Contractual Terminology

Certain forms of contractual language can prove difficult to grasp at first glance by anyone uninitiated as to the terminology utilized in contract law. However most terms sound more complicated than they truly are, and often serve to legally express ideas that any business owner or party to a contract would be familiar with in theory if not in practice.

Some of these terms include:

1. “AS IS”

   • “As is” in a contract typically implies that the buyer is agreeing to purchase something in its present condition and the seller makes no guarantees for it.

     • For example, a contract regarding the sale of a car “as is”, makes no commitments to a fresh paint job prior to sale.

1. “COVENANT NOT TO SUE”

   • A covenant not to sue is an agreement in which one party agrees not to sue the other party, often in return for a settlement or other form of compensation.

     • Generally, a covenant not to sue argument serves as a guarantee to the settling party from the settled party.

1. “WARRANTY”

   • A warranty is a term of the contract. Once a party promises to provide a warranty regarding something they offer in the contract, they are contractually obligated to provide it.

     • For example, a contract regarding the sale of a certain product might provide a warranty which offers to replace faulty products with a functioning one when discovered within a specific time frame.

1. “MUTUAL ASSENT”

   • Mutual assent is merely the acceptance of terms in a contract by both parties. This is usually expressed through a signature.

1. “MIRROR IMAGE RULE”

   • This rule refers to the processes by which a contract is agreed upon. In essence, it demands that any “acceptance” of a contract involves absolutely no changes to the contract initially offered. Any changes alongside the acceptance is generally considered a “counter-offer”.

1. “PROMISSORY ESTOPPEL”

   • A Promissory Estoppel is a legal vehicle by which promises given in bad faith are enforced. The main requirement of a promissory estoppel is the existence of a detrimental commitment to the promise from the injured party.

     • For example, an employee who has relocated to another state in order to fill up a job opening, may be eligible to receive damages from the company who offered the job if they were to inform him after his serious commitment that the job opening no longer existed.

1. “CONTRACT OF ADHESION”

   • A contract of adhesion is a contract drafted by one party (usually a business with stronger bargaining power) and signed by another party (often a consumer with weaker power).

     • For example, a custom committing to an in-app purchase on their smartphone is assenting to a contract of adhesion, as they have no input on the contract at hand.

• Generally, whether or not a Contract of Adhesion is enforceable is judged by the “reasonableness” of the transaction at hand. Reasonableness often includes;

  • The prominence and clarity of its terms

  • The purpose behind the terms

  • The circumstances surrounding the acceptance of the contract

1. “NOVATION”

   • Novation is the act of replacing an existing contract with a new one, or replacing a party in a contract with a new party.