You know the rule — don’t sign until you fully understand a contract. Here are some of the terms that lawyers use that confuse (not intentionally of course) clients and business people:
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Abrogation: To annul or repeal someone’s rights in a contract. Often in a commercial lease, the landlord has a right of abrogation over their tenant under certain circumstances such as when they sell the building.
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Consideration: Generally something that is promised or is done in return for a contractual promise — so, I promise to pay you $500 per day for your consulting services.
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Compos mentis: To be of sound mind, memory and understanding, or otherwise stated, sane. This is very important if you are contracting with people who may be otherwise.
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Guarantor: An individual or company that provides a promise to repay a debt or provide any other activity or service that the original contractor made.
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Indemnity: The right to receive compensation from another party for a loss you have incurred. Imagine you are sued for the actions of one of your independent contractors and have to pay a third party for damages. If the contractor has indemnified you — hopefully in writing — you can turn to them to repay you the loss you have suffered.
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Intellectual Property: An umbrella term used to describe legal rights or entitlements over certain created items that are generally divided into copyrights, trademarks and service marks and patents.
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Subordination: An agreement to receive payment or take lower priority to claims made from the original entity that you have contracted with and who probably owes you money. So, someone owes you money but they pay a supplier or another entity first would mean that you are subordinate to their claim.
Jeffrey D. Cowan, B.A., B.Comm, LL.B., M.B.A., is the principal of Cowan & Taylor, Barristers & Solicitors which practises in the areas of business and real-estate law. Cowan appears in Your Money every other week.
E-mail jeff@cowanandtaylor.comor call 416-363-5046 with questions for future columns. The information contained in this article should not be relied upon as legal advice.
