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The situation where the liabilities of a person or firm exceed its assets. In practice, however, insolvency is the situation where an entity cannot raise enough cash to meet its obligations, or to pay debts as they become due for payment.

Limited Company

Incorporated limited liability firm whose share capital is restricted by its memorandum of association.

Mistake

Misunderstanding or erroneous belief about a material-fact which may prevent formation of a valid contract. It is of three basic types (1) Common mistake: all parties make the same error. (2) Mutual mistake: all parties are mistaken or fail to understand each other. (3) Unilateral mistake: only one party is mistaken.

Negligence

Breach of duty of care which results in loss or injury to the person or entity the duty is owed. Negligence usually includes doing something that an ordinary, reasonable, and prudent person would not do, or not doing something such a person would do considering the circumstances, situation, and the knowledge of parties involved. In civil liability (see tort), an aggrieved person or entity is entitled to claim damages.

Novation

Substitution of an original party to a contract with a new party, or substitution of an original contract with a new contract. Upon substitution, the obligations of the withdrawing-party are automatically discharged and no express-release is required. To be effective, however, the substitution must be agreed-to by all the original and new parties to the contract. Novation is not the same as assignment of an agreement where no new agreement is needed and the rights and duties are transferred from the assignor to the assignee.

Overheads

General: Resource consumed or lost in completing a process, but which does not contribute directly to the end-product.

Accounting: Cost or expense (such as for administration, insurance, rent, and utility charges) that (1) relates to an operation or the firm as a whole, (2) does not become an integral part of goods or services (unlike raw materials or direct labour), and (3) cannot be applied or traced to any specific unit of output. Overheads are indirect costs.

Parol Evidence

Oral testimony given in a court by a witness. Also called oral evidence.

Parol Evidence Rule

Legal rule that once a written agreement has been duly executed (signed by all concerned parties) then it cannot be altered or annulled by any oral evidence that may contradict the terms of the agreement, except in case of a fraud or mistake.

Prime Cost

The contract may specifically define what constitutes prime cost. Ordinarily it is taken to mean the total of direct material costs, direct labour costs, and direct expenses.

Registered Office

Under UK corporate law, the legal address (which may not be the office address) of a firm that is entered in the official register of the registrar of companies, and to which all government and court communication is addressed. The location of this office must be in the jurisdiction in which the firm is registered.

Repudiation

Act, intention, or threat of disowning or rejection of an agreement already accepted or agreed to. Repudiation amounts to a breach of contract where the refusal to perform is clear, and where such refusal goes to the root of the contract.

Simple Contract

Written contract not made by a deed (or less common in recent years under seal). Under the English legal system, a simple contract may arise by way of the conduct of the parties involved.

Subrogation Clause

A provision in property and liability insurance policies whereby the insurance company acquires certain rights upon paying a claim of loss under the policy. These rights include the right to take legal action on behalf of the insured party to recover the amount of loss from the party who caused it.

Uberrimae Fidei

Class of agreements (usually insurance contracts) in which one party is under a fundamental duty to disclose all material facts and surrounding circumstances that could influence the decision of the other party (usually an insurance company) to enter into the agreement. Non-disclosure or a partial-disclosure makes such agreements voidable. Latin for ultimate good faith.

Vicarious Liability

An obligation that arises from the relationship of one party with another. For example an employer is generally liable for the action or inaction of an employee in the normal course of his or her employment or duties.

Without Prejudice

Legal term signifying that something is being done, proposed, or said without abandoning a claim, privilege, or right, and without implying an admission of liability. When used in a document or letter, these words mean that what follows cannot be used as evidence or b taken as the signatory's last word on the subject matter. Contents of such documents normally cannot be disclosed to a court or other tribunal but, when a party proposes to settle a dispute out-of-court, it is the genuineness of the effort that determines whether the proposal can disclosed or not, and not if the words 'without prejudice' were used.

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