Are you struggling to get your head around contract terminology?
Contracts are full of legal jargon and complicated language that can make them difficult to understand.
But we’ve put together a glossary of key contract terms to help you out. In this article, we will help you to cut through the noise so you can figure out how to write a legally binding contract.
What is contract terminology?
Contract terminology is the specific vocabulary used to make sure contracts are legally binding.
Some contract words are Latin, while many terms are wordy, which can make them harder to follow.
But each of the contract language terms creates a commitment for everyone involved.
If these aren’t worded properly your contracts will be unclear and could even be voided.
Understanding legal contract terms
If you are not a legal professional, you may not have come across many legal contract terms, as they’re not really used anywhere else.
But this doesn’t mean you can’t learn to understand them.
Some of the easier contract terminology examples are self-explanatory, such as contract lifecycle, which is basically the ‘life’ of the contract or the time it is relevant.
Others, like pro-rata, Latin for “for the rate”, are better just to memorize.
Understanding contract law terms isn’t just about knowing the terminology; you need to know how contracts are usually signed and how to make them work for your needs.
For example, a signatory is everyone who has signed the contract.
But as well as handwritten signatures, eSignatures are also legally binding. This can be more convenient and mean that contracts get signed quicker.
Take a look at our glossary, and you’ll pick up some legal terms you need for your contracts.
Glossary of contract terms
Ab initio
Latin for “from the beginning”.
If you see void ab initio in a contract, this means the contract is void and can’t be amended.
Acceptance of goods/services
When a buyer accepts goods or services they have purchased, either with a signature or when they have been given a reasonable opportunity to inspect them.
Acceptance of offer
An offer is accepted on all terms set out in the contract. There can’t be any variations, or there is no contract.
Addendum
An addendum or addenda (plural) is any modification to a contract, including notes, additions, and deletions.
Alternative dispute resolution (ADR)
Alternative ways of resolving a dispute without going to court, e.g., negotiation, mediation, arbitration, and conciliation.
Amendments
If all involved agree, amendments can be made to contracts after they are signed. But they must be signed by all parties. Also called a variation.
Approval workflow
A process where a contract is sent to different people within a business for approval before it is sent off.
This makes sure that any mistakes are found before it is signed.
Arbitration
A type of alternative dispute resolution (ADR).
An independent tribunal of arbitrators is called to settle a dispute so it doesn’t have to go to court.
Assignment
In some cases, a contract’s liabilities, rights, or obligations can be transferred to a third party.
Authorized signatories
The individuals who are allowed to sign contracts on behalf of a company.
Automated template
A master contract template created for employees to use and edit as needed.
For example, this chores agreement template has space for the name of the parent and child. Days, chores, and other small details can be tweaked to fulfill the family’s needs.
Banker’s guarantee
A supplier’s banker acts as its guarantor, so if it doesn’t fulfill its side of the deal the bankers will cover any debts.
Bankruptcy
When individuals can’t pay back debts, they can declare themselves bankrupt.
Their assets are shared between whoever they owe money to. Then they start afresh, with some restrictions.
Bona fide
Latin for “in good faith”, it relates to the level of trust needed for a contract.
Breach of contract
If you fail to follow the conditions of a contract, it becomes void.
When a breach of contract occurs, damages must be pair to the aggrieved party by the party in breach of the contract.
Capitalized words
If a word or words are capitalized in a contract, they have a specific meaning.
This could be mentioned earlier in the contract, e.g., on April 3rd (‘Start Date’), or it could be written later in a ‘specific meaning’ clause.
Caveat emptor
Latin for “let the buyer beware”, it means that it is a buyer’s responsibility to check that the contract is for something they need.
Certificate of compliance
A certificate stating that the goods are to the buyer’s requirements.
Cloud contract management
All contract elements are stored together online instead of in separate places offline.
This makes accessing and updating them easier.
Commitment
When an offer is accepted, an agreement is formalized.
Condition
These form the basis of all contracts. If conditions aren’t followed, this will lead to a breach of contract.
Conditional logic
A feature of contract management tools that makes decisions using IF/THEN logic based on specific parameters.
It simplifies workflows by automating processes and actions based on user input.
For example, PandaDoc’s conditional fields feature helps your customers navigate documents and see only specific fields they need to fill out based on the rules you establish.
Additionally, our conditional smart content allows you to dynamically populate content library items based on variable values when a user generates a document from a template.
Confidential
Information that mustn’t be shared.
Consideration
The legal term for the payment made for goods or services.
Contract acceptance
The act of accepting and signing a contract, creating a legally binding agreement.
Contract lifecycle
Every stage involved in a contract from beginning to end.
This covers creation, approval, execution, performance, and renewal, plus any other stage in between.
Deploying effective contract lifecycle management is crucial in order to stay on top of all your documents.
Contracting party
Once an individual or business enters a legal contract, they become a contracting party.
Copyright
The rights that are automatically given to the creator of any piece of original work.
These can only be passed on through the transfer of copyright ownership.
Cost plus
A way of pricing a product that considers the cost of it as well as the profit.
Counterpart
A copy of the contract.
Counterparty
The other person or business involved with the contract.
Cure period
If someone breaches their contract, they may be given a certain period of time to put it right.
Damages
The compensation a person or business must pay if they breach a contract.
Deed
A legal document that transfers ownership of an asset to another person.
Default
Failure to follow through with the conditions set out in a contract.
Entire agreement clause
A clause that says that the contract is the full agreement, which prevents any further negotiations or discussions from being considered legally binding.
eSignature
An electronic signature is a digital impression used to sign contracts.
Excuse
If a contractual obligation is excused, the party who didn’t manage to fulfill the obligation will no longer be responsible for it.
Exclusion clause
A clause that removes someone’s liability if a specific thing does or doesn’t happen.
Exemption clause
These are split into exclusion and limitation clauses. An exemption clause attempts to restrict the liability of the individual or company who wrote the contract.
Ex-gratia claims
From the Latin “by favor”, this is a payment given voluntarily. For example, when a company pays compensation to an individual when they were not legally liable for damages.
Express terms
The terms that are written in a contract. They can also be terms agreed upon verbally before or while creating a contract.
Force majeure
This clause defines certain situations that may excuse someone from carrying out their contractual terms. These situations can include things like storms, floods, strikes, acts of war, or pandemics.
Frustration
A frustration of contract occurs if it is not possible to carry out the obligations through no fault of the signatories. In this situation, the contract is considered null and void.
Governing law
The laws of the country, state, or union that apply to the contract. This is especially important if a contract is signed by parties in different countries. (See jurisdiction clause).
Implied terms
The terms that have not been discussed, but are usually common sense, such as no physical or verbal abuse is allowed in the workplace.
Indemnity
Protection against losses that are the fault of the other party, e.g., a lost shipment causing loss of profits.
Injunction
A court order telling an individual or company to do or stop doing something that will break their contract.
Insolvency
A company is insolvent if it can’t pay its bills or its debts are greater than its assets.
Intellectual property rights (IPR)
The legal rights that tell you who owns intellectual, industrial, or artistic work. This includes patents, trademarks, designs, inventions, and copyrights. These rights can be protected with intellectual property contracts.
Inter alia
Latin for “among other things”, it is used in contracts when an extensive list isn’t needed.
Joint and several liability
Partners are responsible for their part in a contract both jointly and as individuals.
Jurisdiction
The area where the court proceedings are based if there is a dispute.
Liability
The legal responsibility to compensate an individual or company if you breach a contract.
License
This is given to someone to allow them to use your physical or Intellectual property, sometimes involving royalties or fees.
Limitation clause
A clause setting out a maximum amount that someone will have to pay for damages if they breach their contract. This gives them limited liability.
Liquidated damages
An estimation of loss that one party will incur due to breach of contract. This is usually a fixed sum agreed to in advance.
Liquidation
When a business is dissolved to pay its debts.
Litigation
Resolving a dispute in court.
Mala fide
Latin for “in bad faith”, it is the opposite of bona fide.
Material breach
A serious breach of contract meaning that the non-breaching party may be excused from their obligations as well as being able to claim damages.
Mediation
A form of ADR where an individual meets with parties to help them resolve conflict without going to court.
Misrepresentation
When facts presented during contract negotiations are found to be false. If this was done intentionally, it is seen as fraud or negligent representation.
Mutatis mutandis
Latin for “with things changed that should be changed” or “once the necessary changes have been made”. It is usually used for renewal contracts that are the same as the original with some changes added.
Novation
When the party transfers their rights to someone who was not originally involved in the contract.
Obligation
Something that must be done by parties to a contract.
Party (or parties)
An individual, group, organization, or business that will be signing the contract.
Preamble
A section at the start of a contract that says who will be signing it, and their reasons. Also called recitals or background.
Pro rata
Latin for “in proportion”. A pro rata salary is how much a part-time employee would get if they worked full-time.
Pro tempore (Pro-tem)
Latin for “for the time being”.
Quid pro quo
Latin for “something for something”, it basically means that each party to a contract should offer something
Remedies
The measures that the court takes to recover losses for the injured party when a contract has been breached.
Representations
Facts or promises put forward during negotiations to convince someone to enter into a contract.
Rights
Legal entitlements of parties of a contract – basically what they can and can’t do.
Rights of lien
The rights of a creditor to keep goods belonging to their debtor until the debts have been recovered.
Risk of loss
The party who has to pay if goods are lost, broken, or destroyed between the time of payment and delivery.
Romalpa clauses
A clause to ensure that buyers only have titles and ownership of goods once full payment has been made. Also known as retention of title clauses.
Severability
If some parts of a contract are found to be illegal, the rest of the contract still stands.
Signatory
Anyone who has signed the contract.
Term
The amount of time a contract is valid for. ‘A term’ can also be a clause in a contract.
Termination for cause
Conditions where a contract can be terminated, including breach of contract, confidentiality issues, or bankruptcy.
Termination for convenience
A contract can sometimes be terminated with no given reason. But this usually requires a period of notice, as well as a refund or early termination fee.
Territory
The location where a contract is valid.
Third-party
Someone who is not a party to the contract.
Time is of the essence
Parties state ‘time is of the essence’ in a contract if the times included are important, so action can be taken if deadlines are not met.
Void
A contract that is not enforceable by law.
Waiver
When someone surrenders their rights in a contract.
Warranties
A term of a contract that usually acts as a guarantee of quality.
Manage your contracts efficiently with PandaDoc
Now you have a better understanding of legal contract terminology you should be ready to start creating your contracts.
Our contract management software can help you to build and organize your contracts easily.
But if you are struggling you can always check back to our glossary of contract lingo for a little refresher.
Disclaimer
PandDoc is not a law firm, or a substitute for an attorney or law firm. This page is not intended to and does not provide legal advice. Should you have legal questions on the validity of e-signatures or digital signatures and the enforceability thereof, please consult with an attorney or law firm. Use of PandaDocs services are governed by our Terms of Use and Privacy Policy.
