Common Legal Terms Every Business Owner Should Know

In the context of a contract or promissory note, when a payment or debt is moved forward in time based upon the failure of the indebted party to make payment as agreed. The entire balance of the debt becomes immediately payable to the other party as a penalty for failure to abide by the terms of the agreement.
An intentional dishonest act by one party. It can be not fulfilling legal or contractual obligations, misleading the other side, entering into an agreement without the intention or means to fulfill it, or violating basic standards of honesty in dealing with others. If a bad faith finding of fact is made by a Judge, the party found in bad faith can be punished either monetarily or in a manner determined to be in the best interest of the other side.
At a court trial, credibility determines whether testimony is worthy of belief, based on the demeanor and/or competence of the witness and likelihood that the testimony given is true. The test of credibility is purely subjective. If two parties testify in completely opposite stories, the Judge must determine which, if any, to believe. Supporting documents that will confirm testimony can be a great asset at trial.
An Order given by the bankruptcy judge which forgives remaining debts which cannot be paid. Debts for fraudulent or illegal actions, alimony and child support and taxes are not dischargeable and remain collectible. A discharge in bankruptcy renders most commercial debt as uncollectible.
Certain cases that involve disputes not within common knowledge require the opinion of a person qualified as an expert on a subject relevant to a lawsuit or a criminal case. The expert witness must be found at trial by the Judge to have sufficient educational or professional experience to render an expert’s opinion, a process known as “voir dire”.
A corporation which is incorporated under the laws of a different State. A “foreign” corporation must file papers in any state in which it does substantial regular business. In New York, failure to become licensed to do business and pay franchise taxes can prohibit the foreign corporation from starting a lawsuit to recover unpaid invoices.
When a person or corporation agrees to be responsible for another’s debt or contractual performance. If that other person does not pay or perform, the guarantor must according to the terms of the guarantee. A guarantee can be terminated, on notice to the other party.
The promise to pay any costs or claims which may result from an agreement between parties. The hold harmless clause can be found in settlement agreements or as part of a primary contract where the product or service might result in third party damage claims. If one party is concerned that there might be unknown lawsuits or claims stemming from the primary contract between the contracting parties, the other party can agree to cover them as part of the offer and acceptance necessary to form the primary contract.
There is a general assumption that people will act in good faith and deal fairly without breaking their word. Using shifty means to avoid obligations or denying what the other party obviously understood to be the facts of the situation would be a breach of good faith and faith dealing.
Where a company or person has more debts than total assets.
An amount of money that is agreed upon by both parties to a contract which one will pay to the other upon breaking the terms. Between contracting parties, they might feel it easier to specify damages at the beginning of the contract rather than try to calculate them later.
The essential element of a valid contract. When two parties to an agreement both have the same understanding of the terms of the agreement between them.
A specific proposal of terms and conditions to enter into an agreement with another. An offer is essential to the formation of an enforceable contract. An offer and acceptance of the offer creates the contract. When two parties to an agreement both have the same understanding of the terms of the agreement between them, they have formed a valid contract.
Where there is a failure to meet a term of a contract which is so minimal that it does not cause the contract to fail or justify breaking the contract by the other contracting party. An example of a partial breach might be a late payment or shipment which is made shortly after it is due.
The fulfillment of obligations required by contract. If a party to a contract fails in their performance, that contract can be declared breached by the other party. Partial performance or the contract might result in partial recovery for what has been performed or delivered even if there is no full performance by the breaching party.
It is a written document signed by one person giving another person the power to act on their behalf in business dealings with third persons. An example would be the grant from parent to a child, given at a time that it is determined that the parent can no longer manage his/her own affairs with regularity or competence.
Statements and conversations which must not be disclosed to third parties or in court. These include communications between husband and wife, attorney and client, physician or therapist and patient, and minister or priest with anyone seeing them in their religious status.
A Latin phrase meaning “as much as he deserved”. It is the actual value of services performed. Quantum meruit determines the amount to be paid for services when no contract exists or when there is doubt as to the amount due for the work performed but done under circumstances when payment could be expected.
The confirmation of an action which was not pre-approved and may not have been authorized, usually by an employer who adopts the acts of his/her agent (employee). In the situation where a business owner ships or receives and keeps goods but did not participate in the actual negotiation of the terms of the sale, he or she can be found to have accepted the terms as if the owner had negotiated terms her/himself.
The appointment by a court of a person to take custody of the property, business, rents and profits of a party to a lawsuit. Often a creditor will petition to have a receiver appointed to assure that the principals of the corporation will not render it defunct to avoid claims.
Where a party to a legal agreement seeks to cancel it, as if it no longer existed. Thus, a person can revoke a will or revoke an offer to enter into a contract, and a government agency can revoke a license.
The transfer or sale of an item, in return for money or other thing of value. Ownership of the item passes on terms agreed upon between buyer and seller.
The resolution of any dispute between parties. A settlement can occur any time after the dispute arises, on terms mutually agreed upon by the parties.
The right of one party to a contract to demand that the other party be ordered by the court to perform the contract according to its terms. In a situation where an award of money would not be just or proper as the true measure of damages, compelling the other party to deliver a unique item, such as a piece of jewelry, would be a more appropriate directive.
There is a stated period of time by which a person has to file a lawsuit to collect alleged damages from another. That period is defined in the law and can vary depending on the type of claim to be made. If the claim is not filed by that day, it cannot be collected by a lawsuit.
Often a party will insist that performance of the contract must be achieved on or before a stated date. The time of essence provision states the specified time and dates and deems them an essential element of the contract. Any delay in the date of performance can be tied to a penalty written into the contract.
The process, method, plan, formula or other information unique to a manufacturer, which gives it an advantage over competitors. A trade secret has a monetary value and may be protected by a court-ordered injunction prohibiting its use by others.
There is a general assumption that people will act in good faith and deal fairly without breaking their word. Unclean hands is a legal defense to a filed complaint which states that a party who is asking for a judgment has not carried themselves ethically in relation to the subject of the lawsuit. Thus, if a defendant can show the plaintiff had “unclean hands,” the plaintiff’s complaint will be dismissed or the plaintiff will be denied judgment.
The declaration under oath or upon penalty of perjury, that a statement or pleading is true.
The intentional and voluntary giving up of something, such as a right, either by an express statement or by conduct. A party can waive the time for payment by not demanding it when due.
A Judge at trial must view competing versions of the transaction causing the dispute. The strength, value and believability of evidence presented on a factual issue by one side as compared to evidence introduced by the other side, determines how much reliance the fact-finder will give to the presentation.
This is the right of an employee to sue his/her former employer for damages. If the termination was not for an acceptable reason, the terminated employee can be awarded lost wages and other punitive damages.
There are two important definitions of the word in the commercial area. The first is receiving something from another with the intent to keep it, and showing that this was based on a previous agreement. The most common situation is where goods are shipped by one party and received and retained by another, after prior discussion about the cost of the goods. The other definition would be agreeing verbally or in writing to the terms of a contract. Offer and an acceptance of that offer are the essential building blocks of a binding contract.
There is no need to accept the first proposal to enter into a contract. A counter offer is an offer made in response to a previous offer by the other party during negotiations. Making a counter offer automatically rejects the prior offer, and requires an acceptance under the terms of the counter offer or there is no contract. The process of multiple counter offers is common in business negotiations, especially in real estate sales. If the parties never reach a final agreement on all aspects of the transaction, there is no binding agreement between them.
During the trial cross-examination is an opportunity for the attorney (or an unrepresented party) to ask questions in court of a witness who has testified in a trial on behalf of the opposing party. A strong cross-examination can force contradictions, expressions of doubts or even complete obliteration of a witness’s prior carefully rehearsed testimony. The witnesses conduct and testimony during cross-examination determines his/her credibility.
The power of a governmental entity to take private real estate for public use, with or without the permission of the owner. The Fifth Amendment to the United States Constitution provides that “private property [may not] be taken for public use without just compensation.” The Fourteenth Amendment then added the requirement of just compensation be applied to state and local government takings. If the owner is not satisfied with the offer received, he/she may sue the governmental agency for a court’s determination of just compensation. Public uses include schools, streets and highways, parks, airports, dams, reservoirs, redevelopment, public housing, hospitals and public buildings.
In the commercial setting, a term referring to purchased goods shipped without transportation charge to a specific place. Free on board at the place of manufacture shows there is a charge for delivery. Example: if an automaker in Detroit sells a car “FOB Detroit,” then there will be a shipping charge if delivery is taken anywhere else. If the contract reads “FOB New Orleans,” then the auto will be shipped to that city without charge, but with charge for delivery from New Orleans to somewhere else.
When unexpected events arise which make a contract impossible to be performed, the frustrated party may decide to rescind the contract. Under the right circumstances, the frustrated party will not have to pay damages to the other side. An example would be a building that burns down prior to the date of closing of title.
When a witness is not reciting what he/she knows personally, but rather what others have said to him/her, those statements cannot be easily verified. As a result, hearsay testimony is largely excluded at trial as untrustworthy, but some exceptions to the rule exist.
Circumstances can show that there was a contract between parties, even if not reduced to writing. If a Judge finds it would be unfair to the performing party and/or that the nonperforming party would obtain an unjust enrichment, a finding of an implied contract can be found. An implied contract can be found where there is discussion between the parties, a tentative agreement, then one party ships goods or performs services and the receiving party does not pay.
There is an assumption at law that products sold in the marketplace work and are useable as normally expected by consumers. Unless there is a warning that a product is sold “as is” or second-hand without any warranty, the seller must be prepared to answer in damages if the product does not perform as reasonably expected.
Where two or more people enter into a business association for profit, but only for a limited time. An example would be the purchase of real estate, with the intent to improve the real estate and then resell it for a profit. A joint venture anticipates a specific area of activity and/or period of operation, so after the purpose is completed, bills are paid, profits (or losses) are divided, and the joint venture is terminated.
The price which a seller of property or goods would receive in an open market by negotiation, as distinguished from a “distress” price on a forced or foreclosure sale, or from an auction. The market value of a house can be determined through comparable sales in the area.
An article for sale must be usable for the purpose it is made. There is an assumption at law that products sold in the marketplace work and are useable as normally expected by consumers. Unless there is a warning that a product is sold “as is” or second-hand without any warranty, the seller must be prepared to answer in damages if the product does not perform as reasonably expected.
The usual conduct of businesses with other businesses of the same type or industry, within normal commercial customs and usages. There can exist a special relationship between two entities, that are unique to them alone, that over the course of time can be defined as their ordinary course of business.
A business enterprise entered into for profit, which is owned by more than one person, each of whom is a “partner.” A partnership may be created by a formal written agreement, but may be based on an oral agreement. Each partner invests money, assets and/or effort), which establishes an agreed-upon percentage of ownership, is responsible for all the debts and contracts of the partnership even though another partner created the debt or entered into the contract, has a share in management decisions, and shares in profits and losses according to the percentage of the total investment.
In a situation where it is proven that a corporation exists merely as a completely controlled front for an individual or management group, a claimant can bring a lawsuit and collect damages against the principals of the corporation. There are specific tests that are used by the courts to determine whether a corporation can be pierced.
The location of head office of a business, where the books and records are kept and/or management works. In most states corporations must report their principal place of business to the Secretary of State.
An aggressive salesperson will point out the good points of a product. In a real estate purchase, the aggressive salesperson will talk about the prospects for future rise in value. A certain amount of “puffing” can be expected. However, it cannot be the basis of a lawsuit for fraud or breach of contract unless the puffery includes outright lies or has no basis in fact
A Latin phrase meaning for “something for something”. Mutual consideration to the contract can be money for goods/services. The quid pro quo identifies what each party to an agreement expects from the other.
What a prudent person would believe if told something by another. If it later found that the statement was untrue, the relying person might have a claim against the other party.
A Latin phrase meaning “let the master answer”. It provides that a principal is responsible for the actions of his/her/its agent. Most often found where an employee acts and causes damage to third parties, while in the course of the employment.
The responsibility a conveyor, the borrower, or user of property or goods assumes to the owner for damages to that property. The risk of loss can allocated by the contract between parties, depending on the type of goods.
Any loan or credit in which property is pledged as security in the event payment is not made. In New York, the party lending the money can file a UCC-1 Statement to secure the pledge and make it a matter of public record.
A business owned by one person, as distinguished from a partnership or corporation. The sole proprietor subjects his/her personal assets to attack from creditors of the business since there is no separate legal entity to shield them from liability. The advantage of not incorporating is one of saving some of the startup costs.
New York State requires that certain agreements be in writing or they are not enforceable. They include the contract for sales of real property, or that can not be fully performed within one year.
Statements given under oath by a witness in answer to questions posed by attorneys at trial or at an oral examination before trial.
A name of a business or one of its products which identifies the product as that of that specific business. A trade name belongs to the first business to use it, and the identification and reputation give it value and the right to protect the trade name against its use by others.
A distinctive design, picture, emblem, logo or wording (or combination) affixed to goods for sale to identify the manufacturer as the source of the product. A trademark has a monetary value and may be protected by a court-ordered injunction prohibiting its use by others.
A set of statutes governing the conduct of commercial transactions between businesses, including the sale of goods, warranties of merchantability, the transfer of negotiable instruments, loans secured by personal property and other matters.
The attachment of responsibility to a person for harm or damages caused by another person. Most often found in either a negligence lawsuit or a criminal prosecution.
A written or oral statement of good quality of merchandise, clear title to real estate or that a fact stated in a contract is true. An “express warranty” is a definite written statement and “implied warranty” is based on the circumstances surrounding the sale or the creation of the contract.
Where a business fails or reaches the end of its stated life, there exists a process of liquidating the assets of a corporation or partnership, settling accounts, paying creditors, and then distributing remaining assets to shareholders or partners.
The proper way to address a Judge in court.