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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 193-216 of 263 terms
Arbitration Clause
A specific contract provision that requires disputes to be resolved through arbitration rather than litigation. While 'arbitration' is the process, the 'arbitration clause' is the contractual mechanism that locks both parties into it, often before any dispute even exists. Once you sign a contract with an arbitration clause, you've typically waived your right to sue in court.
Confidentiality Clause
A section within a larger contract that requires one or both parties to keep certain information secret. Unlike a standalone NDA, a confidentiality clause is embedded inside another agreement, a services contract, employment agreement, or partnership deal. It defines what counts as confidential, who can access it, and how long the obligation lasts.
Non-Compete Agreement
A standalone contract, separate from an employment or services agreement, in which one party agrees not to compete with the other for a defined period and within a defined geographic area. While a non-compete clause is embedded within a larger contract, a non-compete agreement is its own document, often signed alongside (but separate from) an employment offer, business sale, or partnership dissolution.
Termination for Cause
A contract provision that lets one party end the agreement when the other party has materially breached its obligations, missed payments, failed deliverables, violated confidentiality, or otherwise failed to perform. Unlike termination for convenience, termination for cause requires a specific, documented reason. Most for-cause clauses include a 'cure period', a window (typically 15-30 days) for the breaching party to fix the problem before termination takes effect.
Anticipatory Breach
When one party clearly communicates, through words or actions, that they will not perform their contractual obligations before the performance is actually due. Also called anticipatory repudiation. The non-breaching party doesn't have to wait until the deadline passes to take action; they can treat the contract as breached immediately and seek remedies.
Best Efforts Clause
A contractual obligation requiring a party to try as hard as they reasonably can to achieve a specific outcome, without guaranteeing the result. 'Best efforts' is the highest standard of effort in contract law, meaning you must pursue every reasonable avenue, even at significant cost. It sits above 'reasonable efforts' and 'commercially reasonable efforts' in the effort hierarchy.
Buy-Sell Agreement
A legally binding agreement between co-owners of a business that governs what happens to an owner's share if they leave, die, become disabled, divorce, or want to sell. Think of it as a prenuptial agreement for business partners, it sets the rules for ownership transitions before anyone gets emotional or adversarial.
Change of Control
A provision triggered when ownership or management of a party to the contract materially changes, typically through a merger, acquisition, sale of majority shares, or change in board composition. Change of control clauses protect the non-changing party from being locked into a deal with a new owner they didn't agree to work with.
Click-Wrap Agreement
A digital contract formed when a user clicks 'I Agree,' 'Accept,' or a similar button after being presented with terms and conditions. Unlike browse-wrap agreements (where terms are passively linked in a footer), click-wrap requires an affirmative action, the user must actively acknowledge the terms before proceeding. Courts consistently enforce click-wrap agreements because the click demonstrates clear assent.
Compliance Clause
A contract provision requiring one or both parties to comply with all applicable laws, regulations, industry standards, and sometimes specific compliance frameworks (like GDPR, HIPAA, or SOC 2) throughout the contract term. Compliance clauses shift regulatory risk: if a party violates applicable law while performing the contract, they bear the legal consequences.
Covenant of Quiet Enjoyment
A landlord's promise that the tenant will be able to use and enjoy the leased property without unreasonable interference. Despite the name, it has nothing to do with noise, 'quiet' means 'undisturbed.' The covenant protects tenants from landlord actions that effectively make the property unusable, such as unauthorized entry, failing to maintain common areas, or allowing other tenants to interfere with the space.
Deed of Trust
A legal document used in real estate transactions where a borrower transfers legal title of a property to a neutral third party (the trustee) as security for a loan. If the borrower defaults, the trustee can sell the property through a non-judicial foreclosure, faster and cheaper than going to court. Once the loan is paid off, the trustee reconveys the title back to the borrower.
Employment Agreement
A contract between an employer and employee that defines the terms of employment, compensation, benefits, job duties, termination conditions, confidentiality obligations, and post-employment restrictions. Unlike an offer letter (which is typically a brief summary), an employment agreement is a comprehensive, legally binding document that protects both parties.
Frustration of Purpose
A legal doctrine that excuses contractual performance when an unforeseen event destroys the fundamental reason the contract was made, even though performance is still technically possible. The contract can still be performed, but performing it would be pointless because the underlying purpose has been eliminated by circumstances neither party caused or anticipated.
Hardship Clause
A contract provision that requires renegotiation when unforeseen circumstances fundamentally alter the balance of the agreement, making performance excessively burdensome for one party, but not impossible. Unlike force majeure (which excuses performance), a hardship clause keeps the contract alive but triggers a duty to renegotiate terms in good faith.
Key Person Clause
A contract provision that gives one party the right to terminate or renegotiate the agreement if a specific individual, the 'key person', leaves, dies, becomes incapacitated, or is no longer actively involved in performing the contract. Common in consulting, creative, and professional services agreements where the client hired the firm specifically for access to a particular person's expertise.
Most Favored Nation Clause
A contract provision guaranteeing that one party will receive terms at least as favorable as those offered to any other customer or partner. If the offering party gives better pricing, terms, or conditions to a third party, they must extend the same advantage to the MFN-holder. Named after the trade principle used in international agreements, it prevents preferential treatment that disadvantages the protected party.
Non-Waiver Clause
A contract provision stating that a party's failure to enforce a right or remedy on one occasion does not waive their right to enforce it in the future. Without this clause, repeatedly overlooking a breach could be interpreted as permanently waiving the right to enforce that term. A non-waiver clause preserves flexibility: you can choose to let a minor violation slide without losing the ability to enforce the rule later.
Operating Agreement
The foundational governance document for a Limited Liability Company (LLC) that establishes the rights, responsibilities, and relationships between the members (owners). It covers capital contributions, profit distribution, management structure, voting rights, member withdrawal or addition, and dissolution procedures. While not always legally required, operating without one is like driving without insurance, fine until something goes wrong.
Release of Claims
A legal agreement in which one party permanently gives up their right to sue the other party for specific claims, known and sometimes unknown. Once signed, the releasing party cannot bring legal action for the covered claims, even if they later discover the damages were worse than expected. Releases are common in settlement agreements, employment terminations, and contract closeouts.
Statute of Frauds
A legal doctrine requiring certain types of contracts to be in writing and signed by the party to be bound in order to be enforceable. Oral agreements for these categories are generally unenforceable, even if both parties agree the deal was made. The statute doesn't require a formal contract, a signed letter, email, or even a napkin can satisfy the writing requirement, but something must be in writing.
Subrogation
The legal right of one party (usually an insurer) to step into the shoes of another party to pursue a claim against a third party. After paying a claim, the insurer 'subrogate', takes over, the insured's right to recover that payment from whoever actually caused the loss. In contract law, subrogation clauses define when and how this transfer of rights occurs.
Toll Manufacturing Agreement
A contract where one company (the principal) provides raw materials to another company (the toll manufacturer) to produce finished goods. The principal owns the materials throughout the process; the manufacturer provides only the labor, equipment, and expertise. The toll manufacturer never owns the product, they're paid a processing fee (the 'toll') per unit or per batch.
Unconscionability
A legal doctrine that allows courts to refuse to enforce a contract (or a specific clause) that is so unfair, one-sided, or oppressive that no reasonable person would have agreed to it and no fair person would have offered it. Courts examine both procedural unconscionability (how the contract was formed, hidden terms, pressure, lack of choice) and substantive unconscionability (the terms themselves, grossly unfair pricing, one-sided penalties, or waiver of important rights).
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