Common Contract Terms and How to Use Them

A contract is like a puzzle, consisting of lots of tiny pieces called contract terms. Much like a puzzle, each piece on its own doesn’t make much sense. When they’re combined, however, they paint the full picture of the contract. 

Continue reading to better understand some of the most commonly-used contract terms and how contract management software can help you search and analyze your contracts faster.

What is a contract term?

A contract term is any statement in a contract that outlines the rights and obligations of the parties to the contract. On a sale of goods, for example, you would likely find the shipment terms as well as the delivery terms. On a real estate contract you would find the obligations of the buyer to the seller, such as the amount to be paid and when it’s going to be paid.

What are some common terms?

No matter the specific contract, you’ll notice the same kind of terms tend to show up. The terms below are just a few.

Effective dates / expiration dates

Maybe you’ve never thought about effective dates or expiration dates as a type of term. After all, dates aren’t long or wordy, and you definitely don’t need a law degree to understand them. Nevertheless, dates are not only a term but an essential part of any contract. The duration of your legal responsibility quite literally begins and ends with the dates.

Responsibilities / conditions

In every contract, each party has a legal obligation to the other party, otherwise known as the conditions. For example, a delivery must be made by one party to the other party by a specified date. In return, the second party will pay an agreed-upon amount for products and services rendered. Both parties must fulfill their legal obligation in order for them to not be in breach of contract.

Liability / indemnity

Liability, otherwise known as indemnity, goes hand-in-hand with the conditions of the contract. Liabilities are a way of holding either party accountable for not fulfilling their legal obligations. If your shipment arrives later than promised, and you don’t want to be in breach of contract, you may need to indemnify the other party by offering compensation.

Dispute resolution

What happens if one party is in breach of contract? The dispute resolution terms outline how this type of conflict will be managed. These terms specify whether it will be necessary to go to court or if an issue can be resolved with arbitration or mediation. Mediation, arbitration, and litigation usually look like the following:

Mediation

With mediation, both sides meet with a neutral third party with the intention of collaborating and finding common ground. A mediated agreement is not legally binding, however, nor can the mediator enforce the agreement once one is reached.

Arbitration

Arbitration involves the submission of evidence on both sides in order to make a convincing argument. An arbitrator makes the final decision as to how the dispute will be resolved, and that decision is legally binding. 

Litigation

In the event of a legal dispute where it becomes necessary to take the other party to court, that process is referred to as litigation. Contract terms that explain which courts and governing laws are responsible for handling disputes, known as jurisdiction terms, are an essential part of any well-written contract, as these terms help both sides understand the laws that will govern any disputes.

Intellectual property

Intellectual property (IP) is a type of property that isn’t tangible, such as a patent or trademark. Intellectual property rights (IPR) terms are commonly used in agreements with third-party contractors as a way of clearly defining who owns the intellectual property — the company or the contractor.

Termination

The circumstances under which a contract can legally end prematurely are known as the termination terms. Contract termination can be the result of a breach of the agreement or can simply be done for convenience, although this requires notice and usually monetary compensation to the other party for terminating early. 

Now that you have a better understanding of some commonly-used contract terms, let’s examine how contract management software is useful when searching through your contracts for important information.

How does contract management software help manage contract terms?

Contract management software has several advantages when it comes to managing contract terms in all types of contracts. If we use some of the same terms used above as examples:

Dates

Contract management software can easily extract effective and expiration dates, as well as setting automated reminders, to make following up with the other parties easier and more efficient. You’ll not only save time, but you’ll be more on top of your contract renewals.

Responsibilities 

Not only can contract management software pull dates, it can also quickly pull names and other properties that will help you organize and analyze your contracts in a fraction of the time it would take to do so manually. You’ll be able to find the document you need and see pertinent data all at a glance on the first page.

Liability

Ensure that all parties have fulfilled their responsibilities on time by setting automated reminders before the contract period ends. Additionally, you can make customized notes to remind yourself of any specific issues you may need to be aware of in a certain contract.

Contract terms can look wordy and intimidating if you don’t know what to look for. Knowing just a few of the most commonly-used terms can help you navigate your contracts with more certainty and see how each one informs the others. With the extra help of contract management software, you can pull important information faster — freeing you up for more business-critical work. 

Unlock essential data in your contract terms with Concord.

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