A contract is a legal document that binds the business to one or more other parties by specific obligations. It is also a tool to help the parties exercise their legal rights. Therefore, a minor mistake in the drafting of contracts can adversely affect the rights, interests as well as the overall business activities of the enterprise, including but not limited to: wasting time on resolving disputes, wasting money on the proceedings, being discredited when the dispute is made public and losing the customer if the dispute is related to them. This article will list some mistakes in the drafting of contracts to help enterprises avoid unnecessary damage.
Mistakes to avoid when drafting a contract
Mistake #1: Being ill-prepared
As Benjamin Franklin once said “By failing to prepare, you are preparing to fail”, it is not recommended to draft a contract before obtaining all the necessary information. You should outline relevant details, figures, and data, such as costs, deadlines, obligations, responsibilities and “assumptions,” etc. In addition, referring to the similar outline from the party with whom you are going to cooperate will help the enterprise figure out the details they want to include in the contract.
Mistake #2: Not referring to the document as “Contract.”
It may sound simple, but in court, a single word can make a huge difference between a legally binding document and a document that is merely seen as an agreement among the parties. Therefore, do not forget to clearly state the word “Contract” at the beginning of the document.
Mistake #3: Being too generic.
The contract requires you to be as specific as possible to avoid potential disputes – especially disputes related to the terms of payments. How much do the party have to pay? When? What if the party does not make the payment promptly? Does the payment depend on any factors? Everything from the smallest details needs to be determined.
Mistake #4: Confusing use of word.
When drafting a contract, you should make sure each sentence is as concise and clear as possible. It is advisable to use words literally and to the point and write numbers in both letter and numeral form (e.g., “six (6)”). Moreover, you need to be consistent with the use of words: do not call your products “goods” in one sentence and “items” in another, confusing the reader. Most importantly, there should be a definition for all the terms you consider confusing or need to be explained clearly to avoid potential problems.
Mistake #5: Being careless in the drafting step.
You may want to rush to start the project or process the order, but the contract is an important document; therefore, carelessness is intolerant. Imagine you’re in court with the another party of the contract. What’s going to happen? Does the contract miss the details that can protect your enterprise? Therefore, if the customer or supplier is impatient, show them that your side is working hard in the drafting process to finalize the contract, instead of rushing to get it done and leaving a ton of many holes in the document.
Mistake #6: Having verbal agreements.
All aspects of the agreement should be included in the official contract. This means even in the event of additional services negotiated verbally after the conclusion of the contract, there also need to be a written agreement for these services that is signed and attached to the contract. Maintaining some verbal agreements will likely lead to serious misunderstandings that you will pay a very high price for, while a written agreement signed by the parties will be a proof to protect you in the event of a dispute.
Mistake #7: Not including the clause of transfer, dispute resolution, violation and termination.
The transfer clause provides for the transfer of rights and obligations of a party of the contract to any party intent on acquiring your business. If the contract does not have this clause, the transfer will likely encounter difficulties, or it will take longer than necessary.
With respect to the clause of the dispute resolution, the parties must make good faith efforts to amicably resolve the dispute before going to court or to apply conciliation or arbitration measures to maintain the relationship between the parties and avoid costly and time-consuming legal proceedings.
What happens if a party violates the contract? To answer this question, the contract should include details about the factors that constitute a violation as well as the consequences of the violation. Does that violation give the aggrieved party the right to terminate the contract? Compensation for each extent of the violation? Or to what extent can one party sue the other for breach of contract?
Besides, the contract should include a termination clause, which stipulates cases where one party may terminate the contract.
Mistake #8: Using the available template.
Using the business contract template available on Google can be an attractive and cost-effective option when you intend to sign normal business agreements. However, these contracts may miss important details such as clause of termination and transfer, or regulations on settlement of violation and dispute resolution. If you decide to use a contract template available on the Internet, do not forget to ask a legal expert to review to eliminate any risk of missing important details.
Mistake #9: Not consulting with a lawyer.
You can draft the contract yourself but you should ask a professional lawyer to help review to finalize the contract as the lawyer will discover the risks and potential disputes, which you will likely pay the price by your whole career/business.