When negotiating or reviewing a contract, you might come across some terminology you don’t recognize. Some of the legal terms you’re likely to encounter in connection with contracts are:
Breach of Contract
A breach of contract occurs when one party fails to comply with the terms or conditions of an agreement.
Depending on the type and significance of the breach and the specific terms of the contract, this failure to comply might result in termination of the agreement and/or cause the breaching party to owe damages (see below) to the other party.
Capitalized Words
Outside of the standard capitalization of the first word in a sentence, proper nouns, and the like, capitalized words in a contract probably indicate that a term has been defined elsewhere in that agreement.
For example, you might see a word like “Services” capitalized throughout the agreement. If so, you should locate the definition of that term in the contract so you know what it means in the context of that specific agreement.
Counterparts
Many agreements say they can be signed in counterparts. This just means that the parties can sign the contract on different copies of the agreement.
Cure Period
Some agreements allow a breach of contract to be cured. In that case, the contract will usually have a provision requiring the nonbreaching party to provide the other party with written notification of the breach. That provision will then go on to give the breaching party a specified number of days to correct, or cure, the breach.
Damages
The word damages refers to money paid to someone to compensate them for their losses.
Force Majeure / Act of God
A Force Majeure clause (also known as an Act of God clause) relieves one or more of the parties from performing their contractual obligations when certain circumstances beyond their control arise that make performance of those obligations impracticable, illegal, or impossible.
Examples of circumstances that may be covered are natural disasters, terrorist attacks, epidemics, and declarations of war.
Merger / Entire Agreement
A Merger (or Entire Agreement) clause says that there are no agreed-upon terms other than those specified in the contract. This means, among other things, that any other arrangements or agreements made before the contract at issue was signed are no longer effective.
Governing Law
Governing law means the laws of the state (or sometimes, country) that apply to a contract. This is important because different states and countries have different laws. The law specified in the Governing Law provision of the agreement is the law a court will use if there are any disputes about the contract.
Indemnity / Indemnification
An Indemnity or Indemnification clause contains a promise by a party to compensate the other party for a legal liability or other loss.
Recitals
Many contracts include a Recitals section at the beginning in order to give some background information about the contract.
Redlining
To redline a contract means showing the changes made to an agreement, often using the redlining feature of a word-processing program. Frequently (but not always), additions are underlined, and deletions are shown by a line striking out the deleted portions.
Venue
A venue clause specifies the geographic location (such as a state) or even a specific court (e.g., the US District Court for the Western District of Washington) where lawsuits can be brought under the contract.
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This Alert does not cover all relevant information about the defined terms, but merely provides simplified and general definitions. Please feel free to contact us if you have any questions about these terms or any other legal terminology.
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