Some common mistakes that can occur in contracts include:
Ambiguous or vague language
Using ambiguous language that could be interpreted in multiple ways is a huge risk in contracts. Terms should be clearly defined so there is no room for misinterpretation later on. Vague language like “regular basis” or “from time to time” leaves too much open to interpretation.
Not specifying the entire agreement
Many contracts include an “entire agreement” clause that states that the written document constitutes the entire agreement between the parties. This is to prevent any misunderstandings about verbal agreements or promises made during negotiations. Not including this clause means those prior discussions could be deemed part of the agreement.
Missing terms and conditions
Failing to include important terms and conditions is a mistake that could come back to bite you. Make sure payment schedules, deliverables, service levels, warranties, intellectual property rights, termination clauses, liability, and other key items are addressed clearly in the contract.
Inconsistent dispute resolution process
The contract should lay out a clear dispute resolution process, whether that is arbitration, mediation, litigation, or another method. Having inconsistent procedures in different parts of the contract can create confusion if a dispute arises down the road.
Not defining breach and remedies
Beyond just laying out each party’s responsibilities, contracts should address what constitutes a breach by either party and the remedies available. This provides clarity should one side accuse the other of breaching the agreement.
Indemnification issues
Indemnification clauses that require one party to cover the legal costs and liabilities of the other side require careful thought. Often the indemnifying party will want to carve out damages caused by the indemnified party’s negligence or misconduct. Failing to do so could create unbalanced risk.
Not reviewed by attorneys
While sites like LegalZoom make it easy to create DIY contracts, it’s always best practice to have them reviewed by legal counsel, especially for complex or high-value agreements. An attorney can identify potential issues and improve the enforceability of the contract.
Using a one-size-fits all template
While templates can be helpful starting points, each contract should be customized to the specific situation. Using a generic, one-size-fits-all template without tailoring it to the transaction leaves gaps that could become problematic.
Failing to negotiate terms
Always negotiate contracts instead of signing the first draft presented to you. Go through each section in detail and propose edits to terms that are unfavorable, biased, or expose you to unreasonable risk. Don’t assume the other party drafted a balanced agreement.
Not proofreading thoroughly
Proofread every contract closely before signing to catch any typos, numbering errors, formatting issues, or other mistakes. Also ensure names, addresses, fees, and other facts are accurate. Even small errors can delay a contract’s enforceability or create unintended obligations.
Conclusion
Contracts may seem intimidating, but paying close attention to the details can help avoid costly mistakes. Define all terms clearly, spell out responsibilities and breach remedies, negotiate favorable terms, and always get legal review. With the right precautions, you can feel confident signing on the dotted line.