Understanding Contract Basics
Essential Contract Terms & Words Explained
Contracts are essential legal documents that establish the rights, obligations, and expectations of parties involved in a business or personal relationship. But contracts as you may already know can get very overwhelming and confusing very quickly. They usually include complex legal jargon and terminology.
You should always go to a professional lawyer for a contract or use one of our instant template contracts instead of writing them yourself. However it's still important for you to understand the terminology and words in a contract.
That's why we made this quick blog post explaining some of the basic terms and terminology that go into a contract and what exactly they mean, while some may seem straightforward when it comes to contracts they can oftentimes mean something completely different.
These are some words and phrases that you may come across and what they mean.
Parties:
This term refers to the individuals, groups, or entities involved in the contract. It is extremely important for a contract to thoroughly identify all parties accurately as well as outline their rights, obligations and responsibilities.
Consideration:
This term refers to something of value that each party provides as an exchange in the contract. It can be pretty much anything such as money, goods, services, or even a promise to do something or refrain from doing something. Consideration is essential for any sort of contract to be legally enforceable.
Terms and Conditions:
This section of a contract encompasses the specific requirements and obligations that all parties involved must follow and adhere to. This typically covers topics such as payment terms, delivery schedules, performance expectations, warranties, indemnification, limitation of liability and a lot more important items.
Force Majeure:
This term refers to unforeseen events or circumstances that are beyond the control of the parties and may prevent them from fulfilling their obligations. It is often referred to as an “act of god”. Force Majeure provides protection and relief for parties in case of events that are an “act of god” such as natural disasters, war, strikes, or government actions, aka anything out of their control.
Indemnification:
This is a provision that outlines the responsibility of one party to compensate another party for any losses or damages that comes as a result of an event or circumstance that is not force majeure. Indemnification is important because it protects parties from potential financial harm that comes as the result of the other party.
Confidentiality:
This protects sensitive information shared between all the parties involved during their relationship. Confidentiality outlines the obligations to keep information confidential and restricted from sharing to other parties.
Governing Law and Jurisdiction:
This refers to the legal system that will govern the interpretation and enforcement of the contract. It also determines the court that has the authority to hear any disputes that may come from a disagreement or violation of the contract.
Arbitration:
This refers to the inclusion of a third party to solve any issue that may arise should the contract be breached or a disagreement comes about. It usually outlines the processes to follow in order to prevent going through a traditional court which can be time consuming and costly.
Assignment:
This refers to the ability to transfer rights or obligations from one party to another, and the original party remains liable.
Novation:
This is similar to assignment but instead of the original party being involved the party that took over the obligations and rights is now totally liable and the original party is no longer involved in the contract.
Bona Fide:
This refers to acting in good faith or with honest intentions. It signifies that all parties involved are entering into the contract without any deceitful motives.
Inter Alia:
This means “among other things”. It typically is used in contracts to indicate that what is being talked about is referring to a larger group but doesn't mention every single name as this would be time consuming.
Key Performance Indicator (KPI):
This is a qualitative or quantitative factor that can be measured to determine whether a contract is meeting its objectives.
Counterpart:
This is a copy of a contract. It's usually created so all the parties involved have a copy.
Breach of Contract:
This is when one party fails to comply with the contract's terms and conditions.
Caveat Emptor:
This means “buyer beware” or in other words that it's the buyer's responsibility to know what they are signing and getting themselves into.
Contract Lifecycle:
The contract's life, or in other words how long a contract is legally binding.
Express Terms:
Specific items and terms listed in a contract.
Implied Terms:
Terms that are not specifically listed or written in a contract but are implied.
Feeling More Confident With The Terminology?
Those are some of the basics that will help you better understand contracts and what it is exactly you are reading! There are literally hundreds to thousands of terminology involved in contracts so it can really get confusing.
To make it less confusing be sure to check out our contract templates! We have specific templates that you can instantly get for multiple industries! Save time and money by using Every Contract You Need!
Tags: Contracts, Terms and Conditions, Contract Templates, Legal Documents, Business Relationships, Legal Obligations, Confidentiality in Contracts.