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Contract glossary

Plain-language definitions of the legal terms you'll find in contracts. Search by keyword or browse A-Z.

57 terms

Addendum

A supplemental document added to an existing contract that modifies, clarifies, or adds to its terms. Addenda must be signed by all parties to be enforceable and become part of the original agreement.

Amendment

A formal change or modification to the terms of an existing contract. Unlike an addendum which adds new provisions, an amendment alters existing terms. Both parties must agree to the amendment for it to be valid.

Arbitration

A form of alternative dispute resolution where a neutral third party (arbitrator) reviews evidence and arguments from both sides and makes a binding decision. Often faster and less expensive than litigation.

Assignment

The transfer of rights or obligations under a contract from one party to another. Many contracts include anti-assignment clauses that require consent before transfer.

Boilerplate

Standard clauses that appear in most contracts, such as governing law, severability, entire agreement, and force majeure. Though considered routine, these clauses have significant legal implications.

Breach of Contract

When one party fails to fulfill their obligations under the contract without a lawful excuse. Breaches can be material (substantial failure that defeats the purpose) or minor (partial non-performance that doesn't defeat the purpose).

Capacity

The legal ability of a person or entity to enter into a binding contract. Minors, intoxicated persons, and mentally incapacitated individuals generally lack capacity. A contract entered without capacity may be voidable.

Cause of Action

The legal basis or grounds on which a party can bring a lawsuit for breach of contract or other contract-related claims. Each cause of action requires specific elements to be proven.

Clause

A specific section or provision within a contract that addresses a particular topic. Common clauses include confidentiality, indemnification, termination, and governing law.

Confidentiality Agreement

A contract (also called a Non-Disclosure Agreement or NDA) where one or both parties agree not to disclose certain information. Can be mutual (both parties share secrets) or unilateral (one party shares).

Consideration

Something of value exchanged between parties that makes a contract legally binding. Can be money, services, goods, or a promise to act or refrain from acting. Without consideration, a contract is generally unenforceable.

Counterpart

A duplicate copy of a contract. A counterpart clause allows each party to sign a separate copy, with all copies together constituting one agreement. Common in remote signing situations.

Covenant

A binding promise within a contract to do or not do something. Non-compete covenants, for example, restrict a party from competing with the other party for a specified time and geographic area.

Damages

Monetary compensation awarded for a breach of contract. Types include compensatory (actual losses), consequential (indirect losses), liquidated (pre-agreed amount), and punitive (punishment for bad behavior, rare in contract law).

Deliverables

The specific work products, outputs, or results that one party is obligated to provide under a contract. Clearly defined deliverables reduce disputes about scope and completion.

Dispute Resolution

The method by which disagreements between parties are resolved. Contracts typically specify mediation, arbitration, or litigation as the preferred method, often in a specific order.

Due Diligence

The investigation or exercise of care that a reasonable party would take before entering into a contract. In business transactions, this often involves reviewing financials, legal standing, and operational capacity.

Effective Date

The date on which a contract becomes enforceable and its terms take effect. This may differ from the execution date (when parties sign). Some contracts have retroactive effective dates.

Entire Agreement

A clause stating that the written contract represents the complete and final agreement between the parties, superseding all prior negotiations, representations, and agreements. Also called a merger or integration clause.

Escrow

An arrangement where a neutral third party holds funds, documents, or assets until specified conditions are met. Common in real estate transactions and software licensing agreements.

Execution

The act of signing a contract. A contract is 'executed' when all parties have signed it. The execution date may differ from the effective date when the contract's terms begin.

Force Majeure

A clause that excuses one or both parties from performance when extraordinary events beyond their control occur - such as natural disasters, wars, pandemics, or government actions. Must be explicitly included to apply.

Governing Law

A clause that specifies which jurisdiction's laws will be used to interpret and enforce the contract. Critical in agreements between parties in different states or countries.

Guarantor

A third party who agrees to be responsible for the obligations of one of the contracting parties if that party defaults. Common in lease agreements and loan contracts.

Indemnification

A contractual obligation where one party agrees to compensate the other for certain losses, damages, or liabilities. Indemnification clauses define who bears the risk of specific events or claims.

Independent Contractor

A person or entity that provides services under a contract but is not an employee. The distinction affects tax obligations, benefits, intellectual property ownership, and liability. Contracts should clearly establish this relationship.

Intellectual Property (IP)

Creations of the mind - inventions, designs, brand names, artistic works, and trade secrets - that are protected by law. Contracts often include IP assignment or licensing clauses that determine who owns work product.

Jurisdiction

The geographic area or court system that has authority to hear disputes arising from the contract. Jurisdiction clauses specify where legal proceedings must take place.

Liability

Legal responsibility for one's actions or omissions. Contracts often include limitation of liability clauses that cap the amount one party can be required to pay the other.

License

Permission granted by one party (licensor) to another (licensee) to use intellectual property, software, or other assets under specified conditions. Licenses can be exclusive or non-exclusive.

Limitation of Liability

A clause that caps the maximum amount of damages one party can recover from the other. Often excludes certain types of claims (like IP infringement or willful misconduct) from the cap.

Liquidated Damages

A pre-determined amount of damages that parties agree to at the time of contracting, payable if a breach occurs. Must be a reasonable estimate of anticipated harm - courts may refuse to enforce amounts that are punitive.

Mediation

A voluntary dispute resolution process where a neutral mediator helps parties reach a mutually acceptable agreement. Unlike arbitration, the mediator does not make a binding decision.

Milestones

Specific checkpoints or deliverable dates in a contract that trigger events such as payments, reviews, or phase transitions. Milestone-based contracts tie compensation to progress rather than time.

Mutual Assent

Agreement by both parties to the terms of a contract, typically demonstrated by offer and acceptance. Also called 'meeting of the minds.' Without mutual assent, no valid contract exists.

NDA (Non-Disclosure Agreement)

A contract that creates a confidential relationship between parties to protect proprietary information. NDAs can be mutual (both parties share secrets) or one-way. Duration, scope, and exclusions are key terms.

Non-Compete Clause

A restrictive covenant that prevents a party from competing with the other party for a specified time period and in a defined geographic area after the contract ends. Enforceability varies significantly by jurisdiction.

Non-Solicitation

A clause that prevents one party from recruiting or soliciting the other party's employees, clients, or customers for a specified period. Narrower and generally more enforceable than non-compete clauses.

Novation

The substitution of a new contract or party for an existing one. Unlike assignment (which transfers rights), novation extinguishes the original contract and creates a new one with new obligations.

Provision

A stipulation or condition within a contract. Each provision addresses a specific aspect of the agreement. The terms 'provision,' 'clause,' and 'section' are often used interchangeably.

Recitals

The introductory paragraphs of a contract (often starting with 'WHEREAS') that provide background and context for the agreement. Recitals are not usually enforceable terms but help interpret the contract's intent.

Remedies

The legal solutions available when a contract is breached. Include damages (monetary compensation), specific performance (court-ordered fulfillment), rescission (cancellation), and injunctions (court orders to stop an action).

Renewal

A provision that extends the contract beyond its initial term. Auto-renewal clauses automatically extend the contract unless a party provides notice of termination within a specified period.

Representations and Warranties

Statements of fact (representations) and promises about the truth of those facts (warranties) made by the parties. If proven false, the other party may have grounds for breach of contract claims.

Retainer

An upfront payment made to secure services, often applied against future invoices. Common in consulting and legal agreements. Retainer terms should specify whether unused portions are refundable.

Rider

An additional document attached to a contract that adds or modifies specific terms. Similar to an addendum but typically used for insurance policies, entertainment contracts, and event agreements.

Scope of Work (SOW)

A detailed description of the work to be performed, deliverables, timelines, and standards. A well-defined SOW prevents scope creep and sets clear expectations for both parties.

Severability

A clause stating that if any provision of the contract is found to be invalid or unenforceable, the remaining provisions continue in effect. Prevents one bad clause from invalidating the entire agreement.

Statute of Limitations

The maximum time after an event within which legal proceedings may be initiated. For contract disputes, this varies by jurisdiction and contract type, typically ranging from 3 to 6 years.

Subcontractor

A third party hired by the contractor to perform some or all of the contracted work. Many contracts require prior written consent before subcontracting and hold the original contractor responsible for subcontractor performance.

Term

The duration or time period during which a contract is in effect. The term section typically specifies the start date, end date, and any renewal or extension provisions.

Termination

The ending of a contract before its natural expiration. Termination clauses specify conditions under which parties can end the agreement, required notice periods, and obligations that survive termination.

Trade Secret

Confidential business information that derives economic value from not being generally known. Includes formulas, processes, customer lists, and business strategies. Protected by NDAs and trade secret laws.

Venue

The specific court or location where a legal dispute will be heard. Venue clauses work alongside governing law and jurisdiction clauses to determine where and how disputes are resolved.

Waiver

The voluntary relinquishment of a known right. A non-waiver clause states that failure to enforce a provision does not mean that right is permanently waived. Important for maintaining future enforcement options.

Warranty

A promise or guarantee about the quality, condition, or performance of goods or services. Express warranties are explicitly stated; implied warranties arise by law. Contracts often include warranty disclaimers.

Work for Hire

A legal doctrine where work created by an employee within the scope of employment, or certain commissioned works under a written agreement, is owned by the employer or commissioning party rather than the creator.

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Why understanding contract terms matters

Contracts are binding legal documents, and the specific language used carries real consequences. Understanding terms like "indemnification," "force majeure," and "severability" helps you know what you're agreeing to before you sign.

This glossary covers the most common terms found in NDAs, freelance contracts, service agreements, leases, and business contracts. Each definition is written in plain language - not legalese.

This glossary is for informational purposes only and does not constitute legal advice. For contracts with significant financial or legal stakes, review by a licensed attorney is recommended.