What is it?
It is a clause type that governs how monetary amounts are calculated in contracts, statutes, and regulations.
computed
UCC / CommercialLegal glossary term
Quick answer
COMPUTED usually means a figure derived by applying a formula or statutory rate. In contracts, it matters because miscalculations can cause breach and extra liability. Before signing, check the exact rate and calculation method.
Definitions
What is computed?
Legal Definition
A computed figure results from applying a formula or statutory rate to a base amount. It creates a binding monetary obligation that the obligor must satisfy according to that calculation. The only exception arises if the contract expressly provides an alternative method.
Plain-English Translation
Think of a hall pass that tells you exactly 15 minutes you can be out; the school computes that time and you must return when the clock hits zero.
Contract relevance
Why computed matters in contracts
Misapplying a computed amount can trigger a breach, leaving the obligor liable for the full miscalculated sum.
Document context
Where computed appears in documents
| Document type | Section | Why it matters |
|---|---|---|
| Loan agreement | Interest clause | Determines borrower’s payment amount |
| UCC security agreement | Collateral valuation | Sets computed value of assets |
| Employment contract | Bonus provision | Calculates computed incentive payout |
| IRS Form 1099‑INT | Interest income section | Reports computed interest earned |
Contract language
Common contract wording
| Contract wording | Plain-English meaning | What to check |
|---|---|---|
| "Interest shall be computed at the prime rate plus 2%" | Interest calculated using a formula | Verify the reference rate and spread |
| "Late fee computed as 1.5% of the overdue amount per month" | Penalty calculated monthly | Confirm the percentage and compounding method |
| "Royalty is a computed 4% of gross sales" | Royalty based on sales total | Ensure sales definition is clear |
Red flags
Red flags to watch for
Wording examples
Clearer wording examples
Vague wording
"Computed interest"
Clearer wording
"Interest calculated at 7% per annum, simple, not to exceed $500"
Vague wording
"Computed late fee"
Clearer wording
"Late fee of 1.5% of the overdue balance, applied once per month"
Note: “clearer” means easier to read — not legally reviewed or guaranteed safe.
Pre-signature checklist
What to check before signing
1
Identify the base amount used for the computation
2
Confirm the exact rate or formula referenced
3
Determine whether interest is simple or compound
4
Check for any caps or maximum amounts
5
Look for automatic adjustment clauses
6
Verify rounding conventions
7
Ensure any required regulatory approvals are listed
Party impact
How computed affects each party
| Party | What this party should check |
|---|---|
| Lender | Verify that the rate matches market standards and that caps exist |
| Borrower | Confirm affordability of the computed payments over time |
| Franchisee | Ensure sales definitions allow accurate royalty computation |
Comparison
computed vs similar terms
| Related term | Plain meaning | Main difference from computed |
|---|---|---|
| Fixed fee | A set amount regardless of underlying values | No calculation required |
| Variable rate | Rate changes with an index | Computed amount fluctuates with the index |
| Statutory interest | Interest set by law | Computed interest may use a different contractual rate |
Missing or vague
If computed is missing or vague
If the contract omits a clear computation method, parties may dispute the amount due. The lender might claim a higher figure based on an aggressive interpretation, while the borrower argues for a lower sum. This ambiguity often leads to costly litigation or forced arbitration.
Without a defined formula, courts may apply default statutory rates, which could be unfavorable to one side. The resulting uncertainty can delay payments and damage business relationships.
Document map
Document section map
| Contract section | What to inspect |
|---|---|
| Definitions | Look for how "computed" is defined or referenced |
| Interest | Inspect the rate, basis, and compounding language |
| Late Fees | Verify percentage and application frequency |
| Royalties | Confirm sales definition and percentage used |
Visual model
Understand computed fast
An explainer image has not been generated for this term yet.
01
Landlord calculates late rent fees using a computed 5% monthly penalty and charges the tenant.
02
Borrower accrues computed interest on a $10,000 loan at 7% per annum, payable quarterly.
03
Franchisor assesses a computed royalty of 4% on monthly gross sales reported by the franchisee.
Document context
How computed shows up in legal documents
Why does it matter?
Misapplying a computed amount can trigger a breach, leaving the obligor liable for the full miscalculated sum.
When does it matter?
When a payment due date arrives and the agreement calls for interest, the computed rate kicks in.
Where is it usually seen?
Standard in UCC § 2-708 warranty damages, loan agreements, and IRS Form 1099‑INT.
Who is affected?
Lender receives the computed interest; Borrower must pay it.
How does it work?
First, identify the base amount such as principal or overdue balance. Then apply the statutory or contract‑specified rate for the applicable period. Finally, round the result according to the agreement and issue the invoice within the billing cycle.
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Wikipedia
Computed
Open Wikipedia for broader background on computed.
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Where computed connects to real contract work
This layer links the term to nearby glossary entries, document use cases, and contract-risk guides so readers can move from definition to context without dead ends.
Glossary
Use Cases
Mortgage Agreement
Real Estate Contracts: Your mortgage is likely the largest contract you will ever sign. Read it.
Lease Agreement
Legal & Corporate: Your lease is a 12-month financial commitment — read every line.
Purchase Order (PO)
Finance & Sales: A purchase order is a contract. Its terms govern your delivery, payment, and liability.
Source & disclosure
This page is an AI-assisted plain-English explanation based on LexPredict Legal Dictionary context and contract-review patterns. It is not legal advice. Meaning may vary by jurisdiction, industry, and exact clause wording.
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