Reading contracts can be tedious and confusing for small business owners — drafting them can be even more

challenging. But well-drafted contracts are vital to your business. A well-drafted contract spells out the rights and
obligations of each party and protects you and your business to the most practical extent. A good contract can
increase your business, earn you respect, and make you money. A bad contract, on the other hand, can be
disastrous. These nine tips will give you a head start.

1. Write Clearly. Ambiguous language in a contract can lead to misunderstandings, delays, frustration —
even litigation. Make sure that both parties' responsibilities are clearly outlined.
2. Draft Complete Contracts. Many contracts fail or create confusion because they are incomplete. The
omission of important terms or expectations can lead parties to assume — incorrectly — that the terms are
understood or implied. Make sure that all key statements or representations — from both parties — are
spelled out clearly.
3. Look at Sample Contracts and Forms. The best way to begin drafting a contract is to look at several
sample forms that are similar to the document that you want to create. Sample forms can alert you to issues
you might not have considered, and they can provide strong, standard language for your contract.
4. Don't Rely on a Standard Form or Sample Contract. Standard forms may or may not be applicable to
your situation — and they might have been drafted for the benefit of the wrong side. Most forms are
simply a starting point and must be customized for your particular transaction.
5. The Writer Always Has the Advantage. You almost always want to draft the first draft. Creating the
contract language gives you a tremendous advantage in shaping the negotiations, as you can include
clauses that you want and structure the deal in a favourable way for your business.
6. Make Your Contract Look Like a Standard Form. Sometimes it helps to make your contract look like a
pre-printed standard form, even though you may have carefully drafted it for your benefit. With the use of
word processing or desktop publishing this isn't hard to do, and the other side may be less inclined to
negotiate if they think your agreement is "standard."
7. Be Aware of Legal Requirements. Certain types of contract provisions may be legally questionable
(such as some noncompete clauses in some instances), and other provisions may need to be bold-faced
or in all capital letters to be effective. Also, certain kinds of contracts have required terms, language or
clauses. A good business lawyer can point these out for you.
8. Attach Exhibits. Sometimes it's a good idea to append attachments or exhibits to a contract. In addition
to providing specific examples in certain cases, it enables you to use your base contract for many different
transactions, while placing all specific documents that are particular to the transaction in an addendum or
exhibit. But remember to refer to the addendum or exhibit in the main contract.
9. Include Boilerplate. You must include good "boilerplate" or "miscellaneous" clauses at the end of your
contract. This standard language may seem trivial but can end up being tremendously important in the
event of a dispute. For example, Attorney's Fees Provisions is boilerplate that says the legal fees and
costs of the prevailing party will be paid by the non-prevailing party. This can amount to a lot of money in
some lawsuits.
 HOW OT WRITE EFFECTIVE BUSINESS CONTRACTS

Business contracts are legally binding written agreements between two or more parties. They are an important part
of business and such agreements need to be created and/or reviewed carefully.

While smaller companies often conduct business based on informal handshake agreements or unspoken
understandings, the more that is at stake, the more essential it is to have a signed contract. A contract serves as a
guide and a memorial of the agreement that must be followed by both parties. It presents each party with the
opportunity to:

 Describe all obligations they are expected to fulfill

 Describe all obligations they expect the other party or parties to fulfill
 Limit any liabilities
 Set parameters, such as a time frame, in which the terms of the contract will be met
 Set terms of a sale, lease, or rental
 Establish payment terms
 Clearly establish all of the risks and responsibilities of the parties

A contract is, in essence, a written meeting of the minds. While it is typically drawn up by one party and favors the
needs and requirements of that party, protecting them from most (if not all) liabilities, it should be thought of, initially,
as a work in progress that changes and grows as each party contributes his needs, wants, and terms prior to
signing. At this time, it becomes an official document. It is the testament of a mutually beneficial relationship or
transaction. Consideration, whether it is monetary or a promise to do work or provide a service by a specified date,
is at the root of a contract. It is required for a document to be considered a valid contract.

Obviously, both sides should benefit in some manner before entering into any such agreement. The term "standard
contract" is more myth than reality and too often people simply sign on the dotted line without reading or negotiating
the terms of a contract.

Consideration, compensation, ownership rights, liability, and risk are all areas that need to be worded carefully; you
should seek out help from a qualified attorney who is experienced in contracts to make sure that you have covered
all necessary areas in a clear manner.

A contract should stipulate how its terms shall be enforced and what actions can be taken if one party fails to meet
his obligations. Some contracts will also include "out clauses" whereby one party can opt to get out of the contract
at a certain date. Typically, this is done by informing the other party of his wish to terminate the contract in writing.

There may also be a need to arbitrate disputes that may arise under the life of the contract. How such disputes will
be handled (i.e., by a neutral third party arbitrator) can also be included within the contract.

In situations where you do not generate the form of the contract but are entering into an agreement with another
business or individual, you should typically:

 Read the contract over very carefully

 Highlight anything that is ambiguous or vaguely worded for further clarification and/or possible deletion
 List any additions you feel are necessary
 Discuss all changes to the contract with the other party or parties
 Make sure any requested changes have been added prior to signing as oral agreements can be very
tricky and are not always binding
 Review the contract again, prior to signing
 Consult an attorney, especially if the agreement is complicated
 Keep a signed copy of every contract that you sign

COMMON CONTRACT MISTAKES

There are numerous ways to make mistakes when negotiating and drafting a contract. Here are the top mistakes
that small businesses make and that you should avoid. If you feel insecure heading into the contract drafting
process, consult a lawyer and readLegal Requirements for a Contract.

Not Drafting the First Draft

You always want to volunteer to draft the first draft of a contract. Doing so can give you a tremendous advantage in
the negotiations. This allows you to structure the deal initially on your own wish list with terms most beneficial to
you.

Moreover, from a legal cost perspective, drafting the first draft often is more cost-effective than responding to the
other lawyer's one-sided draft. For drafting tips, see What You Want from a Contract.

Not Including Explicit Payment Terms

Almost everyone understands that payment terms are an essential part of an agreement and should not be omitted
or left to be decided until after the agreement is signed.

Good drafting requires that the payment terms be clearly laid out in the agreement. Avoid ambiguity as to what the
amount owed will be, or provide a clear formula for determining the amount owed. Put terms that explicitly state how
much is owed and when, as well as the form of payment, and also throw in what will happen if the other party
doesn't pay or pays late. Make sure to allocate who pays any taxes involved.

Not Including All Deal Terms in the Agreement

All "deal terms" should be included in the agreement. This means that you should not only include all the legal
boilerplate, but also the key items upon which you relied when entering into the agreement.

Deal terms to consider including:

 What is the reason for entering into the agreement with the other party?
 Did the party state that he or she has been in business a long time or has a particular type of expertise in
a particular field?
 What did the other person agree that he or she would do for you and what did you agree to do in return?
 When did the parties agree this would happen?
 Were special circumstances discussed in negotiating the agreement, which led you to agree with this
particular company?
 Is there a critical deadline for receiving goods or services?
 Was there some key event or condition that was to happen before you became fully obligated?

The answers to all of these questions can be included within the agreement so that if at any point the deal falls
apart, it can be shown that you relied on specific answers to these questions.

Making Assumptions

Don't make any assumptions when drafting the agreement; you should spell out all the obligations and assumptions
under the agreement within the agreement itself.

For example:

 If you are purchasing equipment, do not assume that the other party will deliver the equipment with any
related software or attachments. Spell it out explicitly.
 Don't assume the other party will know that if you receive the goods late that you will lose thousands of
dollars. Put a time is of the essence clause in your agreement if this is true.
 If the parties agree to have goods shipped and delivered to a certain location, make sure that you both are
in agreement about the delivery location and who pays for shipping costs.

If you don't understand something in the negotiation phase, ask. If you are unclear on any portion of the agreement,
get an explanation — don't make the mistake of assuming that the other party understands all of your points.
Conversely, if it appears that the other party is unclear on something you are talking about, then explain it and spell
it out in the agreement.

Not Paying Attention to Boilerplate Terms

Boilerplate terms are an essential part of any agreement and affect the rights under the agreement as much as any
other terms. These terms can be negotiated in the same manner as all other terms in your agreement.

Key boilerplate terms to really focus on include:

 The prevailing party in any dispute will be awarded its attorney's fees
 Amendments to the agreement can only be made in writing
 The contract may not be assigned.
 The contract includes all representations, warranties and agreements of the parties (the "integration"
clause)

Not Negotiating Everything

Everything is negotiable. Everything. Even the things the other party tells you are not negotiable are negotiable.
Even preprinted forms and boilerplate terms are negotiable.

Some portions of the agreement will be more important to you than others, but everything can be important in the
event of a problem. There will be give and take in negotiating the agreement — it is important for you to decide in
advance which things you can't live without and which things you can live with. Negotiating everything means that
 you discuss, argue, deliberate, and ultimately agree upon all terms of the agreement. Not only are you allowed to do
this, you should.

Rushing Through the Agreement

Businesses are often in a hurry to get certain deals done. However, it is never a good idea to negotiate and execute
an agreement hastily. The results could be unfavorable terms, ambiguance language or even an unenforceable
contract.

Here is a business contracts terms and definitions glossary - essentially for

UK, and a useful guide for anywhere else in the world. When you are
involved in business contract negotiations - especially for your own
business - you can achieve far better negotiated results if you have a good
understanding of what contracts and their terminology actually mean. This
will empower you to utilise your legal advice for specialist legal issues
rather than strategic decision-making, over which you must have full
control.
If you are the boss, or accountable for a contractual outcome, you must
understand contracts and their meaning. When you understand what
contracts mean you increase your control over the situation, your advisors,
the other party, their advisors, and the negotiated outcomes.
The provision of this material by Business Link is gratefully acknowledged.
It is subject to Crown copyright. For further information visit the Business
Link website.
Contracts are an important part of business life. They establish
agreements between you and your employees, landlords or tenants,
suppliers, customers and with other businesses. They are usually drawn up
by solicitors and can be full of legal jargon.
A contract is an agreement that commits you or your business to a course
of action. Therefore, it is important that you ask your solicitor or adviser to
explain any language or terminology that you do not understand.
This guide provides plain English explanations for some of the expressions
that you might come across, including:
 general contracts terms
 financial contracts terms
 property contracts terms
 Latin contracts terms
You should never sign any contract unless you have read and understood
what it aims to do and what the terminology means.
Note: terms highlighted in bold within the current definitions (eg offer)
are explained elsewhere in this guide.

general business contracts terms and definitions

glossary
Acceptance - the unconditional agreement to an offer. This creates the
contract. Before acceptance, any offer can be withdrawn, but once
accepted the contract is binding on both sides. Any conditions have the
effect of a counter offer that must be accepted by the other party.
Agent - somebody appointed to act on behalf of another person (known as
the principal). The amount of authority to deal that the agent has is subject
to agreement between the principal and the agent. However, unless told
otherwise, third parties can assume the agent has full powers to deal.
Arbitration - using an independent third party to settle disputes without
going to court. The third party acting as arbitrator must be agreed by both
sides. Contracts often include arbitration clauses nominating an arbitrator
in advance.
Breach of contract - failure by one party to a contract to uphold their
part of the deal. A breach of contract will make the whole contract void
and can lead to damages being awarded against the party which is in
breach.
Collective agreement - term used for agreements made between
employees and employers, usually involving trade unions. They often cover
more than one organization. Although these can be seen as contracts, they
are governed by employment law, not contract law.
Comfort letters - documents issued to back up an agreement but which
do not have any contractual standing. They are often issued by a parent or
associate company stating that the group will back up the position of a
small company to improve its trading position. They always state that they
are not intended to be legally binding. Also known as letters of comfort.
Company seal - an embossing press used to indicate the official signature
of a company when accompanied by the signatures of two officers of the
company. Since 1989 it has been possible for a company to indicate its
agreement without use of the seal, by two signatures (directors or
company secretary) plus a formal declaration. However, some companies
still prefer to use a seal and the articles of a company can override the law
and require a seal to be used.
Conditions - major terms in a contract. Conditions are the basis of any
contract and if one of them fails or is broken, the contract is breached.
These are in contrast to warranties, the other type of contract term,
which are less important and will not usually lead to the breach of the
contract - but rather an adjustment in price or a payment of damages.
Confidentiality agreement - an agreement made to protect confidential
information if it has to be disclosed to another party. This often happens
during negotiations for a larger contract, when the parties may need to
divulge information about their operations to each other. In this situation,
the confidentiality agreement forms a binding contract not to pass on that
information whether or not the actual contract is ever signed. Also known
as a non-disclosure agreement.
Consideration - in a contract each side must give some consideration to
the other. Often referred to as the quid pro quo - see the Latin terms
below. Usually this is the price paid by one side and the goods supplied by
the other. But it can be anything of value to the other party, and can be
negative - eg someone promising not to exercise a right of access over
somebody else's land in return for a payment would be a valid contract,
even if there was no intention of ever using the right anyway.
Consumer - a person who buys goods or services but not as part of their
business. A company can be a consumer for contracts not related to its
business - especially for goods or services it buys for its employees.
Charities are also treated as consumers.
Due diligence - the formal process of investigating the background of a
business, either prior to buying it, or as another party in a major contract.
It is used to ensure that there are no hidden details that could affect the
deal.
Employment contract - a contract between an employer and an
employee. This differs from other contracts in that it is governed by
employment legislation - which takes precedence over normal contract
law.
Exclusion clauses - clauses in a contract that are intended to exclude
one party from liability if a stated circumstance happens. They are types
ofexemption clauses. The courts tend to interpret them strictly and,
where possible, in favour of the party that did not write them. In customer
dealings, exclusion clauses are governed by regulations that render most
of them ineffective but note that these regulations do not cover you in
business dealings.
Exemption clauses - clauses in a contract that try to restrict the liability
of the party that writes them. These are split into exclusion clauses that
try to exclude liability completely for specified outcomes, and limitation
clauses that try to set a maximum on the amount of damages the party
may have to pay if there is a failure of some part of the contract.
Exemption clauses are regulated very strictly in consumer dealings but
these don't apply for those who deal in the course of their business.
Express terms - the terms actually stated in the contract. These can be
the written terms, or verbal ones agreed before or at the time the contract
is made (see implied terms).
Franchising - commercial agreements that allow one business to deal in a
product or service controlled by another. For example, most car
manufacturers give franchises to sell their cars to local garages, who then
operate using the manufacturer's brand.
Going concern - accounting idea that a business should be valued on the
basis that it will be continuing to trade and able to use its assets for their
intended purpose. The alternative is a break-up basis, which sets values
according to what the assets could be sold for immediately - often much
less than their value if they were kept in use.
Implied terms - are terms and clauses that are implied in a contract by
law or custom and practice without actually being mentioned by any party.
Terms implied by custom and practice can always be overridden
by express terms, but some terms implied by law cannot be overridden,
particularly those relating to consumers (see exemption clauses).
Incorporate - inclusion in, or adoption of, some term or condition as part
of the contract. It differs from its company law definition where it refers
to the legal act of creating a company.
Injunction - a remedy sometimes awarded by the court that stops some
action being taken. It can be used to stop another party doing something
against the terms of the contract. Injunctions are at the court's discretion
and a judge may refuse to give one and award damages instead - see the
finance contract terms below.
Joint and several liability - where parties act together in a contract as
partners they have joint and several liability. In addition to all the partners
being responsible together, each partner is also liable individually for the
entire contract - so a creditor could recover a whole debt from any one of
them individually, leaving that person to recover their shares from the rest
of the partners.
Joint venture - an agreement between two or more independent
businesses in a business enterprise, in which they will share the costs,
management, profits or benefits arising from the venture. The exact shares
and responsibilities will be set out in a Joint Venture Agreement.
Jurisdiction - a jurisdiction clause sets out the country or state whose
laws will govern the contract and where any legal action must take place.
Don't forget that England and Scotland have different legal codes, and this
may need to be specified.
Letters of comfort - see Comfort letters.
Liability - a person or business deemed liable is subject to a legal
obligation. A person/business who commits a wrong or breaks a contract or
trust is said to be liable or responsible for it.
Limited liability - usually refers to limited companies where the owners'
liability to pay the debts of the company is limited to the value of their
shares. It can also apply to contracts where a valid limitation clause has
been included in the terms.
Liquidation - the formal breaking up of a company or partnership by
realising (selling or transferring to pay a debt) the assets of the business.
This usually happens when the business is insolvent, but a solvent
business can be liquidated if it no longer wishes to continue trading for
whatever reason (see receivership in the financial terms below).
Misrepresentation - where one party to a contract makes a false
statement of fact to the other which that other person relies on. Where
there has been a misrepresentation then the party who received the false
statement can get damages for their loss. The remedy of rescission
(putting things back to how they were before the contract began) is
sometimes available, but where it is not possible or too difficult the court
can award damages instead.
Non-executive director - a director who does not work directly for a
company but advises the other directors. Non-executive directors have the
full powers and authority of any other director and can bind the company
to any contract.
Offer - an offer to contract must be made with the intention to create, if
accepted, a legal relationship. It must be capable of being accepted (not
containing any impossible conditions), must also be complete (not
requiring more information to define the offer) and not merely advertising.
Parent company - where one company owns more than 50 per cent of
the voting rights of another company it is the parent of that company
which in turn becomes its subsidiary. It can also occur where the parent
has less than 50 per cent but can control the board of directors of the
subsidiary: that is, it has the power to appoint and remove directors
without referring to other shareholders.
Partnership - when two or more people or organizations join together to
carry on a business.
Proxy - a person who acts on behalf of another for a specific purpose, or
the form used to make such an appointment. In a company a shareholder
can appoint a proxy to attend a meeting and vote on their behalf.
Quorum - the minimum number of people needed at a meeting for it to
proceed and make any decisions.
Ratification - giving authority to an act that has already been done. A
company general meeting resolution can ratify an act previously done by
the directors; or a principal can choose to ratify the act of an agent that
was beyond the specified power of the agent.
Registered Office - the official address of the company as stated on the
register at Companies House. Any documents delivered to this address are
considered to be legally served on the company.
Repudiation - has two meanings in contract law. The first is where a party
refuses to comply with a contract and this amounts to a breach of contract.
The second is where a contract was made by a minor (person under the
age of 18) who then repudiates it at or shortly after the age of 18. Then the
repudiation voids the contract rather than causing a breach of contract.
Restrictive covenant - is often included in long-term contracts and
contracts of employment to stop the parties working with competitors
during the period of the agreement and for some time thereafter. However,
unless carefully written the courts will see them as being a restraint of
trade and not enforce them.
Service contract - directors and officers of a company are usually given
service contracts that are different to a contract of service or employment
contract. This is because directors and officers are not always employees
and the effect of employment law is different.
Shareholders' agreement - an agreement between all of the
shareholders about how the company should be run and the application of
the rights of the shareholders. This acts as a contract between the
shareholders. The company itself is not bound by it, as it is not a party to
the agreement.
Subject to contract - words used on documents exchanged by parties
during contract negotiations. They denote that the document is not an
offer or acceptance and negotiations are ongoing. Often the
expression without prejudice is used when subject to contract is meant.
Trademark - a registered name or logo that is protected by law.
Trademarks must be granted through the Patent Office.
Underwriter - a person who signs as party to a contract. Now usually only
applied to insurance contracts where the underwriters are those who agree
to bear all or part of the risk in return for the premium payments.
Underwriters at Lloyd's of London are also known as names.
Unfair terms - some terms are made unfair by legislation and will not be
enforced by the courts and may even be interpreted against the person
who included them in the contract. The legislation mainly protects
consumers, but can also apply where there is a business-to-business
contract in which one party is significantly more powerful than the other.
Void - a void contract is one that cannot be performed or completed at all.
A void contract is void from the beginning (ab initio - see the Latin terms
below) and the normal remedy, if possible, is to put things back to where
they were before the contract. Contracts are void where one party lacks
the capacity to perform the contracted task, it is based on a mistake, or it
is illegal.
Warranties - promises made in a contract, but which are less than
a condition. Failure of a warranty results in liability to pay damages (see
the financial terms below) but will not be a breach of contract unlike
failure of a condition, which does breach the contract.
Without prejudice - a term used by solicitors in negotiations over
disputes where an offer is made in an attempt to avoid going to court. If
the case does go to court no offer or facts stated to be without prejudice
can be disclosed as evidence. Often misused by businesses during
negotiations when they actually mean subject to contract.

financial contracts terms and definitions glossary

Note: terms highlighted in bold within the current definitions (eg wound
up) are explained elsewhere in this guide.
Bankruptcy - the formal recognition that a person cannot pay their debts
as they are due. Note this only applies to individuals, companies and
partnerships that become insolvent are wound up.
Damages - money paid as the normal remedy in the law as compensation
for an individual or company's loss. If another type of remedy is wanted
(such as an injunction - see general contract terms below) but cannot be
or is not given by the court, then damages will be awarded instead.
Debenture - a formal debt agreement. It refers to both the agreement
and the document that verifies it. It is usually issued by companies and is
generally supported by security over some property of the debtor. If the
debtor defaults, the creditor can take and sell the property. Debentures
are often transferable, so the creditor can sell it and there are markets on
formal stock exchanges that deal in types of debenture. It is sometimes
referred to as debenture stock. A mortgage is a type of debenture but one
that is always secured, usually against land.
Floating charge - a form of security for a debt. Instead of naming a
specific property, which can be taken by the creditor if the debtor defaults
(as in a fixed charge like a mortgage), a class of goods or assets is named,
such as the debtor's stock. This allows the debtor to trade in the assets
freely, but if the debtor fails to make repayments then the floating charge
becomes a fixed charge (known as crystallisation) over all the stock at that
time. The creditor can then take and sell it to recover the debt.
Guarantee - a secondary agreement by which one person promises to
honour the debt of another if that debtor fails to pay. Banks and other
creditors often call on directors of small companies to give their personal
guarantees for company debts. A guarantee must be in writing. The
guarantor can only be sued if the actual debtor can't pay, in contrast
to indemnity.
Indemnity - a promise by a third party to pay a debt owed, or repay a loss
caused, by another party. Unlike a guarantee, the person owed can get
the money direct from the indemnifier without having to chase the debtor
first. Insurance contracts are contracts of indemnity: the insurance
company pays first, and then tries to recover the loss from whoever
caused it.
Insolvency - the situation where a person or business cannot pay its debts
as they fall due (see bankruptcy, liquidation and receivership).
Liquidation - the formal breaking up of a company or partnership by
realising (selling or transferring to pay a debt) the assets of the business.
This usually happens when the business is insolvent, but a solvent
business can be liquidated if it no longer wishes to continue trading for
whatever reason (see receivership).
Receivership - the appointment of a licensed insolvency practitioner to
take over the running of a company. A creditor with a secured debt
appoints the receiver. The job of the receiver is to recover the debt either
by taking the security and selling it or by running the business as a going
concern until the debt is paid off (see liquidation).
Redemption of shares - where a company issues shares on terms stating
that they can be bought back by the company. Not all shares can be
redeemed, only those stated to be redeemable when they were issued.
The payment for the shares must generally come from reserves of profit so
that the capital of the company is preserved.
Remedy/Remedies - payments or actions ordered by the court as
settlement of a dispute. The most common is damages (a payment of
money). Others include specific performance (of an action required in the
contract), injunction (see the general contract terms above) and
rescission - putting things back to how they were before the contract was
signed.
Stamp duty - a tax on transactions. Only applied to specific types of
transactions eg dealings in land and buildings, shares and ships.
Wound up - winding-up is the formal procedure for disbanding a company.

property contracts terms and definitions glossary

Note: terms highlighted in bold within the current definitions (eg deed)
are explained elsewhere in this guide.
Break clause - a clause that allows a tenant to end a lease at specific
times during the period of the lease.
Conveyance - a deed that conveys property rights.
Covenant - a promise within a contract for the performance or non-
performance of a specified act.
Deed - a written document by which a person transfers ownership of real
property to another. A deed must be properly executed and delivered in
order to be effective.
Disclaimer - a written document denying legal responsibility, or a
limitation of rights that might otherwise be claimed.
Easement - an interest in land owned by another that entitles its holder to
a specific limited use or enjoyment eg the right to cross the land, or to
continue to have an unobstructed view over it.
Encroachment - when a building or some portion of it, or a wall or fence,
extends beyond the land of the owner and illegally intrudes upon that of an
adjoining owner.
Equity - the monetary value of a property after any claims, such as a
mortgage, are taken away.
Eviction - the dispossession of a tenant of leased property by force or
through the legal process.
Exchange - the exchange of agreed, signed contracts. The transaction
between the seller and the buyer is then legally binding, and completion
(including the final transfer of money) usually takes place two to four
weeks later.
Fixture - a permanently fixed piece of furniture or equipment incorporated
into a property. Removing it would cause damage to buildings or land, and
is therefore regarded as legally part of it.
Freehold - outright ownership of a property. This type of tenure contrasts
with leasehold where the leaseholder has the rights to occupy a property
for a specified period of time.
Habitable - suitable and fit for a person to live in and free of any faults
that might endanger the health and safety of occupants.
Holdover Tenancy - a tenancy that arises when someone remains in
possession of a property after the expiration of the previous tenancy and is
recognised by the landlord by accepting rent.
Indenture - a deed or other document to which two or more parties are
bound.
Invitee - a person, such as a customer, who is present in a place either by
the express or the implied invitation of the occupier. This normally means
that the occupier has to exercise reasonable care to protect the safety of
the invited person.
Landlord - the owner of property that is leased or rented to others.
Lease - a contract by which an owner of property conveys exclusive
possession and use of it for a specified rent and for a specified period -
after which the property reverts to the owner.
Legal duty - the responsibility to others to act according to the law.
Loss of use - circumstances where a property cannot be occupied in the
normal way, through the negligence or wrongdoing of another party.
Notice to quit - a notification or communication to a tenant to leave
specified premises usually for a breach of terms of the lease.
Occupancy - holding, possessing, or occupying premises.
Occupant - someone who occupies a particular place.
Partition - the division into parts of property held jointly, or the sale of
such property by a court with division of the proceeds.
Party wall - a wall that divides two separate premises, which is the joint
responsibility of both owners.
Premises - a building or part of a building usually including the adjacent
grounds.
Quit - for a tenant to move out of rented premises.
Reasonable wear and tear - damage sustained in the course of normal
use.
Repossess - to take possession again of a property or goods after non-
payment of money owed. This might follow a court order.
Search - an inspection carried out to establish whether any legal
restraints, planning applications or aspects of legal ownership might affect
the purchase of a property. Solicitors will look into land registry and local
government records when pursuing this.
Sublease - a lease that is given by a tenant of part or all of the leased
premises, to another person for a period shorter than the original lease,
while still retaining some interest.
Tenancy - the temporary possession or occupancy of property that
belongs to another. It also refers to the period of a tenant's possession.
Tenure - the way in which a property is held eg freehold tenure or
leasehold tenure.
Trespass - a wilful act or active negligence that causes an injury to a
person or the invasion of their property.
Vendee - the person to whom a property is sold.
Vendor - the person who is selling a property.

latin contracts terms and definitions glossary

Note: terms highlighted in bold within the current definitions (eg mala
fides) are explained elsewhere in this guide.
Ab initio (ab init) - from the beginning. Can mean that breaking some
terms in a long-running contract results in the contract having been broken
from the start.
Bona fide - in good faith. Usually implies an amount of trust that the
parties are acting without any hidden motives. The opposite is mala
fides - in bad faith.
Bona vacantia - vacant property. Refers to a situation where property or
goods end up not being owned by anyone. This can happen if a person dies
without heirs or a company is struck off without all its property being
distributed. It can also occur where a contract becomes void and property
under it cannot be restored to an owner. In the UK, any such property then
belongs to the Crown and expensive proceedings are required to get it
back.
Caveat emptor - buyer beware. This is a general rule that it is up to the
buyer to find out if what they are buying is what they want. Consumer
regulations require certain information to be disclosed to consumers and
insurance contracts are covered by the uberrimae fides - but many types
of business contracts are covered by the caveat emptor rule.
Consensus ad idem - agreement on an idea. This is the concept that the
parties to the contract must all be in agreement on the basis of the
contract. If it is discovered that the parties were thinking different things,
then there is no consensus and the contract is void.
De facto - in fact. The opposite of de jure (in law). Having a practical
effect different from the legally accepted or expected situation. For
example, a person who deliberately or negligently gives the impression to
another party of being a company director, can be treated as a de facto
director. So any agreement or statements will bind the company they
make as if a properly appointed director made them.
De jure - in law. According to law, the opposite of de facto.
De minimis - short for de minimis non curat lex: the law does not concern
itself with trifles. It basically means insignificant or too small to bother
with.
De novo - start afresh. Starting a new contract on the same basis as the
old.
Exempli gratia (eg) - for example. One or more examples from a greater
list of possibilities. Compares with id est (ie), that is, which indicates a
full, definitive list of all possibilities.
Ex gratia - out of grace. A gift made without any obligation on the part of
the giver or any return from the receiver.
Ex parte - on behalf of. An action, usually a legal action, taken by a party
on someone else's behalf.
Ex post facto - because of some later event. Where a later event or
occurrence interferes with an earlier agreement.
Id est (ie) - that is. Is followed by a definition or list of items or options
that relate to a preceding statement or condition. Differs from exempli
gratia (eg) - for example - that gives some, but not all, examples of the
items or options.
Inter alia - among other things. This is often used in contracts to indicate
that what is being specifically referred to is part of a larger group without
having to name all the elements.
Mala fides - bad faith, opposite of bona fide.
Nemo dat quod non habet - no one can give what they do not have. The
principle that a seller cannot pass on a better right to the property than
they actually have. So, if goods are stolen, the buyer does not get
ownership even if there was no indication that they were stolen.
Non compos mentis - not of sound mind. A person who is not of sound
mind will not have full capacity to enter into a contract.
Non est factum - not my act. This is a denial by a person that they were
actually involved in some action or dealings. In a contract, it can occur if a
party denies that they signed the contract - that someone else forged their
signature.
Pari passu - equal and even. This relates to shares to denote that newly
issued shares have the same rights and restrictions as those of the same
class already existing.
Prima facie - at first sight. A prima facie fact is one that seems to be
correct, but may subsequently be proved wrong by other evidence.
Pro rata - for the rate. Divided in proportion to some existing split. For
example, a pro rata share issue is offered in proportion to the number of
shares each shareholder already has.
Pro tanto - for so much. Means to the extent specified, but not more.
Pro tempore (pro tem) - for the time being.
Quid pro quo - something for something. The usual definition
of consideration (see the general contracts terms above) in a contract,
on the basis that each party should offer something to the other.
Uberrima fides - utmost good faith. The concept that a party to certain
types of contract must act in good faith and declare all relevant facts to
the other side even if they do not ask. This only usually applies to
insurance contracts where the insured person must declare all known risks.
It is an exemption to the general contract rule of caveat emptor.1

Common Contract Terms Explained

By: LawInfo
Published: 08/2010
In every contract there are invariably a slew of legal terms and conditions that, regardless of the contract’s
purpose, go unchanged and often unchecked by the contracting parties. These terms and conditions are often
referred to as the contract’s “boilerplate” language. Most people don’t give these sections a second thought,
and it’s typically a non-issue. That is, until they have a dispute and the contract is used as evidence in court.
Since these terms can influence the outcome of a lawsuit, it’s worth knowing at least their general meaning,
and whether they can be negotiated in your favor.
Indemnification (Hold harmless agreement)
If you agree to an indemnification clause it means you are agreeing to hold another party harmless against
future legal claims. It’s easiest to understand indemnification through an example: say you rent a car and sign
a contract with the rental agency that you will indemnify them against any future claims. If you were to get into
a car accident where another party was injured, they would not be able to sue the rental agency because you
have indemnified them against all future claims. If the other party attempted to sue the rental agency, you
would be legally obligated to assist in the agency’s legal defense.
Indemnification is a way for people to protect themselves from being financially liable for another’s actions or
negligence. These clauses are usually written with great care and precision so it is important to understand
the limitations and scope of the indemnity before signing a contract.
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Sample indemnification clause:
Widgets, Inc. agrees to indemnify and hold harmless Corp. X against loss or threatened loss or expense by
reason of the liability or potential liability of Corp. X for or arising out of any claims for damages.

Time is of the essence

A time is of the essence clause is included in a contract to signal that any delay in performance will amount to
a material breach of the agreement. For example, a landlord may insist a remodel of a condo be completed by
a certain date because tenants will be moving in shortly thereafter. If the remodel isn’t completed by that date,
the consequences for the landlord would be significant in terms of lost rent. Without a time is of the essence
clause, a delay might be considered a material breach and the landlord may not be able to successfully sue
the contractor for the breach.

In some cases, contracting parties will explicitly agree that time is not of the essence. This is particularly true
when there are unknown variables that could influence a person’s ability to perform under the contract within a
certain period of time. If the parties want to make it clear that a delay in performance is acceptable they should
include a time is not of the essence clause.

Sample time is of the essence clause:

Time is of the essence with respect to all provisions within this Agreement. Any delay in performance by either
party shall constitute a material breach of this Agreement.

Choice of Law & Forum Selection Clause

When parties include a forum selection clause they are agreeing that any disputes will be covered by the law
of a specific jurisdiction, and/or within a certain forum (court). If the parties elect to choose a specific
jurisdiction, it’s typically because they are doing business across states lines and need to know what law to
follow in case there are any discrepancies. When dealing with a company or person from different jurisdiction,
you should be aware of the applicable law as stated in your contract because it may be different than the state
you currently reside.

The contract may also state that any dispute will be handled in a certain forum. This means that a contract
signed in California could be litigated in Florida if that’s what the parties agreed. Further, this clause can also
limit your ability to litigate a dispute in the courts. Instead, the contract can demand that disputes must be
brought to arbitration or mediation only. Arbitration is usually in front of a judge or judge-like decision maker,
and mediation is akin to a negotiation before a neutral third party.

Sample choice of law & forum selection clause:

This Agreement shall be interpreted and construed according to, and governed by, the laws of Delaware,
excluding any such laws that might direct the application of the laws of another jurisdiction.

In the event that the parties can not by exercise of their best efforts resolve the dispute, they shall submit the
dispute to Mediation.

Arbitration clause
See “forum selection clause” above

Severability clause
As seen in other terms on this list like “indemnification,” the language of each legal clause must be properly
written for each contract and for each set of parties. Unfortunately, attorneys who write contracts are human
and can make mistakes with regard to the language. Language mistakes have the potential of voiding the
entire contract. A severability clause will either allow the invalid portion to be modified to reflect the party’s
actual intentions, or rescue the other portions of the contract that are written properly and keep them valid and
enforceable.

Sample severability clause:

Invalidity or unenforceability of one or more provisions of this Agreement shall not affect any other provision of
this Agreement. If possible, any unenforceable provision within this Agreement will be modified to reflect the
parties’ original intention.

Attorney fees provision

This provision is common and states simply that if a dispute arises from the contract then the losing party will
pay both side’s attorney fees. If you have an issue with this outcome, you may want to negotiate that this
provision will only apply to claims brought frivolously.

Sample attorney fees provision:

In any proceeding by which one party either seeks to enforce its rights under this Agreement or seeks a
declaration of any rights or obligations under this Agreement, the prevailing party shall be awarded its
reasonable attorney fees, and costs and expenses incurred.

Liquidated damages clause

A liquidated damages clause states that if a party fails to live up to the terms of an agreement, that party will
be liable for a specific sum of money. These clauses are used when the actual damages resulting from a
breach are unascertainable. For example, a developer may hire a builder to construct a new restaurant to be
opened on a certain date. When the parties sign the contract there is no way to determine how much revenue
and profit the restaurant will make each day after it’s opened. Thus, the parties may agree that if the
construction is delayed, the builder will pay liquidated damages amounting to $300 per day the restaurant is
delayed.

In order for a liquidated damages clause to be enforceable it must be reasonable as measured at the time of
signing. In the example above, it would be unreasonable for the parties to agree to a liquidated damages sum
of $50,000 per day because the figure is obviously too high. Usually however, if there is a legitimate question
as to whether the liquidated damages amount is unreasonable, the judge will side with the party attempting to
enforce the liquidated damages clause. This is why it’s important to read your contract for a liquidated
damages clause, and if you’re uncomfortable with the amount, feel free to negotiate.

Sample liquidated damages clause:

If the Contractor fails to complete the work within the contract time, the Contractor agrees to pay the Owner
$300 per day as liquidated damages to cover losses, expenses and damages, not to exceed $10,000.

Acceleration Clause
This clause provides that if one party breaches the agreement, the other party can demand full performance
immediately. This is important in contracts with installment payments spread over a long period of time, such
as in a mortgage arrangement. If an installment plan includes an acceleration clause and one party fails to
make a payment, the other party will be able to demand the entire amount outstanding immediately.

For example, say a buyer contracts with a store to purchase a couch for $1000, to be paid in ten monthly
installments of $100. If the buyer makes the first three payments, but fails to make the fourth, an acceleration
clause would require the buyer to pay the store the entire balance of $700. If the buyer were unable to make
the $700 payment, he would not only lose the couch, but all the money he had previously paid.

Sample acceleration clause:

In the event of default in the payment of any of the said installments or said interest when due as herein
provided, time being of the essence hereof, the holder of this note may, without notice or demand, declare the
entire principal sum then unpaid immediately due and payable.

Merger and integration clause (Entire agreement clause)

This clause basically states the entire agreement between the parties has been completely memorialized in
the words of the contract. Thus, if there were ever a dispute as to the purpose of the contract, or the expected
performance of the parties, a judge would only look to the language of the contract to decide the case. For
example, say you agreed to buy goods from a merchant who would deliver them to you on a certain date. If a
contract for this sale of goods included a merger and integration clause, the merchant would be precluded
from later claiming you had agreed accept the goods on a different date. The contract language trumps
whatever other agreements you may have had.

There is at least one exception worth knowing. In a dispute over a contract that includes a merger and
acquisition clause a judge may allow in outside evidence in order to clear up language ambiguities, or to
determine whether fraud was committed. However, outside evidence will not be admitted into court to directly
contradict the written contract’s terms. For example, if during the signing of a contract one person thought the
word “Soda” included fruit juices whereas the other party thought it included only carbonated beverages,
outside evidence may be admissible and useful to clear up the initial confusion.
When faced with a contract that includes a merger and integration clause, it may be helpful to have a third
party review the contract for ambiguities or missing elements. You may know what soda means, but without a
clearly expressed definition the word is open to interpretation.

Sample merger and acquisition clause:

This Agreement and exhibits attached hereto constitute the entire agreement between the contracting parties
concerning the subject matter hereof. All prior agreements, discussions, representations, warranties, and
covenants are merged herein. There are no warranties, representations, covenants, or agreements, express
or implied, between the parties except those expressly set forth in this agreement. This agreement may only
be amended by a written document duly executed by all parties.

As a general rule, all contract terms and conditions are negotiable. If you ever have a question regarding what
something in the contract means, it would be wise to research its meaning and consequences before signing.
Ignorance of the law is not an excuse that will allow you to break a contract after it’s signed. 2

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