: A clause allowing parts of the contract to remain valid even if one part is found to be unenforceable.
Scope of Work (SOW)
Used in: Service Agreements, Consulting Agreements
Meaning: A detailed description of work to be done, including deliverables, timelines, and responsibilities.
Warranties/Representations
Used in: Sales Contracts, Service Agreements, Lease Agreements, Franchise Agreements
Meaning: Warranties are promises regarding quality or performance. Representations are statements made by one party about facts critical to the contract's formation.
Non-Compete Clause
Used in: Consulting Agreements, Employment Contracts, Franchise Agreements
Meaning: Restricts one party from engaging in business that competes with the other party after the contract ends.
Covenant
Used in: All contract types
Meaning: A promise or agreement made in the contract, usually requiring a party to act or refrain from acting in a specific way.
Escrow
Used in: Purchase Orders, Investment Agreements, Sales Contracts
Meaning: A third party holds funds or property until certain conditions in the contract are met.
Liquidated Damages
Used in: Service Agreements, Sales Contracts, Lease Agreements
Meaning: Pre-determined amounts specified in the contract to be paid if there is a breach.
Notice Period
Used in: Employment Contracts, Service Agreements, Lease Agreements
Meaning: The time one party must provide notice before terminating or changing the contract.
Non-Solicitation Clause
Used in: Employment Contracts, Franchise Agreements, Consulting Agreements
Meaning: Prevents a party from soliciting the other party's employees or clients during or after the contract term.
Mitigation of Damages
Used in: Sales Contracts, Service Agreements, Lease Agreements
Meaning: The obligation of the non-breaching party to reduce or minimize the damages caused by the breach.
Time is of the Essence
Used in: Sales Contracts, Lease Agreements
Meaning: Stresses the importance of deadlines and implies that delays could result in breach or termination.
No Oral Modification Clause
Used in: All contract types
Meaning: Requires any changes to the contract to be made in writing and signed by both parties.
No Challenge Clause
Used in: All contract types
Meaning: A clause where one party agrees not to challenge the validity or enforceability of the contract.
Change of Control
Used in: M&A Agreements, Franchise Agreements
Meaning: A provision that outlines the consequences if one party’s control of the company or business is transferred.
Tangible Assets
Used in: Sales Contracts, Lease Agreements, M&A Agreements
Meaning: Physical assets that can be touched or measured, such as equipment or property.
Intangible Assets
Used in: M&A Agreements, Licensing Agreements
Meaning: Non-physical assets, such as intellectual property, trademarks, or goodwill.
Liquidation
Used in: M&A Agreements, Loan Agreements
Meaning: The process of winding up a company's affairs, usually involving the sale of assets to pay creditors.
Good Faith
Used in: All contract types
Meaning: The obligation to act honestly and fairly with respect to the contract.
Counterpart
Used in: All contract types
Meaning: A copy of a contract signed separately by each party, making the contract effective once all counterparts are signed.
Execution
Used in: All contract types
Meaning: The act of signing a contract, making it legally binding.
Conclusion
By understanding these key contract terms, you can better navigate the complexities of legal agreements. While each term has a specific use case depending on the type of contract, many share similar principles. Being aware of these concepts helps ensure that you're prepared for any situation that might arise during the execution of a contract.
