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Contract jargon explained (finally)

Mar 6, 2023 | Uncategorised

Contracts are an essential part of our lives – from property to commerce, from tenancy agreements to employment contracts. But if you’re not a legal expert, you may find them stuffed with obscure phrases and terms that make them more than a little unclear.

To help you navigate these legal documents, we’ve put together a short glossary of some of the most commonly used pieces of contract jargon.

This list is by no means exhaustive – so if you’re involved in creating or signing a contract, it can be advisable to seek professional legal help to make sure you fully understand what you’re entering into.

We hope that by the end of this article, you’ll feel better equipped to understand these all-important documents.

Contractual jargon: meanings and explanations

Capitalised terms. One main purpose of a contract is to avoid misunderstandings between parties. To achieve this, terms have to be defined – and key terms are capitalised. These could be anything from “Start Time” to “Merger Agreement” to “Current Funds”.

ConsiderationThis is something given to a party to secure contractual promises. This can be money or a promise to do or not to do something.

Cure period. If one party has breached a contract, they may be entitled to a cure period in which they can fix the breach.

ExcuseThis is a valid mitigating circumstance that means someone isn’t considered liable for their breach of contract. It doesn’t carry the whiff of judgement that “excuse” does in day-to-day speech.

Express terms / implied terms. Express terms are those written into a contract. Implied terms are those that are taken for granted on legal grounds, but not necessarily in the contract itself.

Force majeure. French for “overwhelming force”, this is an extraordinary event that frees both parties in a contract from liability – a war, let’s say, or a riot. This is a common clause in contracts.

Joint and several liability. This is where the responsibility for a breach of contract is shared by two or more parties. The wronged party can choose who to sue – which can work in the plaintiff’s favour as they’re in a position to sue the party with the deepest pockets.

Licence. The owner of physical or intellectual property is the “licensor”. When they allow it to be used by someone else, this is called a “licence”.

Limitation of liabilityA limitation of liability clause exists to cap the amount of compensation one party can recover from another. These clauses exist in everything from train tickets to construction contracts.

Liquidated damagesThis is the sum agreed in the contract that has to be compensated in the event of a breach.

RecitalsThese are introductory clauses – also known as “background” or “preamble” – found at the start of commercial contracts which set out the background of the agreement.

RemediesThese are solutions available to you if the other party breaches your contract. Broadly speaking, you can either repudiate (terminate) the contract or seek damages.

Representations. These are statements made during negotiations to induce a party to enter the contract. They typically don’t form part of the contract itself.

Risk of lossThis allocates responsibility for covering damage made to goods between a sale being made and delivery taking place.

SeverabilityIf a clause is found to be unenforceable or illegal, severability allows the remainder of the contract’s terms to remain effective.

Termination for cause/termination for convenienceTermination for cause is when a contract is terminated because a condition has been breached. Termination for convenience is when a contract is terminated without a reason being given. This is only allowable at the end of a specified term or on the anniversary of the contract and usually requires notice to be given.

Third party. This is an individual, group, organisation or company that isn’t one of the main parties to the contract.

Time is of the essence. If a period is specified in a contract with the statement that “time is of the essence”, it means that the contract can be terminated if it’s not complied with.

VariationIn its most basic sense, this is when parties agree to do something differently from what was originally agreed in the contract. The remainder of the contract stays the same.

VoidIf a contract is unenforceable or illegal, it can be made void in law.

WaiverThis is when one party concedes to the other that they don’t have to fulfil all the obligations of their contract.

Warranty. A warranty is an assurance or promise made in the contract – essentially a minor term. If breached, the other party can claim damages.

Bonus Latin definitions

There are also a number of Latin terms used in contract law. We covered several of them in our article on the subject. Here are some others that you might come across:

Ab initioFrom the beginning. (“In view of these omissions, the proceedings to recover possession fail ab initio.”)

Inter alia. Among other things. (“The company began legal proceedings against their former employee, claiming, inter alia, breach of contract.”)

Mutatis mutandis. All necessary changes having been made. This phrase indicates that the main point remains the same once some considerations have been taken into account.

Pro tempore (or “pro tem”). For the time being.

Contracts are an essential part of the legal system as we experience it every day. Whether you’re moving house or signing a six-figure construction deal, it’s important you go in with your eyes open to avoid disputes down the line – and knowing the lingo is an important part of this.

At Milners Law, we have an experienced, straight-talking team of lawyers available to help you with contract law advice, whatever your sector. We can help you to negotiate terms and draft contracts that represent your business’s goals and interests.

Interested? Please don’t hesitate to contact us for a free, no-obligation consultation.

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