Legal Terms Glossary
A reference glossary of 34 legal terms commonly found in commercial contracts, defined in plain English for legal professionals, business teams, and anyone involved in contract review or negotiation.
A
Acceptable Use Policy (AUP)
A set of rules that a user must agree to follow in order to use a service. AUPs typically prohibit illegal activities, abuse of the service, and activities that could harm other users or the provider's infrastructure.
Affiliate
An entity that controls, is controlled by, or is under common control with a party. 'Control' typically means ownership of 50% or more of the voting securities or equivalent ownership interest. Affiliates may be included in or excluded from the scope of a contract.
Amendment
A formal modification to an existing contract. Most contracts require amendments to be in writing and signed by both parties. Oral amendments are generally disfavored and may be unenforceable depending on jurisdiction and contract terms.
Arbitration
A private dispute resolution process where a neutral third party (the arbitrator) renders a binding decision. Arbitration is generally faster and less formal than litigation, but limits discovery and appeal rights. Common arbitration bodies include the AAA, JAMS, and ICC.
Assignment
The transfer of rights or obligations under a contract from one party to another. Most commercial contracts restrict assignment without the other party's consent, often with an exception for assignment to an affiliate or in connection with a merger or acquisition.
B
Business Associate Agreement (BAA)
A contract required by HIPAA between a covered entity and a business associate that handles protected health information (PHI). The BAA establishes permitted uses and disclosures of PHI, security requirements, and breach notification obligations.
C
Carve-Out
An exception to a general contract provision. In the context of limitation of liability, a carve-out identifies specific obligations (such as IP indemnification or data breach) that are not subject to the general liability cap.
Consequential Damages
Indirect losses that arise as a secondary consequence of a breach, such as lost profits, lost revenue, loss of data, or business interruption. Most commercial contracts include a mutual waiver of consequential damages, with specified exceptions.
Counterparts
A clause permitting the contract to be executed in separate copies, each of which is considered an original. This allows parties in different locations to sign separately. Electronic and digital signatures are generally treated as equivalent to originals.
Covenant
A binding promise within a contract to do or refrain from doing something. Unlike a representation (which is a statement of fact), a covenant is a commitment to future conduct, such as maintaining insurance, providing notice, or complying with laws.
Cure Period
The time allowed for a breaching party to fix (cure) a breach after receiving notice, before the non-breaching party can exercise remedies such as termination. Typical cure periods are 30 days for non-payment and 30-60 days for other material breaches.
D
Data Processing Agreement (DPA)
A contract between a data controller and a data processor governing the processing of personal data, required by GDPR Article 28. A DPA must specify the subject matter and duration of processing, the nature and purpose, the type of personal data, and the categories of data subjects.
E
Entire Agreement (Integration Clause)
A clause stating that the written contract constitutes the complete agreement between the parties and supersedes all prior negotiations, representations, and agreements, whether oral or written. This prevents either party from later claiming that terms outside the written document are part of the deal.
Escrow
An arrangement where a third party holds assets (such as source code, funds, or documents) and releases them only upon the occurrence of specified conditions. Source code escrow is common in software licensing to protect the licensee if the licensor becomes insolvent.
F
Force Majeure
A contract provision that excuses one or both parties from performance when extraordinary events beyond their control (such as natural disasters, war, pandemic, or government action) prevent fulfillment of obligations. The clause should define the specific events covered, require notice, and include a termination right if the event persists beyond a specified period.
G
Governing Law
The clause specifying which jurisdiction's laws will be used to interpret the contract. Governing law does not necessarily determine where disputes will be heard (that is the venue or forum selection clause), though the two are typically paired.
I
Indemnification
A contractual obligation for one party (the indemnifying party) to compensate the other party (the indemnified party) for specified losses, typically arising from third-party claims. Indemnification may include a duty to defend (actively manage the defense) or only a duty to hold harmless (pay after liability is established).
Injunctive Relief
A court order requiring a party to do or refrain from doing a specific act. In the contract context, injunctive relief is commonly referenced in confidentiality and non-compete clauses, where monetary damages alone may be inadequate to prevent ongoing harm.
Intellectual Property (IP)
Creations of the mind protected by law, including patents (inventions), copyrights (original works of authorship), trademarks (brand identifiers), and trade secrets (confidential business information). IP ownership and licensing are central to technology and creative services agreements.
L
Limitation of Liability
A clause that caps the total amount one party may recover from the other for claims arising under the contract. Typically expressed as a multiple of fees paid or payable, with carve-outs for specified high-risk obligations. See the Limitation of Liability clause reference for detailed analysis.
Liquidated Damages
A pre-agreed amount of damages that will be paid in the event of a breach, established at the time of contracting. To be enforceable, the amount must be a reasonable estimate of anticipated harm and not a penalty. Courts will scrutinize whether the amount was reasonable at the time of contracting.
M
Material Adverse Change (MAC)
A significant negative change in a party's business, financial condition, or operations. MAC clauses appear in M&A agreements and loan covenants, allowing one party to terminate or renegotiate if the other experiences a MAC. The definition of 'material' is frequently litigated.
N
Non-Solicitation
A covenant restricting one party from soliciting the other party's employees or customers for a specified period. Non-solicitation clauses are narrower than non-compete clauses and are generally more enforceable. Typical restrictions last 12-24 months.
Notices
The clause specifying how formal communications under the contract must be delivered (e.g., certified mail, overnight courier, email to specified addresses) and when they are deemed received. Proper notice is a prerequisite for exercising many contract rights, including termination.
R
Representations and Warranties
Statements of fact (representations) and promises of truthfulness (warranties) made by a party at the time of contracting. Common examples include authority to enter the contract, ownership of IP, compliance with laws, and absence of pending litigation. Breach of a representation or warranty may trigger indemnification obligations.
S
Severability
A clause providing that if any provision of the contract is found to be invalid or unenforceable, the remaining provisions continue in full force and effect. Without a severability clause, an unenforceable provision could potentially void the entire agreement in some jurisdictions.
Service Level Agreement (SLA)
A commitment by a service provider to deliver a specified level of service, typically measured by uptime percentage, response time, or resolution time. SLAs include measurement methodology, reporting obligations, and remedies (usually service credits) for failure to meet the agreed levels.
Subprocessor
A third party engaged by a data processor to process personal data on behalf of the data controller. Under GDPR, the processor must obtain the controller's prior written authorization before engaging a subprocessor, and the subprocessor must be bound by equivalent data protection obligations.
Survival
A clause identifying which provisions of the contract continue to have effect after the contract terminates or expires. Provisions that typically survive include confidentiality, limitation of liability, indemnification, governing law, and any accrued payment obligations.
T
Termination for Cause
The right to end a contract when the other party has committed a material breach and failed to cure it within the specified cure period. Termination for cause may also be triggered by insolvency, bankruptcy, or assignment for the benefit of creditors.
Termination for Convenience
The right to end a contract without cause, typically upon advance written notice (30-90 days). This right gives the terminating party flexibility but may require payment of an early termination fee or forfeiture of prepaid amounts, depending on the contract terms.
V
Venue (Forum Selection)
The clause designating the specific courts or arbitration forum where disputes arising under the contract will be resolved. Venue clauses may be 'exclusive' (disputes can only be brought in the specified forum) or 'non-exclusive' (the specified forum is one option among others).
W
Waiver
The voluntary relinquishment of a known right. In contract law, a waiver clause typically provides that failure to enforce a provision on one occasion does not constitute a waiver of the right to enforce it in the future. Waivers are usually required to be in writing to be effective.
Work Product
Materials, deliverables, inventions, or other output created by one party in the course of performing services under the contract. The contract should clearly allocate ownership of work product, specify whether the customer receives ownership or a license, and address pre-existing IP incorporated into the work product.
Disclaimer: These definitions are provided for general informational and educational purposes only and do not constitute legal advice. Legal terms may have different meanings depending on the jurisdiction, the specific contract, and the context in which they are used. Consult qualified legal counsel for authoritative interpretation of any legal term in the context of a specific agreement.