Important Lessons on Avoiding Common Pitfalls in Contract Drafting

Correctly drafting contracts is vital for any business.  It provides the groundwork for solidifying agreements and outlining the responsibilities and entitlements of all parties. Unfortunately, the complexity of drafting contracts can result in mistakes that jeopardize the enforceability and legitimacy of the agreement. Following are the most common pitfalls in contract drafting and how to avoid them.

Importance of Contract Drafting

Contracts should be drafted in a way that all parties can reach an agreement regarding the terms and conditions of business activity to avoid the threat of legal action. Not only does this agreement establish rapport, but it fosters positive business relationships necessary for working together, especially in the long term. A properly written contract defines, on paper, through signatory agreement, the expectations by which parties must abide and comply under a regulatory obligation.

Types and Reasons for Contract Breaches

A breach of contract occurs when one party in a contractual agreement neglects to fulfill their responsibilities. There are a few different types of contract breaches, all varying in severity and lasting impact.

Actual Breach

The most fitting type of contract breach is an actual breach, which takes place when there is an outright refusal by one party to abide by their contractual obligations. This causes significant damage to the other party, which holds the refusing party liable for legal action because of direct violation of the contract.

Breaches from Lacking Complete Fulfillment

Additionally, some breaches are not an absolute refusal to the contractual agreement, but a failure to complete certain components. For instance, a fundamental breach is a scenario in which one party fails to meet contractual obligations that are fundamental for the other party to hold up their end of the bargain. In simpler terms, without one party’s completion, the other party is unable to fulfill their obligations. Similarly, a material breach also indicates a disregard for obligations with more respect to supply and demand, in which one party does not receive sufficient or appropriate materials to perform their respective duties. Either way, both fundamental and material breaches stem from a lack of completion on one side, on which the other side is contingent, resulting in a lack of completion on their side as well.

Minor Contract Breaches

Some contract breaches, by nature, are less severe than others, making it easier to mitigate damages and recover more efficiently. One example of a milder contract breach would be anticipatory, mainly characterized by one party admitting its inability to fulfill obligations. Because the righteous party is notified of this breach, they can act more swiftly in mitigating damages and holding the culpable party liable. Another example is a partial breach, which typically does not affect the terms and conditions of the original contract but has more to do with a minor breach of time obligation. This ultimately affects the value of the contract because tardiness may harm the trust and business relationship moving forward. However, the contractual terms and conditions are still met, which likely saves both parties the headache of legal action. All in all, these types of contract breaches exist because contractual standards and expectations are not met, whether severe or trivial.

Common Reasons for Contract Breaches

The most common cause for a breach of contract is the failure to meet the exact terms and conditions outlined by the contract to which the parties agreed and signed. In more detail, incomplete projects, unmade payments, and time obligations are the usual suspects. In fact, many contracts contain the phrase time is of the essence, suggesting that time is valuable, and punctuality is the standard. The diction used in this case clarifies the expectation that the contractual obligations will be completed within a certain amount of time without exceptions. These obligations mostly refer to either completing a project or making a payment on time to which both parties have agreed.

The Dos and Don’ts of Contract Drafting

With any contractual expectations comes the possibility of contract breaches and broken trust. To avoid these fallouts or at least mitigate their reputational or commercial damage, companies should first assess their strategies for drafting contracts. This can help to pinpoint where it may have gone wrong in attempting to reach the agreement laid out for the other parties.

Contract Drafting “Dos”

When drafting contracts, it is important to set clear expectations that will ultimately guide the business relationship toward mutual benefits that the parties have agreed upon. These expectations will serve as the terms and conditions each side must approve and sign.

Contracts should include considerations of activity that require completion, items of value, and strict time frames, all leading to an offer that promises these considerations. There should also be legalities in place, making the contract legally binding and the parties susceptible to incrimination if a breach occurs. As the parties agree to these obligations, a signature, often referred to as signatory awareness, is required, demonstrating agreement to fulfill each party’s responsibilities.

Contract Drafting “Don’ts”

The “dos” of contract drafting will seem like the equivalent of what goes into proper contract format. As far as “don’ts” go, the following mistakes are preventable as evidenced by lessons learned from flawed contracts in the past.

First and foremost, you have probably heard the common advice of putting it all in writing when discussing the concepts of commitments or agreements. There is a reason you hear it so often, and it has to do with the formality of written composition. The sole act of writing anything down implies seriousness and tangibility. So, when contract drafting, do not rely on verbal cues or statements as legally binding agreements. When the terms and conditions on which the parties have agreed are written in a document, the signed contracts are the concrete evidence in case they are needed in a court of law. Verbal agreements, on the other hand, do not fare well in court because they are more difficult to prove in terms of facts, statements, and agreements.

In addition, do not forget to add important legalities to contracts such as dispute resolution clauses. Without them, a breach of contract is practically guaranteed to see the courtroom without opportunity for mediation or arbitration. Both of these settlements are more convenient than the headaches of paying lawyers and awaiting trials.

Speaking of whom, do not forget to consult an attorney for contract review, especially one in business law where contract drafting is essential. Not only can they revise the language of the terms and conditions, but they can help to eliminate regulatory risks, loopholes, or moments of ambiguity. Most specifically, attorneys will pay close attention to the aspects of negotiation and overall structure, ensuring that the contract has covered the company’s bases and is ready for approval and acceptance.

Regarding ambiguity, do not leave room for interpretation on a contract. The diction, language, and definitions should be clear, concise, and irrefutable, which business attorneys can assist with. From hardly a grain of ambiguity, one party could make the claim that the wording in the contract was unclear, which would serve as evidence against the other party in court. Avoiding obscurities wherever possible, as well as eliminating inaccurate information, will allow for better understanding by both parties of what they are signing.

Aside from attorneys, do not just approve the contract without reading it in its entirety, reading it again, and then having everyone else on the team read it as well. As many eyes as possible on the draft ensures fewer chances of missing important aspects that are otherwise necessary. Proofreading, revising some of the language, and enhancing articulation will ensure the contract is formal and holds the parties accountable.

Lastly, do not rely on ever-present markets, business climates, economies, or stagnation in general. Innovation is as real as it seems, which is cause for changes in regulations, markets, economy, and consumer trends, all of which require companies to adjust accordingly. This suggests a readiness to update contracts to align with any necessary corporate changes.

Final Piece

Overall, contractual agreements are the most fundamental element of protecting and maintaining one’s business. They allow companies to accomplish their objectives, especially when needing the commercial assistance of other companies to propel a business to the next level. Nonetheless, when seeking this type of business relationship, one must always be prepared for the question: what is in it for me? This is the premise of any business relationship, indicating mutual respect for both parties’ agendas and honoring the expectations through formal agreement. The only way to ensure that both parties affirm their roles and responsibilities is by agreeing to the standards of their commitment to one another through a signed contract.

Frequently Asked Questions Regarding Contract Drafting

1. What are the most common mistakes when drafting a contract?

Contract drafting can be a tricky process for similar reasons as to why people, in general, have disagreements. Both parties who sign a contract must be on the same page. Mistakes may happen when drafting a contract without confirming the other party’s responsibilities in entirety. These mistakes typically include ambiguous wording and language, a lack of legalities, and failure to proofread, get everything in writing, verify the purpose of the contract, and consult an attorney for assistance.

2. Is contract drafting difficult?

Contract drafting is a reasonable mix between convenience and tedium. The simpler elements usually convey expectations, desires, and considerations, all highlighting what the company wants out of the agreement and acknowledging the steps toward achieving its commercial objectives. The more challenging elements lie within the legal aspects of the contract, detailing actionable consequences, dispute resolution clauses, and commercial damages if a breach occurs. These aspects generally require focused attention to detail such as language, clarity, and definitions.

3. What is the difference between a contract and an agreement?

While an agreement acknowledges adherence to specific expectations, a contract is mostly legally binding and actionable, making it more formal and obligatory to fulfill. Ordinary agreements could be verbal, lenient, or unsigned, whereas contracts are usually written and strict in policy, indicating distinct legality and requiring signatory awareness by all parties involved.

4. What are the four most important elements of a contract?

By avoiding these common mistakes and seeking expert guidance, you can use drafted contracts confidently, knowing they are legally sound and tailored to your business objectives. For personalized assistance in contract drafting, contact Ludwin Law Group  today. Their experienced attorneys can help navigate the complexities of contract law and achieve your business goals seamlessly.

Author: Adam Ludwin is Managing Partner and founder of Ludwin Law Group, specializing in Civil Litigation, Maritime and Admiralty law, Personal Injury, Post Employment Restrictive Covenants, such as non- competes & non-solicitation, and Defamation litigation. Adam graduated from Pennsylvania State University and earned his Juris Doctor from Nova Southeastern University in 2010. Moved by a profound personal experience, he was inspired to pursue a career in law to seek justice for those wronged by negligence. When not fighting for his client’s rights, Adam spends his spare time enjoying hobbies such as blacksmithing, restoring his vintage jeep, and hiking iconic landmarks as far afield as Machu Picchu.  He is also certified in scuba diving and is a licensed pilot. Adam actively sponsors Girl Power USA, an organization focused on creating opportunities for social and economic independence.