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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.

Showing 241-263 of 263 terms

Punitive Damages

Money awarded to the plaintiff beyond their actual losses, designed to punish the defendant for especially egregious, malicious, or reckless conduct and to deter others from similar behavior. Unlike compensatory damages (which make the victim whole), punitive damages are meant to sting, they're the legal system's way of saying 'that was so bad, you need to pay extra.'

Statute of Repose

A hard deadline, measured from a specific event like project completion or product delivery, after which no legal claim can be brought, regardless of when the injury or defect was discovered. Unlike a statute of limitations (which starts when you discover the harm), a statute of repose starts when the triggering event occurs, even if the harm hasn't happened yet.

Promissory Estoppel

A legal doctrine that makes a promise enforceable even without a formal contract, when one party reasonably relied on the promise to their detriment. If someone made you a clear promise, you acted on it in a way that was reasonable, and you suffered a loss because of that reliance, you may have a claim even though no contract was signed.

Indemnity

Indemnity is a contractual obligation where one party agrees to compensate another for losses, damages, or liabilities arising from specified events or actions. Unlike indemnification (which describes the broader process), indemnity refers to the actual financial protection or security provided. It shifts risk from one party to another, ensuring that a party who suffers a loss doesn't bear the financial burden alone. Indemnity provisions are among the most negotiated clauses in commercial contracts because they determine who pays when things go wrong.

Restrictive Covenant

A restrictive covenant is a contractual clause that limits what a party can do during or after the term of an agreement. In employment contracts, restrictive covenants prevent employees from competing with a former employer, soliciting clients, or disclosing trade secrets. In real estate, they restrict how property can be used. The enforceability of restrictive covenants varies widely by jurisdiction, with courts balancing the legitimate business interests of the party imposing the restriction against the restricted party's right to earn a livelihood or use their property.

Joint Venture Agreement

A joint venture agreement is a contract between two or more parties who agree to pool resources, share expertise, and collaborate on a specific project or business activity while remaining independent entities. Unlike a partnership, a joint venture is typically limited in scope and duration, it exists for a particular purpose and ends when that purpose is accomplished. The agreement defines each party's contributions, profit-sharing arrangements, management responsibilities, and exit terms.

Partnership Agreement

A partnership agreement is a legal document that establishes the terms and conditions of a business partnership between two or more individuals or entities. It defines each partner's rights, responsibilities, capital contributions, profit and loss sharing ratios, decision-making authority, and procedures for admitting new partners or dissolving the partnership. Without a written agreement, partnerships default to state law (typically the Uniform Partnership Act), which may not align with the partners' actual intentions.

Tenancy Agreement

A tenancy agreement (also called a rental agreement) is a contract between a landlord and tenant that grants the tenant the right to occupy a property for a specified period in exchange for rent. It establishes the terms of the tenancy including rent amount, payment schedule, security deposit, maintenance responsibilities, rules for property use, and conditions for termination. Tenancy agreements can be fixed-term (set end date) or periodic (month-to-month, automatically renewing).

Prenuptial Agreement

A prenuptial agreement (prenup) is a contract entered into by two people before marriage that establishes how assets, debts, and financial matters will be handled during the marriage and in the event of divorce or death. It typically addresses property division, spousal support, debt allocation, and inheritance rights. Prenuptial agreements allow couples to override default state divorce laws with their own negotiated terms, providing certainty and reducing the potential for contentious disputes.

Oral Contract

An oral contract (also called a verbal contract) is an agreement made through spoken words rather than written documentation. Despite popular belief, oral contracts are legally binding and enforceable in many situations. However, they are significantly harder to prove in court because there is no written record of the agreed terms. Certain types of contracts must be in writing under the Statute of Frauds, including real estate transactions, agreements lasting more than one year, and contracts for goods over $500 (UCC).

Lease Option

A lease option (also called a lease-to-own or rent-to-own agreement) is a contract that gives a tenant the right, but not the obligation, to purchase the property they are renting at a predetermined price within a specified time frame. The tenant typically pays an upfront option fee (non-refundable) and may pay above-market rent, with the excess credited toward the purchase price. If the tenant decides not to buy, they forfeit the option fee and any rent credits.

Subordination Agreement

A subordination agreement is a legal document that establishes the priority ranking of debts or claims against a property or asset. It allows a debt that was recorded earlier to be moved behind a newer debt in priority. This is most common in real estate, where a first mortgage holder agrees to subordinate their lien to a new loan, effectively moving to second position. Subordination agreements are critical in refinancing, construction lending, and commercial real estate transactions.

Whereas Clause

A whereas clause (also called a recital) is an introductory statement at the beginning of a contract that provides background information, context, and the parties' intentions for entering the agreement. Whereas clauses begin with the word 'WHEREAS' and explain why the contract exists, what the parties hope to accomplish, and any relevant facts that inform the agreement's purpose. While typically not creating binding obligations themselves, whereas clauses help courts interpret ambiguous contract terms by establishing the parties' intent.

Tortious Interference

Tortious interference occurs when a third party intentionally disrupts an existing contract or business relationship between two other parties, causing economic harm. There are two forms: tortious interference with contract (disrupting an existing agreement) and tortious interference with prospective business relations (preventing a deal from forming). To succeed in a claim, the plaintiff must prove the defendant knew about the relationship, intentionally interfered, the interference was improper, and damages resulted.

Material Misrepresentation

Material misrepresentation is a false statement of fact that is significant enough to influence a party's decision to enter into a contract. If a party relies on a material misrepresentation when agreeing to a contract, they may have grounds to void the agreement or seek damages. The misrepresentation can be intentional (fraud), negligent (careless statement without verifying accuracy), or innocent (honestly believing the statement was true). The key factor is materiality, the false statement must concern something important enough that a reasonable person would have acted differently had they known the truth.

Executed Contract

An executed contract is an agreement in which all parties have fulfilled their obligations, every required action has been performed and every condition has been satisfied. The term also has a second meaning: a contract that has been signed (executed) by all parties, making it legally binding. Context determines which meaning applies. The opposite of an executed contract is an executory contract, where one or more obligations remain to be performed. Understanding this distinction matters for bankruptcy proceedings, property transactions, and determining when contractual duties end.

Ratification

Ratification is the act of formally approving or confirming an agreement, action, or transaction that was previously unauthorized or not yet binding. In contract law, ratification occurs when a person accepts and validates a contract that was made on their behalf without proper authority, or when they confirm a voidable contract they could have rejected. Once ratified, the contract is treated as if it was valid from the beginning. Ratification can be express (written or spoken confirmation) or implied (conduct that demonstrates acceptance).

Stipulation

A stipulation is a specific condition, requirement, or term that parties agree to as part of a contract or legal proceeding. In contract law, a stipulation is any explicitly stated term that defines an obligation, restriction, or condition. In litigation, a stipulation is a formal agreement between opposing parties (or their attorneys) on certain facts or procedures, reducing the need for contested evidence or hearings. Stipulations make contracts clearer and legal proceedings more efficient by establishing agreed-upon ground rules.

Cosigner

A cosigner is a person who signs a contract alongside the primary party, agreeing to be equally responsible for fulfilling the obligations, most commonly debt repayment. If the primary borrower or tenant fails to pay, the cosigner becomes legally obligated to cover the full amount. Cosigning is common in loans, leases, and credit applications when the primary applicant doesn't meet the lender's or landlord's requirements on their own. The cosigner's credit history and income strengthen the application, but they take on significant financial risk with none of the benefits of ownership or tenancy.

Attestation

Attestation is the act of witnessing the signing of a document and confirming its authenticity by adding one's own signature as a witness. An attesting witness observes the signing party execute the document and then signs to verify that the signature is genuine and was made voluntarily. Attestation adds a layer of authenticity and can be legally required for certain documents such as wills, deeds, and powers of attorney. The attesting witness does not need to know the contents of the document, they are only confirming that they saw the person sign it.

Proration

Proration is the process of dividing or allocating costs, charges, or credits proportionally based on actual usage or time. In contracts, proration commonly applies to rent (when a tenant moves in or out mid-month), property taxes (divided between buyer and seller at closing), insurance premiums, and subscription fees. The prorated amount is calculated by determining the daily rate and multiplying by the number of applicable days. Proration ensures that parties only pay for what they actually use or the time period they're responsible for.

Liability Waiver

A liability waiver (also called a release of liability or hold harmless agreement) is a legal document in which one party agrees not to hold another party responsible for injuries, damages, or losses that may occur during a specific activity or use of a service. Liability waivers are commonly used by businesses offering activities with inherent risk, gyms, sports facilities, adventure tourism, event venues, and recreational activities. While they provide significant legal protection, they cannot waive liability for gross negligence, intentional misconduct, or in some states, ordinary negligence.

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