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Glossary of General Business Law Terms

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See, American Arbitration Association


One of three requisites to a valid contract under common law (the other two being an offer and consideration). A contract is a legally binding agreement between two or more parties which starts with an offer from one person but which does not become a contract until the other party signifies an unequivocal willingness to accept the terms of that offer. The moment of acceptance is the moment from which a contract is said to exist, and not before. Acceptance need not always be direct and can, in certain circumstances, be implied by conduct.

Accord and Satisfaction

A term usually used when a contract is settled without exercising one's full legal rights. When the settlement agreement is signed, it is called an "accord and satisfaction."


Signing a formal paper and swearing or attesting to it as your act before an official such as a notary public; also, the notary public's formal statement that the signer is who the signer claims to be and did in fact sign.

Act of God

An event that is caused solely by the effect of nature or natural causes and without any interference by humans whatsoever. Insurance contracts often exclude "acts of God" from the list of insurable occurrences as a means to waive their obligations for damage caused by hurricanes, floods or earthquakes, all examples of "acts of God".


Usually refers to a suit or prosecution. One party to a contract may take "action" against the other.


(Addenda) Written information adding to, clarifying or modifying the bidding documents. An addendum is generally issued by the owner to the contractor during the bidding process and as such, addenda are intended to become part of the contract documents when the construction contract is executed.

Adhesion contract 

A fine-print consumer form contract which is generally given to consumers at point-of-sale, with no opportunity for negotiation as to its terms, and which, typically, sets out the terms and conditions of the sale, usually to the advantage of the seller. A contract that is drafted by one party and accepted or rejected by the other, with no opportunity to bargain with respect to its terms.


This term is most frequently encountered in the construction industry in the U.K. Adjudication is a binding decision made by an appointed neutral, often a quantity surveyor, either by deciding on the basis of submitted documents, or as is increasingly the case, after a hearing. It is designed to provide a speedy, if not always elegant, resolution to enable work to continue on site without interruption. Either party may appeal the adjudicator's decision to court or arbitration, or indeed settle the dispute by mediation. The Housing, Grants, Regeneration Act 1996 in the United Kingdom has greatly increased the use of adjudication.


A person who investigates and settles losses for an insurance carrier. In the surety industry, those persons are more often referred to as claims representatives, claims attorneys, or consultants.

Administered Arbitration

The parties select an agency (for-profit or not-for-profit) which serves as an intermediary between parties and the arbitrator (like a "middle-man"). The agency's fees are in addition to the arbitrator's.


See, Alternative Dispute Resolution.

Advisory Opinion

A nonbinding statement by an arbitrator, facilitator, mediator, or project neutral of its interpretation of the facts and law on a matter submitted for that purpose. Federal Courts are constitutionally prohibited from issuing advisory opinions by the case or controversy requirement.


A written statement made under oath or otherwise certified to be true.


The authorized representative of an insurance company or companies.


An understanding between two or more parties. When meeting the legal requirements it becomes an "enforceable agreement." Used here as synonymous with "contract."


A type of contract. The term is usually applied to insurance contracts in which payment is dependent on the occurrence of a contingent event, such as injury to the insured person in an accident or fire damage to his insured building.


An insurance policy which endeavors to cover any loss or damage to an insured property unless such loss is specifically excluded by the policy language.

Alternative Dispute Resolution

Also known as "ADR"; methods by which legal conflicts and disputes are resolved privately and other than through litigation in the public courts, usually through one of two forms: mediation or arbitration. It typically involves a process much less formal than the traditional court process and includes the appointment of a third party to preside over a hearing between the parties. The advantages of ADR are speed and money: it costs less and is quicker than court litigation. ADR forums are also private. 

American Arbitration Association

The largest full-service ADR provider in the U.S.  The American Arbitration Association assists in the design and implementation of ADR systems for corporations, unions, government agencies, law firms and the courts.  Administers mediation, arbitration, and dispute review boards. 


An alternative dispute resolution method by which an independent, neutral third person ("arbitrator") is appointed to hear and consider the merits of the dispute and renders a final and binding decision called an award. The process is similar to the litigation process as it involves adjudication, except that the parties choose their arbitrator(s) and the manner in which the arbitration will proceed. 

Arbitration Agreement or Arbitration Clause

A contract by two or more individuals or entities to submit a particular dispute that has arisen or disputes that may arise in the future to arbitration rather than to court. Such an agreement usually specifies the binding nature of the arbitration, that any arbitrator’s decision may be enforced in court, and whether the arbitration proceedings will be confidential. 


An arbitrator is independent and impartial and is selected by the parties or on their behalf (by the Institute or by another appointing authority) on the basis of their arbitral/technical expertise, reputation and experience in the field of activity from which the dispute stems.


Persuasion by laying out facts, law, and the reasoning that connects them. Also, the oral, in-court presentation of such persuasion.

Articles of Incorporation

The document by which a corporation is formed under the laws of a particular state.


To turn over the rights to or some interest in property to another party. The document turning over the rights is an "assignment."

Assumption of Risk

Knowingly and willingly exposing yourself (or your property) to the possibility of harm. In most states, a person who assumes a risk of harm cannot win a negligence lawsuit against the person responsible for the harm because assumption of risk is a defense to negligence.


The act of watching someone sign a legal document, such as a will or power of attorney, and then signing your own name as a witness. When you witness a document in this way, you are attesting -- that is, stating and confirming -- that the person whom you watched sign the document in fact did so. Attesting to a document does not mean that you are vouching for its accuracy or truthfulness. You are only acknowledging that you watched it being signed by the person whose name is on the signature line.

Attorney in Fact

The person to whom authority is given under a Power of Attorney.

Attorney Work Product Privilege

A rule that protects materials prepared by a lawyer in preparation for trial from being seen and used by the adversary during discovery or trial.

Attorney’s Fees

The usual and ordinary meaning of the words “attorney's fees” is the consideration that a litigant pays or becomes liable to pay in exchange for legal representation.

Attorney-Client Privilege

A rule that keeps communications between an attorney and her client confidential and bars them from being used as evidence in a trial, or even being seen by the opposing party during discovery.

Authority, Agent’s Apparent

Authority of an agent that is created when the agent oversteps actual authority, and when inaction by the surety or insurance company does nothing to counter the public impression that such authority exists.

Authority, Agent’s Express

Express authority is exemplified by the agent’s agency agreement which is kept on file by the agent and sponsoring company. It is also exemplified in the power of attorney granting the agent power and authority to take certain acts or bind the company to specified obligations.

Authority, Agent’s Implied

Although certain functions an agent may perform are not set out in the express authority documentation (agency agreement or power of attorney), the routine performance of these may lead the public to reasonably believe the agent has been given express authority where none exists. 


The decision of an arbitrator or other non-judge in a dispute submitted to him or her.

Bad Faith

Accusations by policyholders that insurers took steps to deliberately delay, underpay, or deny a claim. 


The formal condition of an insolvent person or entity being declared bankrupt under law and under the jurisdiction of a bankruptcy court. The legal effect is to divert most of the debtor's assets and debts to the administration of a third person, sometimes called a "trustee in bankruptcy", from which outstanding debts are paid pro rata. Alternatively, this is a condition under which the person or entity can reorganize under court supervision. 

Boiler Plate

Contract provisions that are used repeatedly and may be considered a "standard" for use in an agreement.

Bonding Company

Same as a “Surety”


Three-party agreements in which the issuer of the bond (the surety) joins with the second party (the principal) in guaranteeing to a third party (the obligee) the fulfillment of an obligation on the part of the principal. An obligee is the party (person, corporation or government agency) to whom a bond is given. The obligee is also the party protected by the bond against loss.


The violation of, or the failure to perform, some provision of a contract.


A written statement prepared by one side in a lawsuit or appeal to explain its case to the judge. It usually contains a fact summary, law summary, and an argument about how the law applies to the facts. Most such "briefs" are not brief. Also, a summary of a published opinion in a case. Preparing the summary helps in understanding the opinion and simplifies later review.  And, a document prepared by a lawyer to use at a trial. It usually contains lists of witnesses, evidence, and citations as well as arguments to be presented.

Broad Form Indemnity

See, Indemnity Clauses.


Individual or organization representing a contractor in soliciting, negotiating or buying a surety bond and rendering services incidental to these functions. No such designation exists under Texas Insurance Licensing Law, and while the term usually connotes someone who primarily represents the insured or principal, the term has become virtually synonymous with the term “agent.”

Buy-Sell Agreement

Buy-Sell Agreement: An agreement made by the owners of a business to purchase the share of a disabled or deceased owner. The value of each owner's share of the business and the exact terms of the buying-and-selling process are established before death or the beginning of disability. 


The regulations or rules adopted by a corporation for governing the conduct of the corporation. The by-laws can be changed by either the Board of Directors or the stockholders, depending upon the restrictions in the Articles of Incorporation or in the by-laws themselves.

Captive Insurance Company

A company owned solely or in large part by one or more non-insurance entities for the primary purpose of providing insurance coverage to the owner or owners. The company's stock is controlled by one interest or a group of related interests so as to provide coverage for their business operations. A captive insurance company may be a non-admitted, nonresident, or foreign insurer. Sometimes it may provide reinsurance to a self- insured or a domestic company.

Case law

The entire collection of published legal decisions of the courts which, because of stare decisis, contribute a large part of the legal rules, which apply in modern society. If a rule of law cannot be found in written laws, lawyers will often say that it is a rule to be found in "case law". In other words, the rule is not in the statute books but can be found as a principle of law established by a judge in some recorded case. The word jurisprudence has become synonymous for case law. 


Private meeting or series of meetings that take place in concert with a dispute resolution process. Can include a meeting between the neutral third party and each of the interested parties separately. In large scale group processes, it can consist of an informal meeting of parties with similar interests. The caucus serves to give parties a chance to create new alternatives, clarify their proposals and interests, gather information, and/or allow for a "cool-down period."

Certificate of Insurance

A statement of coverage issued to an individual insured under a group insurance contract, outlining the insurance benefits and principal provisions applicable to the member.


To vouch for a thing in writing; to make known or establish as a fact.


A reference to a legal authority and where it is found. For example, "17 U.H.K.L.R. 247" is a citation to an article that begins on page 247 of Volume 17 of the  University of Hard Knocks Law Review.

Civil Law

Law inspired by old Roman Law, the primary feature of which was that laws were written into a collection; codified, and not determined, as is common law, by judges. The principle of civil law is to provide all citizens with an accessible and written collection of the laws which apply to them and which judges must follow. 


A term used to describe one making a claim against a bond, or one making a claim in a non-judicial dispute resolution proceeding. Those persons or entities who are entitled to make a claim against a statutory bond are defined in those statutes. In the case of non-statutory bonds, the definition of a claimant will usually be set forth in the bond.


Legislation. Signifies in general a collection of laws. It is a name given to a collection of such laws made by a legislature.


A surety company may occasionally request collateral to reduce the risk of the bond. Collateral is sometimes required for higher risk principals or unusual obligations. There are many forms in which collateral may be provided, including cashiers checks, certificates of deposit or irrevocable letters of credit. In addition, collateral reduces the risk a surety company assumes when issuing a bond. After all obligations of the bond have been met, the obligee releases the surety company from their obligation under the bond and the collateral is returned to the principal.

Common law

Judge-made law. Law which exists and applies to a group on the basis of historical legal precedents developed over hundreds of years. Because it is not written by elected politicians but, rather, by judges, it is also referred to as "unwritten" law. Judges seek these principles out when trying a case and apply the precedents to the facts to come up with a judgment. Common law is often contrasted with civil law systems which require all laws to be written in a code or written collection. Equity law developed after the common law to offset the rigid interpretations medireview English judges were giving the common law. For hundreds of years, there were separate courts in England and it's dependents: one for common law and one for equity and the decisions of the latter, where they conflicted, prevailed.  It is certainly common to speak of the "common law" to refer to the entire body of English law, including common law and equity. 

Comparative Negligence

A principle of tort law which looks at the negligence of the victim and which may lead to either a reduction of the award against the defendant, proportionate to the contribution of the victim's negligence, or which may even prevent an award altogether if the victim's negligence, when compared with the defendant, is equal to or greater in terms or contributing to the situation which caused the injury or damage.

Compensatory Damages

Damages awarded for the actual loss suffered by a plaintiff. Compare with punitive damages.


The adjustment and settlement of a dispute in a friendly, un-antagonistic manner.

Condition Precedent

A contractual condition that suspends the coming into effect of a contract unless or until a certain event takes place. Many residential real estate contracts have a condition precedent which states that the contract is not binding until and unless the property is subjected to a professional inspection, the results of which are satisfactory to the purchaser. Compare with "condition subsequent". 

Condition Subsequent

A condition in a contract that causes the contract to become invalid if a certain event occurs. This is different from a condition precedent. The happening of a condition subsequent may invalidate a contract which is, until that moment, fully valid and binding. In the case of a condition precedent, no binding contract exists until the condition occurs. 

Conflict of Interest

This term refers to the situation in which a person has a vested interest in the outcome of a decision, but tries to influence the decision making process as if they did not. In other words, they stand to benefit from a decision if it goes a particular way, but they participate in the decision making process as if they were neutral. For example, a judge who holds XYZ stock may be unconsciously influenced in a case concerning the XYZ Company. A conflict need not even be intentional.

Consequential Damage

Damage that results as a consequence rather than directly from some failure to meet an obligation.  If a contractor agrees to build a hotel for $ 1 million and defaults, and the owner spends $ 200,000 more than the original $ 1 million to complete the work, the $ 200,000 is a direct damage. If the opening of the hotel was delayed beyond the prime tourist season, causing the hotel operator to lose those revenues, and in turn future business, those losses are consequential damages.


Something of value in the eyes of the law that justifies a binding   commitment on the part of the party receiving the consideration. Not to be confused with the motive for making a contract.

Construction Law Section of the State Bar of Texas

The Construction Law Section of the State Bar of Texas is a section of the State Bar of Texas which serves as an educational and networking forum for the State’s construction and surety lawyers. Papers from its annual two day conferences are posted at www.constlaw.org 

Contingent Fee

The fee paid to an attorney as a percentage of the proceeds of   legal action or other proceeding. This fee is in lieu of an hourly or fixed charge established in advance. Prevalent in personal injury cases.


A covenant or agreement between two or more parties to do or not to do certain things. The terms of a contract are expressed, either orally or in writing, and each party agrees to do or not to do the recited things. Same as an “agreement.”

Contract Bond

A bond given to secure the performance of a contract. Frequently, two bonds are required – one to cover performance and the other to cover payment of certain labor and material bills. The former is commonly known as a performance bond, and the latter is known as a payment bond.

Contributory Negligence

The negligence of a person which, while not being the primary cause of a tort, nevertheless combined with the act or omission of the primary defendant to cause the tort, and without which the tort would not have occurred. Contributory negligence may be an absolute bar to any recovery.


The exclusive right granted by the government to original literary   property. 


A legal entity, allowed by legislation, which permits a group of people, as shareholders (for-profit companies) or members (non-profit companies), to create an organization, which can then focus on pursuing set objectives, and empowered with legal rights which are usually only reserved for individuals, such as to sue and be sued, own property, hire employees or loan and borrow money. Also known as a "company." 

Court Costs

Expenses of one side in a lawsuit that the judge orders the other side to pay or reimburse. 

Court Reporter

The court reporter is the person who records court proceedings in court or records deposition testimony.


A written pledge by one or more parties as to the truth of some   statement or that some particular action will be taken.


A person to whom money, goods or services are owed by the debtor. 


A common abbreviation meaning "doing business as." The abbreviation is usually in lower-case letters: "Bubba Smith d/b/a Bubba’s Backhoe Service."


In a lawsuit, money awarded to one party based on injury or loss caused by the other. There are many different types or categories of damages that occasionally overlap, including: compensatory, punitive, nominal, consequential, and treble.


A person who owes money, goods or services to another, the latter being referred to as the creditor. 


An agreed specified sum to be deducted from the amount of loss and assumed by the insured


An amount which a policyholder agrees to pay, per claim or per accident, toward the total amount of an insured loss. 


A failure to perform a legal duty, observe a promise, or fulfill an obligation. For example, the word is often used for the failure to make a payment on a debt once it is due.


The person, company or organization who defends a legal action taken by a plaintiff and against whom the court has been asked to order damages or specific corrective action to redress some type of unlawful or improper action alleged by the plaintiff. 


The official statement by a witness taken in writing (as opposed to testimony which where a witnesses give their perception of the facts verbally). Depositions are often taken before a court reporter as part of pre-trial discovery. 


The formal and informal exchange of information between sides in a lawsuit. Two types of discovery are interrogatories and depositions

Dispute Review Board or DRB

A construction dispute avoidance and resolution technique involving the selection of three experienced, respected, and impartial observers before construction begins. The Board meets at the job site periodically. Members are provided with the contract plans and specifications, become familiar with the project procedures and the participants, and are kept abreast of job progress and developments. When any dispute arises that cannot be resolved by the parties, it is referred to the DRB for a non-binding ruling which typically must be followed pending the exercise of other contract dispute resolution procedures.


A burden, mortgage, lien, or any debt attached to either real or   personal property.

Equitable Subrogation

The rationale for equitable subrogation stems from the notion that those contract proceeds that are reserved for disbursement until the contract's completion are as much for the indemnity of him who may be a guarantor of the performance of the contract as for him for whom it is to be performed. It is well settled in our law that the surety whose funds go to discharge contractor's obligations is thereby subrogated to the rights of the owner to apply the contract balances to the completion of the project and payment of bills incurred in that connection. The completing surety is subrogated to the rights of other parties to the bonded project as well. A surety that fulfills a defaulting contractor's obligations is subrogated to the rights of (1) the contractor, insofar as it is due receivables, (2) the materialmen and laborers who may have been paid by the surety, and (3) the owner for whom the project was completed. The completing surety's right of subrogation arises in equity as an outgrowth of the suretyship relationship itself; it is not dependent on assignment, lien or contract. 


A branch of English law which developed hundreds of years ago when litigants would go to the King and complain of harsh or inflexible rules of common law which prevented "justice" from prevailing. For example, strict common law rules would not recognize unjust enrichment, which was a legal relief developed by the equity courts. The typical Court of Equity decision would prevent a person from enforcing a common law court judgment. The kings delegated this special judicial review power over common law court rulings to chancellors. A new branch of law developed known as "equity", with their decisions eventually gaining precedence over those of the common law courts. A whole set of equity law principles were developed based on the predominant "fairness" characteristic of equity such as "equity will not suffer a wrong to be without a remedy" or "he who comes to equity must come with clean hands". Many legal rules, in countries that originated with English law, have equity-based law such as the law of trusts and mortgages. 


Professional standards of conduct. Standards of fair and honest conduct in general.

Evaluative Mediation

Evaluative mediation is a process modeled on settlement conferences held by judges. An evaluative mediator assists the parties in reaching resolution by pointing out the weaknesses of their cases, and predicting what a judge or jury would be likely to do. An evaluative mediator might make formal or informal recommendations to the parties as to the outcome of the issues. Evaluative mediators are concerned with the legal rights of the parties rather than needs and interests, and evaluate based on legal concepts of fairness. Evaluative mediators meet most often in separate meetings with the parties and their attorneys, practicing “shuttle diplomacy”. They help the parties and attorneys evaluate their legal position and the costs vs. the benefits of pursuing a legal resolution rather than settling in mediation. The evaluative mediator structures the process, and directly influences the outcome of mediation. 

Evaluative mediation emerged in court-mandated or court-referred mediation. Attorneys normally work with the court to choose the mediator, and are active participants in the mediation. The parties are most often present in the mediation, but the mediator may meet with the attorneys alone as well as with the parties and their attorneys. There is an assumption in evaluative mediation that the mediator has substantive expertise or legal expertise in the substantive area of the dispute. Because of the connection between evaluative mediation and the courts, and because of their comfort level with settlement conferences, most evaluative mediators are attorneys.

Evergreen Clause

One that specifically states the expiration of a letter of credit will not take place without notice by the issuer and one that allows the issuer to conduct an annual review of the account party's financial condition.  If prior notice of expiration is not given by the issuer, the letter of credit is automatically extended for one year. 


Proof of fact(s) presented at a trial. One method is by oral testimony; where you have an eyewitness swear to tell the truth and to then relate to the court (or jury) their experience. Evidence is essential in convincing the judge or jury of your facts as the judge (or jury) is expected to start off with a blank slate; no preconceived idea or knowledge of the facts. So it is up to the opposing parties to prove (by providing evidence), to the satisfaction of the court (or jury), the facts needed to support their case. Besides oral testimony, an object can be deposited with the court (e.g. a signed contract, remnants of the exploded pipe, photographs). This is sometimes called "real evidence." In other rarer cases, evidence can be circumstantial. 

Express Warranty

A guarantee about the quality of goods or services made by a seller, such as "This item is guaranteed against defects in construction for one year." Most express warranties come directly from the manufacturer or are included in the sales contract. 


A person competent in the use of dispute resolution who provides a neutral's services to groups (usually more than two) involved in a dispute or conflict. The facilitator provides procedural assistance to the parties, enhancing information exchange and working with the parties to develop and evaluate possible agreements that could lead to a resolution.

Force Majeure

Fr. An irresistible or overpowering force. One may be forgiven, by the terms of an agreement, for failure to perform because of force  majeure, an event that one was powerless to overcome - strikes, floods, riots, war, etc.

General Partner

General partners are liable for all of their partnership’s debts.

Government Code Bond

Performance and Payment Bonds written on Texas public works projects in accordance with Chapter 2253 of the Texas Government Code.


The one who gives something. Frequently appears in trusts in which   the one establishing the trust and transferring assets to it is called the "Grantor."

Gross negligence

Any action or an omission in reckless disregard of the consequences to the safety or property of another. It is more then just neglect of ordinary care towards others or just inadvertence. 

Hold Harmless  Agreement

An agreement to pay certain claims that might come up against another person. 

Implied Contract

A contract with existence and terms determined by the actions of the persons involved, not by their words. 

Implied Warranty

An unstated promise, imposed on a seller, that what is sold is fit for normal use, or, if the merchant knows what the buyer wants the thing for, that it is fit for that particular purpose. Unless these implied warranties are expressly excluded (for example, by clearly labeling the thing sold "as is"), a seller will be held to them.

Impossibility of Performance

In contracts in which the performance depends on the continued existence of a given person or thing, an implied condition is that the perishing of the person or thing shall excuse performance. One is not excused from performance merely because performance becomes more expensive than originally contemplated. Mere unforeseen difficulty or expense does not constitute impossibility and is not ordinarily an excuse. 


To save another harmless from loss or damage, such as a contractor agreeing to indemnify an owner against a loss.


An entity or person who enters into an agreement with a surety to hold the surety harmless from loss incurred as a result of issuing a contract bond to an applicant who falls just short of acceptability. If the principal defaults, the indemnitor, rather than the surety, assumes the obligation.

Indemnity Clause

There are typically three parts to an indemnity clause.  One party agrees to (1) indemnify, (2) defend, and (3) hold harmless the other party.  By “indemnifying” the first party is  agreeing to reimburse the second party for its losses after those losses have been determined by litigation, arbitration, or settlement.  By “defending,” the first party is agreeing to pay for the second party’s legal expenses as it defends the claim brought by some third party.  By agreeing to “hold harmless” the second party, the first party agrees to protect the second party against harm from suits by third parties. Indemnity clauses fall into three groupings.  These are commonly called “broad form,” “intermediate form,” and “narrow form.”  Broad form indemnity, as its name implies, requires the first party to indemnify the second party for all damages arising out of the project whether caused by the first party, a third party, or even the second party. Intermediate form indemnity also shifts much risk to the consultant – but not as drastically as does the broad form.  It may state, for example, that the consultant will indemnify the client for all damages caused “in whole or in part” by the consultant.  This language can be deceptively subtle. Courts interpret it to mean that if the consultant contributed even just a little bit to causing the damages, it will be required to indemnify the client for ALL of the damages, including those caused by the client’s negligence.  Narrow form indemnity requires the first party to indemnify the second party only for those damages caused by the first party’s negligence.  

Independent Contractor

One who contracts to perform certain functions or deliver goods by his own methods and without being subject to the control of another party except as to the results. Many obligations attach to an employer that are not present when the same work is performed by an independent contractor.


A court order that prohibits a party from doing something (restrictive injunction) or compels them to do something (mandatory injunction). 


A person not able to pay his or her debts as they become due. "Insolvency" is a prerequisite to bankruptcy. 

Intangible Property

Property or a right that does not have a physical existence. It may refer to copyrights, patents, accounts receivable, rights of legal action, trade secrets etc.

Intellectual Property

Primarily refers to rights in products of mental activities. Copyrights and patents are the most usual examples.

Intentional Tort

A deliberate act that causes harm to another, for which the victim may sue the wrongdoer for damages. Acts of domestic violence, such as assault and battery, are intentional torts (as well as crimes). 

Intermediate Form Indemnity

See, Indemnity Clauses.


Written questions sent from one side in a lawsuit to another, attempting to get written answers to factual questions or seeking an explanation of the other side's legal contentions. These are a part of the formal discovery process in a lawsuit and usually take place before the trial.

Ipso Facto

By the fact itself; by the mere fact.

Irrevocable Letter of Credit

See also, Letters of Credit. Irrevocable credits may not be modified or canceled by the customer. The customer's issuing bank must follow through with payment to the seller so long as the drawer complies with the conditions listed in the letter of credit. Changes in the credit must be approved by both the customer and the drawer. If the documentary letter of credit does not mention whether it is revocable or irrevocable, it automatically defaults to irrevocable.

Joint and Several Liability

Liability of more than one person for which each person may be sued for the entire amount of damage done or owed by all. 

Joint Venture

A "one-shot" grouping together of two or more persons in a business. If they have a continuing relationship, it may be a partnership.


That part of an affidavit where the officer certifies that the same was "sworn" before him. The jurat is usually in the following form: 'Sworn and subscribed before me, on the ___ day of ___, 2002,  (signature of Notary Public)'


Refers to a court's power and authority to judge over a situation usually acquired in one of three ways: over acts committed in a defined territory (e.g. the jurisdiction of the Westlake Hills Municipal Court is limited to acts committed or originating in the City of Westlake Hills), over certain types of subject matter (the jurisdiction of a bankruptcy court is limited to bankruptcy cases), or over certain persons (a military court has jurisdiction limited to actions of enlisted personnel). 


The party who rents and occupies property belonging to another. 


One who grants a lease. The landlord.

Letter of Credit

There are many types of letters of credit. The type used to guarantee a contractor's performance is a "standby" letter of credit in which a bank stands ready to pay over the amount of the letter to the owner of the project (obligee) in the event of default. A letter of credit differs significantly from a surety bond and one is not a substitute for the other. The Miller Act which applies to federal construction recognizes this fact and does not permit the use of a letter of credit to guarantee performance of such contracts.

Letter of Intent

During the course of negotiating a construction contract or subcontract, the parties may wish to begin performance before there has been final agreement.  A letter of intent is often issued as a directive to commence work with an agreement to pay for that work if a final agreement is not reached.


Any legal obligation, either due now or at some time in the future. It could be a debt or a promise to do something. To say a person is "liable" for a debt or wrongful act is to indicate that they are the person responsible for paying the debt or compensating the wrongful act.

Liability Insurance

Insurance covering the policyholder's legal liability resulting from injuries to other persons or damage to their property. 


A property right which remains attached to an object that has been sold, but not totally paid for, until complete payment has been made. It may involve possession of the object until the debt is paid or it may be registered against the object (especially if the object is real estate). Ultimately, a lien can be enforced by a court sale of the property to which it attached and then the debt is paid off from the proceeds of the sale.

Lien Release

A written document from the contractor to the owner that releases the Lien, Mechanic’s or Material following its satisfaction.

Lien Release Bond

A bond to release a recorded mechanic’s lien. 

Lien Waiver

A written document from a contractor, subcontractor, material supplier or other construction professional(s), having lien rights against an owner’s property, relinquishes all or part of those rights.  Lien waivers are generally used for processing progress payments to prime or main or subcontractors as follows: Conditional Lien Waiver, Unconditional Lien Waiver, and Final Lien Waiver

Limited Liability Corporation, (L.L.C.)

An LLC is a hybrid between a partnership and a Corporation in that it combines the "pass-through" treatment of a partnership with the limited liability accorded to corporate shareholders. LLC members are not personally liable for the LLC's debts and obligations. The LLC limited liability umbrella does not, however, protect members from every type of liability that could rain down on them. LLC members may still be personally liable for LLC debts if they personally guarantee those debts. They are also still personally liable for their own negligence. But the liability exposure that remains after an LLC is formed does not prevent LLC’s from being an attractive business entity. LLC members are liable only up to the amount of their capital contributions and the amount they agree to contribute to the firm's capital.

Limited Partner

An owner in a limited partnership who’s liable only up to the amount of money invested.

Limited Partnership

A partnership with two kinds of partners: limited partners, who provide financial backing and have little role in management and no personal liability, and general partners, who are responsible for managing the entity and have unlimited personal liability for its debts.

Line of Credit

Financial institutions offer this to some customers. It allows the customer to borrow up to a certain amount of money without applying for another loan. 

Liquidated Damages

In a construction context, liquidated damages are damages specified in a contract to be paid in the event of an unexcused delay.  Liquidated damage clauses, to be enforceable, must not be written to penalize, but as a reasonable approximation of the probable loss that will be caused by delayed performance.  An additional requirement is that the actual damages caused by delay would be difficult or impossible to determine.


A person who supplies building materials for a construction or repair project. A more general word is "supplier”.

McCarran-Ferguson Act

A federal statute passed in 1945 declaring that continued regulation and taxation by the states of the business of insurance is in the public interest. The act exempts the business of insurance from federal antitrust laws to the extent that there is state regulation. The law does not provide an antitrust exemption for acts of boycott, coercion or intimidation. (15 USCS §§ 1011-1015)

McGregor Act

The popular name of the original law establishing the requirements for bonds on public projects in Texas and establishing procedures for perfecting mechanic’s bond claims on such projects in Texas. It has since been amended several times and codified as Chapter 2253 of the Texas Government Code.

Mechanic’s Lien

A legal claim placed on real estate by someone who is owed money for labor, services or supplies contributed to the property for the purpose of improving it. Typical lien claimants are general contractors, subcontractors and suppliers of building materials. A mechanics' lien claimant can sue to have the real estate sold at auction and recover the debt from the proceeds. Because property with a lien on it cannot be easily sold until the lien is satisfied (paid off), owners have a great incentive to pay their bills.


A short-hand reference to the procedure mediation-arbitration. In med-arb, the parties agree to mediate with the understanding that any issues not settled through the mediation will be resolved by arbitration using the same individual to act both as mediator and arbitrator. However, that choice may have a chilling effect on full participation in the mediation portion. A party may not believe that the arbitrator will be able to discount unfavorable information learned in mediation when making the arbitration decision.


The most popular form of alternative dispute resolution (ADR), mediation involves the appointment of a mediator who acts as a facilitator assisting the parties in communicating, essentially negotiating a settlement. The mediator does not adjudicate the issues in dispute or to force a compromise; only the parties, of their own volition, can shift their position in order to achieve a settlement. The result of a successful mediation is called a "settlement." Compare with arbitration. 

Mediator’s Proposal

A good mediator will not let the parties simply walk away without trying to come up with some alternatives. At the point of impasse, the mediator may make a proposal to settle the case. The proposal would be presented confidentially to each side and only the mediator would know whether it has been accepted by all parties. That way, neither side is punished for making a big move at the end. One side will only know the other made the move if the case settles. 

Memorandum of Understanding

A document which, if meeting the other criteria, can be, in law, a contract. Generally, in the world of commerce or international negotiations, a MOU is considered to be a preliminary document; not a comprehensive agreement between two parties but rather an interim or partial agreement on some elements, in some cases a mere agreement in principle, on which there has been accord. Most MOU's imply that something more is eventually expected

Miller Act

Miller Act - A 1935 statute mandating surety bonds on all federal public works contracts in excess of $100,000. State and local public works projects are protected by "Little Miller Acts." 


An ADR procedure wherein a retired or sitting judge hears an abbreviated presentation of the evidence and renders a non-binding judgment on liability, damages, or both.


A false and material statement which induces a party to enter into a contract. This is a ground for rescission of the contract.

Mitigation of damages

A person who sues another for damages has a responsibility to minimize those damages, as far as reasonable. For example, in a wrongful dismissal suit, the person that was fired should make some effort to find another job so as to minimize the economic damage on themselves


Not only are people responsible for the intentional harm they cause, but their failure to act as a reasonable person would be expected to act in similar circumstances (i.e. "negligence") will also give rise to compensation. Negligence, if it causes injury to another, can give rise to liability under tort. Negligence is usually assessed having regards to the circumstances and to the standard of care, which would reasonably be expected of a person in similar circumstances. Everybody has a duty to ensure that their actions do not cause harm to others. Between negligence and the intentional act there lies yet another, more serious type of negligence which is called gross negligence. Gross negligence is any action or an omission in reckless disregard of the consequences to the safety or property of another. See also contributory negligence and comparative negligence.


Process where parties directly exchange ideas, views, promises, and problems surrounding a dispute. Positional bargaining tends to focus on demands, and counter-demands of disputing parties, sometimes leading to a bargaining process where parties trade concessions and demands. Interest-based negotiations focus on the interests underlying one's position on an issue. The parties explore their needs, concerns, and eventually work on developing mutually acceptable solutions that meet as many of the disputants' interests as possible.


This term means that a third party is not connected to, and/or has not had a prior relationship with, any of the disputants.

Notary Public

A public officer with authority to certify signatures and statements, usually in connection with the transfer of real and personal property or agreements. In some states, the requirement to be a notary public may include specialized training, such as a law degree. In others, such as Texas, it requires little more than a filing fee and a small bond to assure the performance of the notary’s duties.


The person who is to receive the benefit of someone else's obligation; that "someone else" being the obligor. Also called a "promisee." In the surety context, this is the person or entity (often, the owner) to whom the principal (the obligor contactor) and the surety (the bonding company) owe their obligations.


See, Principal. The party primarily bound by the obligation.


An explicit proposal to contract which, if accepted, completes the contract and binds both the person that made the offer and the person accepting the offer to the terms of the contract. See also "acceptance". 


A deduction; a counterclaim; a contrary claim by which a given claim may be reduced or cancelled.


A list of persons, arbitrators, or judges selected to decide a specific case; a list of potential neutrals from which a selection is to be made

Parol Evidence Rule

The principle that the meaning of a written agreement, in which the parties have expressly stated that it is their complete and final agreement, cannot be contradicted or changed by using prior oral or written statements or agreements as evidence. Exceptions to the rule include situations in which there was duress, fraud, or mistake.


Partnering is a construction industry dispute avoidance technique that attempts to establish a working relationship among all team members based on cooperation and teamwork and achievement of mutual goals and objectives. Partnering is a concept that every contract has an implied covenant of good faith and fair dealing, and through the exercise of that agreement, the stakeholders strive to create a synergy of purpose to solve problems for the good of the project. 


A business organization in which two or more persons carry on a business together. Partners are each fully liable for all the debts of the enterprise but they also share the profits exclusively. Many states have laws which regulate partnerships and may, for example, require some form of registration and allow partnership agreements. One of the basic advantages of partnerships is that they tend to allow business losses to be deducted from personal income for tax purposes.


One who undertakes an obligation under a contract and thus becomes a "party" to the agreement.

Personal Property

Things owned by an individual or by an entity that are not real property. Such things as a shovel, a piano, clothing, automobiles, and computers are personal property. Your house and lot are not personal property.


The person who brings a case to court; who sues. May also be called "claimant", "petitioner" or "applicant. The person being sued is generally called the "defendant" or the "respondent." 


That part of a party's case in which he or she formally, and usually in writing, sets out the facts and legal arguments which support that party's position. 

Power of Attorney

An instrument authorizing another to act as one's agent or on one's behalf. The person authorized need not be a lawyer, but is referred to as an “attorney in fact.” 


A case which establishes legal principles to a certain set of facts, coming to a certain conclusion, and which is to be followed from that point on when similar or identical facts are before a court. Precedent form the basis of the theory of stare decisis which prevent "reinventing the wheel" and allows citizens to have a reasonable expectation of the legal solutions which apply in a given situation.

Preferred Stock

If you own this higher class of stock, you get your dividends before common stockholders. If the company folds, you also get assets before common stockholders do. The one thing you usually don't have is voting rights.


That which is put before. In a contract, the statement "in consideration of the premises," means "in consideration of the things stated before."  

Prima Facie

Lat. At first sight; on the face of it; presumably; so far as it can be judged from appearances.


In the surety context, the person or entity which has undertaken the primary obligation ( the contractor on a construction contract) which is bonded.

Private Judging

Private judging is a general term used to describe a private or court-related process in which disputing parties empower a private individual to hear and decide their case. The procedure may be exclusively a matter of contract between the parties or may be undertaken in connection with an authorizing statute. When authorized by statute, the process is sometimes referred to by the colloquial term, "Rent-a-Judge."


Privity of contract exists among those persons who actually took part in making the deal. These persons have special rights and duties because of their privity, including the right to enforce the contract. For example, a manufacturer and a seller may be "in privity," but not the manufacturer and an ultimate buyer.

Pro Forma Income Statement

A statement of revenue and expenses that includes some hypothetical values. It shows what could be expected to happen if a corporation decided to go through with a takeover, for example.

Professional Liability Insurance

See Errors & Omissions Insurance.

Promissory Estopped

The principle that when Person A makes a promise and expects Person B to do something in reliance upon that promise, then Person B does act in reliance upon that promise, the law will usually help Person B enforce the promise because Person B has relied upon the promise to his or her detriment. Person A is "estopped" from breaking the promise even when there is no consideration to make the promise binding as part of a contract.


Property is commonly thought of as a thing which belongs to someone and over which a person has total control. But, legally, it is more properly defined as a collection of legal rights over a thing. These rights are usually total and fully enforceable by the state or the owner against others. It has been said that "property and law were born and die together. Before laws were made there was no property. Take away laws and property ceases." before laws were written and enforced, property had no relevance. Possession was all that mattered. There are many classifications of property, the most common being between real property or immoveable property (real estate such as land or buildings) and "chattel", or "moveable" (things which are not attached to the land such as a bicycle, a car or a hammer) and between public (property belonging to everybody or to the state) and private property. 

Property Insurance

Insurance providing financial protection against the loss of, or damage to, real and personal property caused by such perils as fire, theft, windstorm, hail, explosion, riot, aircraft, motor vehicles, vandalism, malicious mischief, riot and civil commotion, and smoke. 


A reference to ownership. Often used in connection with intellectual property, such as "proprietary information."

Punitive Damages

Special and highly exceptional damages ordered by a court against a defendant where the act or omission which caused the suit, was of a particularly heinous, malicious or highhanded nature. Where awarded, they are an exception to the rule that damages are to compensate not to punish. The exact threshold of punitive damages varies from jurisdiction to jurisdiction. In some countries, and in certain circumstances, punitive damages might even be available for breach of contract cases but, again, only for the exceptional cases where the court wants to give a strong message to the community that similar conduct will be severely punished. 

Quantum Meruit

Latin for "as much as is deserved." This is a legal principle under which a person should not be obliged to pay, nor should another be allowed to receive, more than the value of the goods or services exchanged. 


A procedure in which a court will rewrite or correct ("reform") a written agreement to conform to the original intent of the persons making the deal. The court will usually do this only if there was fraud or mutual mistake in writing up the original document.

Registered Agent

Virtually every state requires all corporations and limited liability companies (LLC) to appoint a Registered Agent. Most states require the Registered Agent to be physically located in the state of incorporation or qualification. If you fail to appoint a Registered Agent, then the state will take steps to prevent you from being able to do business in that state. A Registered Agent is an entity that is responsible for receiving important legal and tax documents for your corporation or LLC, which may include: notice of litigation (service of process), franchise tax forms and annual report notices. Your Registered Agent address is a matter of public record. Each state wants to make sure that its citizens and businesses have a way to contact you in the event they have a potential claim against you. Without a Registered Agent to receive legal process on your behalf, you could be defaulted for failing to answer the claim in a timely fashion. 


A document by which a claim or right is relinquished. It is prudent to get a release in exchange for making final payment to a contractor.


Send back. For example, a higher court may remand (send back) a case to a lower court, directing the lower court to take some action. 


See, Private Judging


A statement in an agreement that a certain fact or circumstance is true. See warranty.


To abrogate or cancel a contract putting the parties in the same position they would have been in had there been no contract. Rescission can occur in one of two ways: either a contract can be set aside (rescinded) because of some defect in its formation (such as misrepresentation, duress or undue influence) or it can be set aside by agreement by the parties, for example if they reach a new agreement. 


The party that "responds to" a claim filed in court against them by a plaintiff. The more common term is defendant. The word is also used to refer to the party who wins at the first court level but who must then respond to an appeal launched by the party that lost the case at the first court level (upon appeal, this latter person is called the appellant). 


An amount of money paid to the attorney in advance. Also, something you wear when you get your braces off.  Both are about as much fun to do.

Savings Clause

In a dual obligee rider, the savings clause requires the additional named obligee to fulfill the contractual obligations of the contract in order to invoke the performance features of the bond.

Scope of Authority, Agent’s

Performance of duties which were expressly or impliedly assigned to the agent by the principal.

Security Interest

An undivided ownership interest in a thing. A security interest   is often granted to secure the payment of a debt.

Self-Administered Arbitration

The parties select the arbitrator. Only his fees are considered since no agency is involved. This method is not only less expensive, but it is quicker since there is no intervening party. This is a one-on-one situation between the arbitrator and the parties in the dispute

Settlement Agreement

In a civil lawsuit, the document that spells out the terms of an out-of-court compromise.

Settlement Week

In a typical settlement week, a court suspends normal trial activity and, aided by bar groups and volunteer lawyers, devotes itself to the mediation of long-pending civil cases. Mediation is the mainstay ADR method in a typical settlement week. Volunteer lawyers conduct mediations in courtrooms, conference rooms and other areas of the courthouse. Sessions may last an hour or two, with additional sessions held as needed. Unresolved cases return to the court's docket. 

Severability Clause

A provision that keeps the remaining provisions of a contract or statute in force if any portion of that contract or statute is declared void or unconstitutional.

Shareholder Agreement

A contract between the shareholders of the company and the company itself, in which certain things, usually the purview of the board of directors, are detailed. For example, a shareholder might be allowed to manage the company, instead of a board of directors. The shareholder agreement will also, typically, control inflows to the company (purchase of shares), how profits are to be distributed, dispute resolution and what to do if a shareholder dies.

Silent Joint Venture

See also, Joint Venture. A silent joint venture involves an undisclosed venture partner. 

Silent Partner

A person who invests in a company or partnership but does not take part in administering or directing the organization; he or she just shares in the profits or losses. 

Sovereign Immunity

The government's freedom from being sued. In many cases, the U.S. government has waived immunity by a statute such as the Federal Tort Claims Act

Stare Decisis

A basic principle of the law whereby once a decision (a precedent) on a certain set of facts has been made, the courts will apply that decision in cases which subsequently come before it embodying the same set of facts. A precedent which is binding; must be followed


A law passed by a legislature. 

Statute of Frauds

Any of various state laws, modeled after an old English law, that requires many types of contracts (such as contracts for the sale of real estate and certain long-term contracts) to be signed and in writing to be enforceable in court.

Statute of Limitations

A law that sets a maximum amount of time after something happens for it to be taken to court, such as a "four-year statute" for lawsuits based on a contract, or a "one-year statute" for a claim on a payment bond claim.  These statutes vary from state to state.

Statute of Repose

Sometimes called “completion statutes,” a statute of repose is an outside date, typically running from the date of completion of a project, after which parties involved in a construction project would have no further liability. Statues of Repose arose to deal with the difficulties in determining when a cause of action arose, and was therefore barred by a statute of limitations, because of discovery of defects many years after project completion. 

Strict liability

Tort liability which is set upon the defendant without need to prove intent, negligence or fault; as long as you can prove that it was the defendant's object that caused the damage. 


The substitution of one person (or thing) in the place of another with respect to rights, claims, or securities. For example, a person may by agreement give up certain rights and an insurer of that person may be asked to subrogate its rights so that the rights of the insurer do not exceed those of that person.

Summary Judgment

A final decision by a judge that resolves a lawsuit in favor of one of the parties. A motion for summary judgment is made after discovery is completed but before the case goes to trial. The party making the motion marshals all the evidence in its favor, compares it to the other side's evidence, and argues that a reasonable jury looking at the same evidence could only decide the case one way--for the moving party. If the judge agrees, then a trial would be unnecessary and the judge enters judgment for the moving party. 

Summary Jury Trial

An ADR procedure wherein each side puts on an abbreviated summary of its case to six jurors selected from the jury roster. The jurors do not know and are not told that their verdict on liability and damages is purely advisory. The premise behind this ADR method is that the parties get a glimpse of what a jury might do in their case.

Survival of Terms

This usually refers to certain provisions or terms that continue to be effective even after the agreement expires or is terminated. 

Sworn Statement

A statement given under oath; an affidavit.


Generally, the process of terminating a contract, usually as the result of the default of one of the parties.

Time is of the Essence

A phrase used in a contract to make timeliness of performing a contractual promise material, thus making a failure to do what is required by the time specified a breach of the contract. 


Derived from the Latin word tortus, which meant wrong. In French, "tort" means a wrong". Tort refers to that body of the law which will allow an injured person to obtain compensation from the person who caused the injury. Every person is expected to conduct themselves without injuring others. When they do so, either intentionally or by negligence, they can be required by a court to pay money to the injured party ("damages") so that, ultimately, they will suffer the pain cause by their action. Tort also serves as a deterrent by sending a message to the community as to what is unacceptable conduct


Name given to a person or persons who have committed a tort. 

Trade Secret

A plan, process, tool, mechanism, compound or other proprietary   information that is known only to its owner and those having a confidential obligation to the owner.

Treasury List

The Department of the Treasury maintains a list of corporate sureties approved to issue bonds for federal projects, Treasury Department Circular 570. Copies may be obtained from the agency. The circular also is posted in the Treasury’s computerized bulletin board at (202) 874-6817, and on Treasury’s Web site at http://www.ustreas.gov  Whenever a new corporate surety is added to the approved list, a notice is published in the Federal Register. Contracting officers are prohibited from accepting surety bonds issued by corporate sureties not listed in Treasury Circular 570. The circular lists the name and address of each approved surety and all states where each surety is licensed.


A right of property held by one entity for the benefit of another.  The owner of property, who puts it in trust, loses legal title to that property. A contract may provide that a party hold property "in trust" for some particular disposition. The party holding the property becomes a "trustee" and has certain legal obligations in connection with care of the property.

Trust Fund Statute

Chapter 162 of the Texas Property Code declares construction payments and loan receipts for improvement of real property trust funds and provides for certain penalties for the misapplication of such funds.


The one who holds the legal title to the trust property and administers the assets of the trust, for the benefit of the beneficiary or beneficiaries, in accordance with a document that established the trust, sometimes called "A Declaration of Trust."


An old fashioned word referring to the one who establishes the trust. A grantor, donor, creator or founder of a trust.

UNCITRAL Arbitration Rules

The United Nations Commission on International Trade Law (UNCITRAL) is the core legal body within the United Nations system in the field of international trade law.


Sales practices that are so greatly unfair that a court will not permit them. For example, a sales contract between a large company and a poorly educated person that contains unfair terms in small print and technical language, and involves an unfairly high sales price, is unconscionable. The Uniform Commercial Code permits rescission ("unmaking") of unconscionable contracts.

Uniform Commercial Code or U.C.C.

A set of laws adopted by the various states, with some variations, to generate an almost uniform set of laws to govern business   transactions.


The place or area where the court has jurisdiction. Venue refers to geographical location, jurisdiction to the authority of the court.

Void or void ab initio

Not legally binding. A document that is void is useless and worthless; as if it did not exist. For example, in many countries, contracts for immoral purposes are said to be "void": unenforceable and not recognized by the courts. A good example is a contract to commit a serious crime such as murder.


The law distinguishes between contracts which are void and those which are voidable. Some contracts have such a latent defect that they are said to be void (see definition of "void" above). Others have more minor defects to them and are voidable at the option of the party victimized by the defect. For example, contracts signed by a person when they are totally drunk are voidable by that person upon recovering sobriety. 


When a person disclaims or renounces to a right that they may have otherwise had. Waivers are not always in writing. Sometimes a person's actions can be interpreted as a waiver. 


An undertaking or stipulation that certain facts are as stated.

Workers' Compensation Insurance

Insurance against liability imposed on certain employers to pay benefits and furnish care to employees injured, and to pay benefits to dependents of employees killed in the course of or arising out of their employment. 




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Higdon Compton Insurance Agency specializes in surety bonds in Texas, construction bonds in Texas, court bonds in Texas, probate bonds in Texas, license and permit bonds in Texas, Auto Dealer Surety Bonds in Texas, Supersedeas Bonds in Texas, and all types of surety bonds.  Higdon Compton Insurance Agency is based in Texas, offering surety worldwide.