14 Jan Biggest Mistakes to Avoid When Drafting a Contract
Contracts are an important part of every business’s success and growth. Unfortunately, contracts are complex documents, and properly drafting one requires experience and extensive knowledge of state, local, and federal laws. Mistakes are all too common, and they can have significant consequences — especially if a dispute arises.
The best and easiest way to protect yourself and your business is to start out with a comprehensive, carefully written contract that sets you up for a quick and favorable resolution in the event of a dispute.
Learn about the biggest mistakes to avoid when drafting a business contract here in Oregon and elsewhere.
Not getting it all in writing
We all create verbal contracts every day without even thinking about it. The basic requirement for a contract is that one party makes an offer and the other accepts it, and it’s easy to do this through spoken language. Though in some cases, verbal business agreements can be enforceable in Oregon, it is still incredibly difficult to prove who said what and when. For that reason, verbal contracts may not hold up in court and should be avoided anytime you’re making an important business agreement.
Some important agreements to get in writing are:
- Agreements affecting real property
- Employment contracts
- Shareholder agreements
- Partnership agreements
- Purchase and sale agreements
- Rental and leasing agreements
- Vendor contracts
Failing to include dispute resolution clauses
Planning for the future is important when drafting a contract. A good contract will include a plan for dealing with any and all foreseeable problems that could come up after both parties sign. For example, did you know that a breach of contract is the most common reason for business disputes? There are many ways for a contract to be breached, including lack of payment, unperformed obligations, or a missed deadline.
A dispute resolution clause outlines a course of action in the event of a dispute. Many contracts specify that the parties will attempt to resolve the issue with mediation or arbitration, which are private, faster to resolve, and often less expensive than court litigation.
You may also want to specify what damages can be awarded if there’s a breach of contract. For example, some contracts provide that if a dispute between the contracting parties arise, the prevailing party may be entitled to its reasonable attorney fees.
Ambiguous terms and boundaries
Misunderstandings often happen when a contract isn’t well written. Sometimes people genuinely aren’t clear on what they’re supposed to be doing, which makes it very difficult to honor the agreement in a way that makes everyone happy. A properly drafted contract lays out clear expectations for both parties.
This is one of the reasons most contracts include very specifically defined terms, which are often explained at the beginning of the document. Some common examples are terms like “Agreement,” “Parties,” and “Company.” When used this way, these words take on a legal meaning that’s different than their regular dictionary definition, so it’s important to keep your terms consistent throughout the contract to avoid confusion. For example, it’s confusing if you call your products “products” in one section and then “goods” in another.
Not updating contracts when circumstances change
What happens if the circumstances of your agreement change? While a good contract does include planning for the future, sometimes situations change so much that the original contract no longer protects you or is no longer relevant.
In many cases, the best way to handle this is to renegotiate the terms of your agreement, and then either amend or modify the contract. Or you may decide it makes sense to draft an entirely new contract.
It’s a lot to ask of business owners to constantly keep tabs on all the contracts they’ve entered into and know when to update them. Most business owners and managers are already busy enough running day-to-day operations, so working with a great business attorney can be really helpful.
Not knowing who you’re partnering with
While many mistakes happen in the process of drafting a contract, sometimes the biggest mistake is entering into the agreement in the first place. Before you decide to write up a contract, it’s important to make sure the other party is worthy of your trust.
Questions to ask yourself:
- Do they have a history of doing what they say?
- Have they been difficult or unreasonable in the past?
- Have they been involved in business disputes before?
- If so, how did those disputes arise?
- How were they resolved?
- Are there other warning signs?
Not calling an attorney
Drafting a successful contract requires a detailed grasp of contract law. The majority of mistakes happen when business owners draft or sign contracts on their own, without consulting an attorney.
In addition to the mistakes we’ve already covered, not working with an attorney can lead to…
- Accidentally granting rights you didn’t intend to another person
- Overlooking loopholes that the other person (or their attorney) can exploit
- Taking bigger risks than you intended
- Not negotiating enough before signing
These mistakes can have costly consequences. An important part of a successful contract is extensive risk analysis. An attorney who understands the legal landscape in your state can help you minimize risk for your business, and make sure that the risks you do take are smart ones.
Get help from the attorneys at JJH Law
Entering into a new business agreement can be an exciting step in your company’s growth. Our skilled business contract formation attorneys can work with you to carefully draft a successful contract. Our comprehensive, detailed approach puts your business’s long-term health first. Our goal is to make sure you are protected from every angle against potential issues — not just now, but in the future.
Are you getting ready to draft a contract? Did a potential business partner present you with one and you’re not sure whether to sign? The attorneys at JJH Law can help. We specialize in contract formation, review, and negotiation in the Portland area. Contact us today to learn more about how we can help.