Contract essentials: A glossary of 100 key terms

Contracts are an integral part of conducting business and establishing legal agreements. They form a foundation for relationships, outlining all parties’ rights, obligations, and responsibilities. However, contracts can be complex, filled with legal jargon and technical terms that may be unfamiliar to many individuals. Understanding the language used in contracts is crucial to ensure clarity, prevent misunderstandings, and protect your interests.

The contract language is designed to be precise and specific, leaving no room for ambiguity or misinterpretation. It is essential for all parties involved in a contract to have a clear understanding of its terms and provisions. 

To assist individuals in navigating contract language, we’ve compiled a comprehensive glossary of terms commonly found in contracts. This glossary aims to provide concise definitions and explanations for each term, allowing individuals to grasp their meanings and implications within the context of a contract.

Table of Contents

1. Agreement:

A legally binding understanding between two or more parties concerning their rights, obligations, and responsibilities.

Example: A company and a vendor signing an agreement for the supply of goods, specifying the quantity, price, and delivery terms.

2. Advanced electronic signature (AES):

A secure electronic signature that uniquely identifies the signatory, is created using secure signature creation devices and is linked to the signed data. It ensures the integrity and authenticity of electronic documents.

Example: A digital signature created using a cryptographic key pair and a secure hardware token.

3. Amendment:

A formal modification or change to a contract or legal document.

Example: Parties agree to amend a lease agreement to extend the lease term by six months.

4. Arbitration:

A method of resolving disputes outside of the court system, where a neutral third party (the arbitrator) makes a binding decision based on the arguments and evidence presented by the parties involved.

Example: In a contract dispute, the parties agree to resolve the issue through arbitration rather than litigation.

5. Assignment:

The transfer of rights, obligations, or interests in a contract from one party to another.

Example: An author assigning the copyright of their book to a publishing company.

6. Audit compliance:

The process of ensuring that an organization or entity adheres to applicable laws, regulations, policies, and industry standards through systematic reviews and assessments.

Example: A company regularly conducts internal audits to ensure compliance with financial reporting regulations.

7. Audit trail:

A chronological record that provides documented evidence of activities, events, or transactions, often used to track changes and maintain accountability.

Example: An audit trail in an electronic signature platform logs all actions taken on a contract, such as document access, signatures, and modifications. Read More

8. Authentication:

The process of verifying the identity of a user or entity, ensuring that they are who they claim to be.

Example: A website requiring users to enter a username and password for authentication before accessing their accounts.

9. Biometric authentication:

The use of unique physical or behavioral characteristics, such as fingerprints, voice recognition, or facial features, to verify the identity of an individual signing the digital document.

Example: A user signs a digital document using their fingerprint on a biometric-enabled touchscreen device, verifying their identity and ensuring the integrity of the electronic signature.

10. Blockchain:

A decentralized digital ledger that securely records and verifies transactions, providing transparency and immutability to electronic signatures and documents.

Example: A smart contract executed on a blockchain platform allows parties to automatically enforce contract terms and securely record eSignatures, providing a tamper-proof and transparent audit trail for all parties involved.

11. Bilateral contract:

A contract in which both parties make promises and are legally obligated to fulfill those promises.

Example: A sales contract where the buyer promises to pay a specific amount, and the seller promises to deliver the goods. Learn More

12. Boilerplate:

Standardized, non-negotiable language or provisions commonly used in contracts.

Example: The boilerplate section of a contract may include general clauses such as the governing law, dispute resolution, and severability clauses.

13. Breach of contract:

Failure, without a legal excuse, to fulfill the obligations specified in a contract. Learn More

Example: If a tenant fails to pay rent as agreed upon in the lease agreement, it would be considered a breach of contract. 

14. Breach of duty:

Failure to perform a legally imposed obligation or duty.

Example: A doctor’s failure to provide a reasonable standard of care to a patient could constitute a breach of duty in a medical malpractice case.

15. Certificate authority (CA):

An entity that issues digital certificates to verify the authenticity of electronic documents, websites, or individuals.

Example: DigiCert is a well-known and reputable CA in the US that issues digital certificates for securing websites, encrypting communication, and providing authentication for electronic signatures and other online transactions.

16. Clickwrap agreement:

An agreement or contract where users indicate their acceptance of terms and conditions by clicking an “I agree” or similar button.

Example: When signing up for an online service, users may be required to click “I agree” to the terms of service before proceeding.

17. Confidential information:

Sensitive or proprietary information that is shared under an obligation of confidentiality.

Example: Trade secrets, customer data, or business strategies shared between two companies under a non-disclosure agreement (NDA).

18. Consent:

Voluntary agreement or permission given by a person to authorize a specific action or activity.

Example: A patient consents to undergo a medical procedure after being informed of the risks and benefits involved.

19. Consideration:

Something of value, often money, goods, or services, exchanged between parties to a contract as a mutual inducement to enter into the agreement.

Example: Payment made by a customer to a vendor in exchange for the delivery of goods.

20. Consequential damages:

Damages that result indirectly from a breach of contract and are not the immediate or direct result of the breach.

Example: Lost profits or business opportunities incurred by a company due to a supplier’s late delivery of essential components.

21. Contract:

A contract is a legally binding agreement between two or more parties that establishes their rights and obligations, enforceable by law.

Example: A written contract between a homeowner (party A) and a construction company (party B) outlining the scope of work, payment terms, and completion date for a home renovation project. Both parties are legally bound to fulfill their respective responsibilities per the agreement’s terms.

22. Counteroffer:

A response to an initial offer in which the terms are modified, creating a new offer and rejecting the original offer.

Example: If a buyer offers $10,000 for a car, and the seller counters with a price of $12,000, it constitutes a counteroffer.

23. Counterpart:

A duplicate or identical contract or legal document copy.

Example: In multi-party agreements, each party may sign separate counterparts of the contract, forming a single binding document.

24. Damages:

A sum of money a court awards as compensation for loss or injury suffered due to a breach of contract or other wrongful act.

Example: A court may award monetary damages to a plaintiff to cover medical expenses and lost wages resulting from a car accident.

25. Deed:

A legal document that conveys or transfers ownership of real property from one party to another.

Example: A warranty deed transferring ownership of a house from the seller to the buyer.

26. Default:

Failure to fulfill an obligation or meet the terms of a contract or loan agreement.

Example: If borrowers fail to make timely loan payments, they may be considered in default, leading to penalties or legal action.

27. Digital certificate:

An electronic document issued by a Certificate Authority that verifies the authenticity and integrity of digital information.

Example: A digital certificate ensures secure communication between a web server and a user’s browser.

28. Digital signature:

An electronic signature that uniquely identifies the signatory and assures a digital document’s integrity and authenticity.

Example: Signing a PDF document with a digital certificate to indicate approval or consent.

29. ESIGN Act:

The Electronic Signatures in Global and National Commerce Act, a U.S. federal law that validates the legal enforceability of electronic signatures and records in interstate and foreign commerce. Learn More

30. EIDAS Regulation:

The Electronic Identification, Authentication, and Trust Services Regulation, is a European Union regulation establishing a legal framework for electronic signatures, electronic identification, and other trusted digital services. Learn More

31. Electronic consent:

The act of providing agreement or permission electronically, typically through a digital interface or electronic means.

Example: Checking a box or clicking “I agree” on a website to give electronic consent to the terms and conditions.

32. Electronic notary:

A notary public who performs notarial acts using electronic means, such as verifying electronic signatures and documents.

Example: A remote online notary who notarizes legal documents through a video conference and electronic signature platform. Learn More

33. Electronic records management:

The systematic organization, storage, and retrieval of electronic records to ensure their accuracy, integrity, and accessibility.

Example: A company implementing an electronic records management system to store and manage digital files, including contracts and invoices.

34. Electronic signature platform:

A software or online service that enables users to create, sign, manage, and store electronic signatures and digital documents securely.

Example: Signeasy, an electronic signature platform that allows users to sign, send, and manage contracts electronically.

35. Electronic transaction:

A transaction or exchange of information that is conducted electronically, typically involving the transfer of digital data or assets.

Example: Purchasing goods online and paying with a credit card or using a digital wallet constitutes an electronic transaction.

36. Encryption:

The process of converting data into a coded form to prevent unauthorized access or interception during transmission or storage.

Example: Encrypting sensitive information, such as credit card numbers or personal data, when transmitting it over the internet.

37. Estoppel:

A legal principle that prevents a person from asserting a claim or defense that contradicts what they previously represented or accepted as true.

Example: If a landlord informs a tenant that they can sublease the premises and later tries to prevent it, they may be estopped from denying the tenant’s right to sublease.

38. Executed contract:

A contract in which all parties have fulfilled their obligations and performed the agreed-upon terms.

Example: A construction contract where the contractor has completed the work, and the client has made the final payment.

39. Express contract:

A contract in which the parties explicitly state and agree upon the terms and conditions, either orally or in writing.

Example: A sales agreement where the buyer and seller negotiate and sign a written contract detailing the purchase price, delivery terms, and product specifications. Learn More

40. Fair Credit Reporting Act (FCRA):

A U.S. federal law that regulates the collection, use, and dissemination of consumer credit information by credit reporting agencies.

41. Federal Electronic Signatures in Global and National Commerce Act (ESign Act):

A U.S. federal law establishing the legality and enforceability of electronic signatures and records in interstate and foreign commerce.

42. Financial responsibility:

The obligation of an individual or organization to fulfill its financial obligations, such as paying debts, meeting contractual obligations, or providing compensation.

Example: An insurance company demonstrating financial responsibility by having sufficient funds to cover potential claims from policyholders.

43. Force majeure:

A clause in a contract that excuses a party from fulfilling its contractual obligations due to unforeseen circumstances or events beyond their control.

Example: A force majeure clause may excuse a contractor from delays or non-performance caused by natural disasters, war, or government regulations.

44. Good faith:

A legal principle that requires parties to act honestly, fairly, and with sincere intentions when entering into and performing contractual obligations.

Example: A seller disclosing all known defects in a property to a buyer and dealing honestly throughout the negotiation and transaction process.

45. Governing law:

The jurisdiction’s legal system and statutes that will be applied to interpret and enforce the terms of a contract or legal agreement.

Example: A contract may state that the laws of the state of California govern the agreement, meaning any disputes or legal actions will be resolved under California law.

46. Hold harmless clause:

A contractual provision in which one party agrees to assume the legal and financial responsibility for certain claims, damages, or losses incurred by the other party.

Example: A contractor agreeing to hold the client harmless from any liability or claims arising from the contractor’s work on a construction project.

47. Implied contract:

A contract formed by the conduct, actions, or circumstances of the parties, even if no explicit agreement has been made.

Example: A customer entering a store, selecting items, and paying for them at the checkout counter establishes an implied contract to purchase those items. Learn More

48. Indemnification:

The act of compensating or reimbursing someone for their losses, damages, or liabilities incurred due to a specified event or action.

Example: An insurance policy that indemnifies the policyholder for losses due to fire or theft.

49. Indemnity:

An obligation or promise to compensate or reimburse someone for any losses, damages, or liabilities they may incur.

Example: A contractor providing an indemnity to a property owner, promising to compensate for any damages or losses resulting from the contractor’s work.

50. Integration clause:

A contractual provision that states that the written agreement represents the entire agreement between the parties and supersedes any prior oral or written agreements.

Example: An integration clause in a sales contract that states, “This written agreement constitutes the entire understanding between the parties and supersedes all prior negotiations and agreements, whether written or oral.”

51. Intellectual property (IP):

Intangible creations of the mind, such as inventions, artistic works, designs, logos, or trade secrets, that are protected by copyright, patents, or trademarks.

Example: A software company obtaining a patent for a new software algorithm it developed.

52. Jurisdiction:

The authority or power of a court or legal system to hear and decide legal cases and make judgments within a specific geographic area or subject matter.

Example: A lawsuit filed in a state court falls under the jurisdiction of that particular state’s legal system.

53. Key pair:

A set of cryptographic keys consisting of a private key and a corresponding public key used in asymmetric encryption systems.

Example: In secure email communication, a sender uses their private key to encrypt the message, and the recipient uses the sender’s public key to decrypt it.

54. Letters of intent (LOI):

A document that outlines the preliminary understanding between two parties regarding a potential transaction or agreement, often preceding the formal contract.

Example: A company expressing interest in acquiring another company by signing a letter of intent to initiate negotiations.

55. Liability:

Legal responsibility or obligation for one’s actions or debts, requiring the person or entity to assume the financial or legal consequences.

Example: A business owner being held liable for injuries sustained by a customer due to negligence on the premises.

56. Liquidated damages:

A predetermined amount of money specified in a contract that the parties agree to as compensation for a specified breach or failure to perform.

Example: A construction contract may include a liquidated damages clause that sets a daily penalty for delays in completing the project beyond the agreed-upon deadline.

57. Material breach:

A significant violation or failure to perform a fundamental term or condition of a contract, which may excuse the non-breaching party from further performance and provide remedies.

Example: If a contractor fails to complete a construction project according to the agreed specifications and timeline, it could be considered a material breach of the contract. Learn More

58. Merger and acquisition (M&A):

The consolidation or combination of two or more companies, either through merging or acquiring one company by another.

Example: A larger corporation acquiring a smaller startup to expand its market presence and acquire new technology or intellectual property.

59. Memorandum of understanding (MOU):

A non-binding agreement between two or more parties outlining the intentions and terms of a future agreement or collaboration.

Example: Two companies signing an MOU to explore potential joint research projects without creating a legally enforceable contract.

60. Mobile electronic signature:

The capability to create and apply electronic signatures using mobile devices such as smartphones or tablets.

Example: A salesperson using their tablet to capture a customer’s electronic signature on a contract while on the go. Learn More about Signeasy Mobile apps

61. Mutual assent:

The meeting of minds and agreement between parties on a contract’s essential terms and conditions, resulting in a mutual understanding and intent to be bound.

Example: Two parties negotiating and reaching a consensus on the price, quantity, and delivery terms of a sales contract.

62. Non-compete clause:

A contractual provision that restricts an individual or company from engaging in competitive activities within a specific time period or geographical area.

Example: A non-compete clause in an employment agreement may prohibit an employee from working for a competitor for a certain period after leaving the company.

63. Non-disclosure agreement (NDA):

A legal agreement between parties that establishes a confidential relationship and prohibits the disclosure of confidential or proprietary information shared between them.

Example: Signing an NDA before discussing a new business idea or sharing trade secrets with potential investors or partners.

64. Non-repudiation:

The assurance that the originator of a message or transaction cannot deny their involvement or the authenticity of the message or transaction.

Example: A digital signature provides non-repudiation as it uniquely identifies the signer and ensures the integrity of the signed document.

65. Non-solicitation clause:

A contractual provision that prohibits one party, usually an employee or business partner, from actively seeking or enticing customers, clients, or employees away from the other party.

Example: A non-solicitation clause in an employment contract preventing a departing employee from soliciting the company’s clients or recruiting fellow employees to join a competitor.

66. Novation:

The substitution of a new party or obligation for an existing party or obligation in a contract, with the consent of all involved parties, effectively replacing the original contract.

Example: A bank agreeing to novate a loan by allowing a new borrower to assume the repayment obligation of an existing borrower.

67. Notice:

Formal communication or notification given to one or more parties to provide information, deliver a message, or fulfill a legal requirement.

Example: Sending a written notice to terminate a lease agreement, specifying the date of termination and the reason for termination.

68. Null contract:

A null contract, also known as a void contract, is a contract that is considered invalid and has no legal effect from the beginning, rendering it unenforceable by either party.

Example: A contract between two parties to engage in illegal activities, such as drug trafficking, would be considered a null contract as it violates the law and cannot be enforced in a court of law. Learn More

69. Obligation:

A legal or moral duty or responsibility that a person or entity is bound to fulfill or perform.

Example: A contractor must complete a construction project according to the agreed-upon specifications and timeline.

70. Offer and acceptance:

The process of one party (offeror) presenting an offer and another party (offeree) accepting the offer, forming a contract.

Example: A seller offering to sell a product at a specific price, and a buyer accepting the offer by agreeing to purchase the product at that price. Learn More

71. Public (open) key infrastructure (PKI):

A public key cryptography system that provides a framework for the secure creation, distribution, and management of public and private key pairs.

Example: PKI is used in digital certificate systems to ensure the integrity and authenticity of electronic communications and transactions.

72. Parol evidence rule:

A legal principle restricting the admissibility of oral or written evidence that contradicts or varies the terms of a fully integrated written contract.

Example: Under the parol evidence rule, a court may not consider oral statements or agreements made before signing a written contract if they conflict with the contract’s terms.

73. Party:

A person, organization, or entity that enters into a contract or legal agreement.

Example: In a partnership agreement, the partners involved are referred to as the parties to the agreement.

74. Private key:

In asymmetric cryptography, a confidential key known only to the owner that is used to decrypt data encrypted with the corresponding public key.

Example: A private key used by an individual to decrypt incoming encrypted emails sent to their public key.

75. Public key:

In asymmetric cryptography, a key that is widely distributed and used for encrypting data and verifying digital signatures, while the corresponding private key is kept private.

Example: A public key used by others to encrypt messages sent to the owner’s private key.

76. Privity of contract:

The relationship that exists between the parties to a contract, giving them the rights and obligations arising from the contract while excluding rights and obligations for non-parties.

Example: Only the parties who have signed a sales contract have the privity of contract and can enforce its terms or seek remedies for any breaches.

77. Qualified electronic signature (QES):

An advanced electronic signature that is created using a qualified certificate issued by a qualified trust service provider, meeting specific legal requirements under relevant regulations.

Example: A qualified electronic signature under the eIDAS Regulation, issued by a qualified provider, is considered legally equivalent to a handwritten signature in the European Union.

78. Qualified seal:

A digital seal created and applied using a qualified certificate issued by a qualified trust service provider, meeting specific legal requirements under relevant regulations.

Example: A qualified seal is used to digitally sign and seal official documents by public institutions, such as government agencies.

79. Quantum meruit:

A legal principle that allows a person to claim fair and reasonable compensation for the value of services or work performed when there is no explicit contract or agreed-upon price.

Example: If a contractor completes work based on an oral agreement, they may seek payment based on quantum meruit if the other party fails to pay.

80. Recitals:

Introductory statements or clauses in a contract that provide background information, context, or reasons for entering into the agreement.

Example: A contract recital may state, “WHEREAS, the parties wish to collaborate to develop innovative technology solutions.”

81. Remote electronic signature:

The process of electronically signing a document using digital technology from a remote location without needing physical presence or ink signatures.

Example: Signing a contract using an electronic signature platform (such as Signeasy), where the signatory and the counterparty are in different geographical locations.

82. Remote online notary (RON):

A notary public who performs notarial acts remotely using audio-visual technology and secure electronic platforms.

Example: A notary public using video conferencing tools to verify a signer’s identity and notarize a document without the need for in-person meetings.

83. Remedies:

Legal or equitable actions or means available to a party to address a breach of contract or other legal violations, aiming to restore the injured party to their rightful position or compensate for damages.

Example: Common remedies for a breach of contract include monetary damages, specific performance, or contract cancellation.

84. Representations and warranties (R&W):

Statements or assertions made by one party to another in a contract regarding specific facts, conditions, or assurances about the subject matter of the contract.

Example: A seller representing and warranting that the goods being sold are free from defects and conform to the specifications provided.

85. Rescission:

The cancellation or termination of a contract, typically due to fraud, misrepresentation, or other legal grounds that render the contract voidable.

Example: A buyer may seek rescission of a contract if they discover that the seller misrepresented the condition or value of the sold property.

86. Restrictive covenants:

Contractual clauses that impose limitations or restrictions on a party’s actions, typically used to protect trade secrets, confidential information or prevent competition.

Example: A restrictive covenant in an employment contract that prohibits an employee from working for a competitor within a specified geographic area for a certain period after leaving the company.

87. Secure socket layer (SSL):

A cryptographic protocol that provides secure and encrypted communication over the internet, commonly used to protect sensitive information during online transactions.

Example: SSL/TLS certificates are used to establish secure connections between web browsers and servers, ensuring the confidentiality and integrity of data transmitted.

88. Specific performance:

A legal remedy where a court orders a party to fulfill its contractual obligations according to the terms of the agreement rather than awarding monetary damages.

Example: If a seller breaches a contract to sell a unique piece of artwork, the court may order a specific performance, requiring the seller to complete the sale.

89. Statue of frauds:

A legal doctrine that requires certain types of contracts to be in writing to be enforceable, including contracts involving real estate, sale of goods over a certain value, or agreements that cannot be performed within one year.

Example: A house sale contract must be in writing and signed to comply with the statute of frauds.

90. Statute of limitations:

A legal time limit imposed by statutes that sets the maximum period for legal proceedings for a particular claim or offense.

Example: The statute of limitations for filing a breach of contract lawsuit maybe three years from the date of the breach.

91. Strong authentication:

The use of multiple factors or methods to verify and confirm a user’s or entity’s identity, providing a higher level of security than single-factor authentication.

Example: A strong authentication process may require a combination of a password, biometric verification, and a physical security token.

92. Termination:

The act of ending or canceling a contract, agreement, or legal relationship before its specified term or agreed-upon conditions.

Example: A tenant providing notice to the landlord to terminate the lease agreement and vacate the premises at the end of the rental period.

93. Timestamp:

A digital record or mark indicating the exact date and time when a document, event, or transaction occurs, providing a verifiable chronological reference.

Example: A timestamp is applied to a digital document to prove when it was created, modified, or signed.

94. Timestamping authority (TSA):

A trusted third-party service that provides secure and accurate timestamps for electronic documents or transactions, ensuring integrity and proof of existence at a specific time.

Example: GlobalSign offers timestamping services that provide secure and accurate timestamps for electronic documents, ensuring integrity and proof of existence at a specific time. These timestamps can be used as legal evidence in court proceedings and other time-sensitive transactions.

95. Two-factor authentication (2FA):

A security measure that requires users to provide two different types of authentication factors, typically a combination of something they know (password) and something they possess (security token or mobile device).

Example: Logging into an online banking account that requires entering a password and a one-time code generated on a mobile app.

96. Uniform Electronic Transactions Act (UETA):

A U.S. state law that provides legal recognition and validity to electronic signatures, records, and contracts in electronic commerce.

97. Unilateral contract:

A contract in which only one party makes a promise or undertakes an obligation, while the other party can accept the offer only by performing the requested action.

Example: A reward offer for finding a lost pet, where the person who finds and returns the pet accepts the offer by performing the requested action. Learn More

98. User authentication:

The process of verifying the identity of an individual or user before granting access to a system, application, or digital resource.

Example: Entering a username and password combination to authenticate and gain access to an online account.

99. Waiver:

The voluntary relinquishment or intentional abandonment of a legal right or claim.

Example: A landlord waiving the tenant’s obligation to pay a late fee for rent payment received after the due date.

100. Warranty:

A promise or guarantee, either explicit or implied, made by a seller or manufacturer regarding the quality, performance, or condition of a product or service.

Example: A manufacturer providing a warranty that covers defects in materials or workmanship for a specific period after purchasing a product.

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