Contract Glossary: 30 Legal Terms Explained in Plain English

A–E

Arbitration: Private dispute resolution outside of court. Binding arbitration means you give up the right to sue.

Assignment: Transferring contract rights to another party. Without an assignment clause, the other party can sell your contract to your competitor.

Boilerplate: Standard clauses at the end of a contract (governing law, notices, amendments). Often skipped — often contain traps.

Confidentiality: Obligation to keep shared information secret. Carve-outs include: public info, independently developed, received from third party.

Consideration: What each party gives the other. Money, services, or a promise. A contract without consideration is generally unenforceable.

Cure Period: Time given to fix a breach before the contract is terminated. Standard: 10-30 days.

Damages: Money awarded for breach. Direct = cost to fix. Consequential = knock-on losses (lost profits, business interruption). Always exclude consequential damages.

Entire Agreement: Says the written contract is the complete deal. Prevents the other party from claiming you made verbal promises not in the document.

F–L

Force Majeure: "Superior force" — excuses performance during extraordinary events (natural disasters, war, pandemics). Must be explicitly listed.

Governing Law: Which jurisdiction's laws apply. Push for your home state.

Indemnification: Promise to cover the other party's losses. Always push for mutual indemnification.

Liability Cap: Maximum damages one party can owe. Standard: total fees paid. Without it: unlimited exposure.

Liquidated Damages: Pre-agreed damages for specific breaches. $500/day for late delivery is liquidated damages. Must be a reasonable estimate, not a penalty.

M–S

Material Adverse Change (MAC): A clause allowing termination if something fundamentally changes. "A material adverse change in the company's financial condition" is vague — define it.

Non-Compete: Restricts working for competitors. Enforceability varies by state. California: void. Push for narrow scope.

Non-Solicit: Restricts hiring the other party's employees or poaching their clients. Generally more enforceable than non-competes.

Recitals: The "Whereas" section at the top. States the background. Not usually legally binding but can frame interpretation.

Representations and Warranties: Promises about facts. "Company represents and warrants it owns all IP." If false, it's a breach.

Severability: If one clause is invalid, the rest of the contract survives. Without this, one bad clause can kill the whole agreement.

T–W

Third-Party Beneficiary: Someone not a party to the contract who can enforce it. Standard clause: "No third-party beneficiaries" — include it.

Waiver: Giving up a right. "Failure to enforce any provision shall not constitute a waiver." Standard — prevents accidental waivers.

Work for Hire: Under US copyright law, work created by an employee within their job scope is owned by the employer. For contractors, must be explicitly stated in writing.

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