Contract terminology explained

Juro knowledge team, 22 January 2021

Do you find that your contract process and your contract terms are full of legal jargon? This ever-expanding list demystifies contract terminology for you.

How to understand legal jargon

The private practice and in-house legal worlds are full of legal jargon. The tech industry is full of jargon. Contracts are full of jargon. Combined, it's a wonder anyone can understand anything. At Juro we're on a mission to help the world agree more, and that means making it easier for people to understand the core legal concepts and terms that create confusion and irritation when parties want to collaborate. Here's our guide to the meaning behind some of the most common contract terminology. 

Ab initio

A Latin term which means “from the beginning”. You might see a contract referred to as “void ab initio”. This means it was invalid from the start, for example if the person who signed it didn’t have the legal right to do so. A contract that’s declared void ab initio can’t be amended to correct whatever’s wrong with it – it’s treated as if it never existed at all.

Addenda/addendum

An addendum adds new terms to an existing contract, while still keeping all the original terms in place.

Agreement

Any type of understanding or arrangement reached between two or more parties, whether in writing or not. An agreement isn’t legally binding though – a contract is a type of agreement that is legally binding and is enforceable in court. Find out more about agreement vs contract.

Alternative dispute resolution (ADR)

A way to resolve a dispute without going to court e.g. by mediation or arbitration. Some contracts contain a clause saying that if there’s a problem, then the parties should follow specific ADR processes to fix it. 

Amendments

Changes to a contract that are made after it’s signed. These are almost always done in writing, and must be agreed and signed by all parties.

Appendix/appendices

Appendices usually appear at the end of a contract. They don’t change or affect the contract’s terms in any way – they just add extra information about it that you need to know (e.g. share options or employee benefits).

Approval workflow

An approval workflow is a process that allows legal teams to let business users work on their own contracts, usually from a template, but with safeguards in place so that before the contract goes to the counterparty, it must be reviewed by legal.

Arbitration

A form of alternative dispute resolution (ADR) to resolve contract disputes without going to court, using an independent tribunal. Some contracts include arbitration clauses which say who an arbitrator will be in advance.

Assignment

Also called “novation”, this is when a party to a contract transfers their rights, obligations, or liabilities to someone else who wasn’t involved in the original contract.

Authorised signatory

The authorised signatory is the individual or individuals empowered to sign legally binding contracts on the company's behalf. In early-stage businesses this is usually the CEO, but as time goes on it will likely be a broader group including key decision-makers in finance, operations and so on.

Automated template

An automated template is a master version of the contract, created by the legal team, from which colleagues can ‘self-serve’ contracts on a case-by-case basis, just changing a few key fields each time.

For example, in an NDA template, the majority of the legal obligations for both sides will usually stay the same. But key details like the name of the counterparty, the length of the NDA, its effective date, and so on, will need to vary each time. 

The legal team owns and controls the template, so they can make sure its terms always reflect their latest thinking and the commercial position the business wants to take. But day-to-day, business colleagues can get the contract drafts they need, without needing their in-house counsel to work on each individual contract.

Bona fide

A Latin term meaning “in good faith”. The law requires that all parties to a contract act in a bona fide way, i.e. without deception.

Breach of contract

When one party fails to comply with the terms or conditions of a contract they’ve signed they’ve breached it. This makes a contract void – and they might have to pay damages to the other people who signed it. 

Capitalized words

Sometimes you’ll see words or groups of words with capital letters in a contract like “Service Provider” or “Effective Date”. This is because those words have a specific meaning within that contract. You might see the definition after the word or words first appear in the contract – e.g. “This contract is entered into on 12 April 2021 (the ‘Effective Date’)”. Or they might be in a separate definitions clause.

Caveat emptor

A latin term which means “let the buyer beware”. It means that it’s the buyer’s responsibility to make sure that the contract they’re signing is what they need. Consumer protection laws means this doesn’t really apply nowadays. 

Conditional logic

A contract often has 'fallback positions'. These are terms in the contract that the owner is willing to accept, if the other party pushes back hard in negotiations. In a contract automation platform like Juro, users can 'bake' these fallback positions into the template itself, to be included based on a particular trigger being hit. For example, if the dollar value of the contract is above a certain amount, the user might want to bring in a different version of the indemnities clause. Automating this process using conditional logic means more users in the business are empowered to carry out contract negotiations.

Conditions

The major terms that form the basis of all contracts. If you don’t comply with these then you’ve breached your contract. 

Consideration

A legal term used to describe payments made for goods or services provided by a supplier. A consideration doesn’t actually have to be money though – it can be anything of value that you receive as part of a contract, e.g. equipment or work. Consideration is one of the fundamental elements of a contract without which the document isn't legally binding.

Contract automation

Contract automation is the use of software to enable both legal and non-legal teams to self-serve on routine legal documents, at scale, from within the browser, without needing to involve lawyers every time. 

Contract lifecycle

The contract lifecycle is the entire period for which a contract is relevant. For example, if a subscription agreement runs for two years, then when this date arrives and the contract is no longer in force, it has reached the end of its lifecycle. Some contract management systems use alerts and updates to help users manage obligations and renewals.

Contract management

Contract management software is used to manage the creation, negotiation, signature, renewal and data analysis of legal contracts. It enables business teams to self-serve, agree and manage routine contracts at scale from one unified workspace. Contract management typically refers more to the parts of the process that happen post-signature.

Contract repository

A contract repository or contract database is the term for the post-signature storage area that houses all contracts across the business. It should be structured and searchable, as this will help legal teams to organise contracts as efficiently as possible.

Contract specialist

A contract specialist, also sometimes referred to as a contract manager, is responsible for drafting, reviewing, negotiating and managing contracts to drive business growth and mitigate risk. 

Contract workflow

A contract workflow usually refers to the process in place to get a contract from inception to agreement. Legal teams in high-growth businesses will face an increasing volume of contracts month on month, so typically look to automate this workflow to make sure it scales.

Counterpart

A copy of a contract, usually created so everyone involved can have their own. 

Counterparty

The other party to a contract. If you're buying, and signing a sales contract, the counterparty is the seller.

Cure period

If someone breaches their contract, they might have some time to put things right. This is called a “cure period”. 

Damages

Money paid to someone who’s a victim of a breach of contract to compensate them for their losses. 

Deed

A special type of contract that doesn’t include a consideration (i.e. payment) going from one party to another.

Default

If you’re in default then you’ve failed to do what you said you would in a contract. 

Deliverables

The name given to the things one party to a contract has agreed to supply to another.

Digital contracting

Digital contracting is a process that turns the entire contracting lifecycle - not just signature, or storage, but every stage of the journey - into a data-first, collaborative, browser-based workflow. This enables everyone in the business to work with contracts seamlessly - whatever their role.

eSignature

Electronic signature is the use of a digital impression, markup or element to signify that the signor agrees to the terms in the contract they’re signing. It can be contrasted with what was historically called ‘wet signature’, where parties to a contract had to physically make a mark on a paper contract with a pen.

Some level of electronic signature has been adopted in most of the world (read more about where eSignature is accepted). eSignature can be used to sign documents in various formats: most commonly PDFs, but also Word documents, spreadsheets, and of course various native browser-based contract platforms, like Juro.

Entire agreement

A clause in a contract that says that any other agreements or arrangements made before no longer apply. It’s also called a “whole agreement”.

Excuse

Sometimes a contract’s condition can be excused, which means that if someone doesn’t fulfil their contractual obligation, they aren’t in breach of contract. 

Exclusion clause

These are clauses in a contract that remove a party’s liability if a particular thing does or doesn’t happen. Exclusion clauses can be hard to enforce in court unless they’re very clearly worded. They’re a type of exemption clause.

Exemption clause

Clauses that try to restrict the liability of the party writing the contract for something. These are split into exclusion clauses and limitation clauses.

Express terms

The terms written in a contract or agreed verbally before or at the time you’re making your contract (see also implied terms).

Force majeure

A situation described in a contract that might stop someone from carrying out their contractual duties. If the situation described happens, then that party is excused. 

Frustration

When a contract becomes void because it’s impossible to carry out the terms, through no fault of anyone who signed it.

Governing law

The laws of the country (or state) that apply to a contract. This is the law a court will use if there are any disputes about the contract. This could be important if any of the people signing a contract are based in different countries. 

Implied terms

Terms that are implied in a contract by law, custom and practice without actually being mentioned in writing or verbally (e.g. that you won’t steal from your employer is an implied term of an employment contract). They can often be overridden by express terms, although some implied terms in law can’t be overridden at all. 

Indemnity

A promise by one party to a contract to compensate another for a loss under particular circumstances. For example, if a shipment of goods is lost at sea, a supplier might agree to pay an indemnity to the buyer for this. 

Injunction

A court order that one party to a contract can get to make another party do (or stop doing) a particular thing that breaks their contract.

Insolvency

When someone can’t pay their debts they’re insolvent.

Integration

Integration is a feature of contract management software whereby other common software packages work in conjunction with the contract platform. For example, a Salesforce user can use an integration to create a contract directly in Salesforce, without having to move to another system. This might be through an out-of-the-box integration, or by using the API.

Intellectual property rights (IPR)

Legal rights which say who owns intellectual, industrial, or artistic work – so that’s things like designs, copyright, and patents.

Inter alia

A latin term which translates as “among other things”. It basically means “including, but not limited to”, and is often used in contracts to show that an example given is just one of a few e.g. “The buyer shall abide by relevant laws and regulations including, inter alia, data protection laws and intellectual property laws”.

Joint and several liability

In a contract where separate parties are working together as partners, they’re responsible for carrying out their contractual obligations both jointly and individually. 

Jurisdiction

If there’s a dispute about a contract, the “jurisdiction” is the place where someone must bring court proceedings.

Legal design

Legal design is the application of design thinking to legal processes and documents. It means starting with the end-user - frequently, not a lawyer - and working backwards from their needs, rather than imposing arbitrary elements onto them.

As the original legal design guru, Margaret Hagan, puts it: 

Business users want usable contracts that achieve the maximum operational efficiency, with reasonable risk allocation, at an acceptable cost. They need to know what the contract requires them to do, where, and when. Your lawyers’ eyes might see a contract as legally perfect, built on such nuanced and sophisticated language as to be a work of art; but if the business users are bamboozled by dense jargon and complexity, the contract is failing in its primary duty.

Read more about legal design, and design patterns for contracts.

Liability

If someone breaches a contract, their liability is their legal obligation to compensate another party for any harm this causes them.

Limitation clause

A type of exemption clause that sets a maximum amount of damages that someone will have to pay if they breach a part of their contract.

Limited liability

This is when someone’s financial liability for breaching a contract is limited to a fixed sum.

Liquidated damages

An amount of money agreed in a contract for damages that one party can get if the other breaches it. These often appear in building contracts to compensate someone if the builder doesn’t finish a job on time.

Litigation

The process of taking legal action to resolve a dispute.

Mala fide

A Latin term meaning “in bad faith”. It’s the opposite of bona fide.

Mass actions

For the authorized signatory on a high-volume contract, like an NDA or MSA (master services agreement), manually signing 50 contracts is a waste of their time. Mass actions allow the signatory to do things like sign or approve multiple contracts with a single click, saving time and removing bottlenecks.

Material breach

A serious violation of the terms of a contract. It usually only harms one of the parties to the contract (although it can be both if it makes fulfilling the terms of the contract almost impossible). A material breach might mean the non-breaching party is excused from their contractual duties and can try to claim damages.

Mediation

A form of alternative dispute resolution (ADR) to resolve contract disputes without going to court. An  independent person meets with the parties to a contract to help them come up with a solution to a conflict.

Misrepresentation

If the statements of fact (called representations) you make during contractual negotiations are shown to be false after you sign a contract, you could be accused of misrepresentation. If you knew or should have known that these were fake, it’s called fraudulent or negligent representation; if you didn’t, then it’s innocent misrepresentation.

Mutatis mutandis

A Latin term meaning “by changing those things which need to be changed”. It’s used in contracts to let people know that a new clause has the same meaning as a clause in a previous contract with some stated changes. For example, if you’re signing a renewal contract for a service, it might use mutatis mutandis to say that everything in the original contract still applies, but with some changes e.g. the date of the new contract. Using mutatis mutandis saves you having to include all the terms of a previous contract in a new one.

Negotiation

Negotiation is the process of the parties to the contract discussing - perhaps arguing about - the final terms of the contract to which they're prepared to be bound. Contract negotiation used to be done via a mixture of phone calls, tracked changes and emails - nowadays modern tools allow you to negotiate contracts in-browser.

Novation

This is when a party to a contract transfers their rights, obligations, or liabilities to someone else who wasn’t involved in the original contract. It’s also called “assignment”.

Obligation

Something which the parties to a contract must or (mustn’t) do.

Party (or parties)

Any person, group, or organization that’s signed, or is going to sign, a contract. 

Period

The length of time a contract will be in force (also called the “term”).

Preamble

A section at the start of a contract before the main text saying who the people signing it are, and their reasons for doing that. Also sometimes called “recitals” or “background”.

Principle

Another name for the main parties to a contract.

Pro rata

A Latin term meaning “in proportion”, this refers to giving an amount to a fraction according to its share of the whole. So a pro rata salary is the amount you’d pay a part-time employee if they worked full-time.

Pro tempore

A Latin term which translates as “for the time being”.

Quid pro quo

A Latin term which means “something for something”. It’s the basis for consideration in a contract, i.e. that each party should offer something to the other. 

Recitals

A section at the start of a contract before the main text saying who the people signing it are, and their reasons for doing that. It’s also sometimes called “preamble” or “background”.

Redlining

In the context of contracts, redlining means the process where parties to the contract make their suggested changes and revisions to the document, as part of the negotiation process before signature. It’s called redlining because changes used to be suggested using red ink, which would help people working on the contract to keep track of the new ‘redlines’ between each iteration of the document.

Once both parties are happy and all the ‘redlines’ are accepted or rejected, the contract can move forward to signature.

It’s important to note that in certain countries, ‘redlining’ has an entirely different meaning and historical context. Read more about redlining in the context of discriminatory practices here. But for our purposes, we’re talking about contracts.

Remedies

The things a court can use to help someone if a contract they’ve signed is breached by one of the other parties e.g. damages. 

Renewal reminders

Renewal reminders exist because signature doesn't represent the end of the contracting process, but rather the beginning. A multitude of obligations and milestones will follow for the people involved. This means a system needs to be in place to monitor contracts as they progress through their lifecycle, with alerts being delivered to key stakeholders to keep them updated. Users can create custom automated reminders to let them know ahead of key dates in the contract.

Representations

A statement of fact or promise made by one party to a contract to another during negotiations. It’s usually not a contractual term, but it might convince someone to enter into a contract e.g. “all our products are hand-made”. If someone relied on a representation when they signed a contract and it’s later proved false (“misrepresentation”), they might be entitled to cancel the contract and claim for damages. 

Rights

The things a party to a contract is entitled to do, or not do.

Risk of loss

This says who has to pay (i.e. who bears the risk) if goods are lost or destroyed after they’re sold but before they’ve been delivered. If the buyer bears the risk of loss, they’ll generally have to pay for the goods even if they never arrive. And if the seller bears it, they’ll have to resupply the goods that were lost or destroyed at their own cost. 

Severability

A provision in a contract which says that if some of the terms are held to be illegal or unenforceable, the rest of the contract still applies.

Term

This has two meanings:

  1. the length of time a contract is valid for, and
  2. a clause in a contract.

Termination for cause

This is when a party to a contract can terminate it if the other party doesn’t do what the contract says they will e.g. if they break a confidentiality agreement. It’s mainly used in employment contracts. The non-breaching party can either terminate the contract immediately or with some notice, or give the other party time to put things right.  

Termination for convenience

This is when a contract lets one or more parties terminate it without giving a reason. This might only be allowed at specific times e.g. a month before renewal, and might also include a notice period, or a fee of some kind. 

Territory

Any geographic area in which a contract’s valid.

Third party

Any person, group, organization, or other legal entity (e.g. a company) that’s mentioned in, but isn’t a party to, a contract.

Variation

An alternative term for an amendment

Void

When a contract’s made unenforceable in law it’s void. A void contract is treated as if it was never created, and isn’t enforceable in court.

Waiver

This is when someone intentionally gives up some or all of their rights in a contract. 

Warranties

These are promises made in a contract. They’re legally enforceable, so if someone breaks them they might have to pay damages.

Whole agreement

A clause in a contract that says any other previous agreements or arrangements no longer apply. It’s also called an “entire agreement”.

 

What other legal jargon and contract terms should we cover?

Let us know over on Twitter and we'll keep adding to this list. You might also enjoy this explainer on VC jargon

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