This article has been written by Alvira Sadik Shaikh, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho. It has been edited by Zigishu Singh (Associate, LawSikho).
Table of Contents
Introduction
A well-drafted contract is the first step towards smooth and structured functioning of any business or agreement between two or more people. A contract is a legal document that imposes certain obligations on the parties to be followed. It ensures that all the terms and conditions are agreed by each party and both the parties are on the same page. Also, it becomes the legal duty of each party to not breach any of the terms in the contract. It is important to know how to draft a good contract, as a very tiny mistake can lead to a major loss or even worse – end of your business. Hence, it is very important to know the mistakes that must be avoided to avoid such consequences.
Using complicated language
Many times, lawyers use complicated words in their contracts which are not easily understood by their client. There’s a belief that using fancy words will create a good impression and create a greater impact. But, this isn’t the reality. Instead of using vague and complex language, it is always better to keep it simple, plain and not complicated. This makes it easier to understand all the terms very clearly and hence leaves less space for any confusion. Using plain and simple language also makes it easier to interpret the contract and avoids any misunderstanding.
Relying on incomplete information
Before drafting a contract, it is very important to know all the needs and requirements of your client. It’s never wise to draft a contract by using inadequate information collected from the client or on the basis of your assumptions. Always ask questions to your clent, this makes it simpler to understand his/her needs. Keep all the information like data, costs, terms, deadlines, etc. organized and easily accessible. Verify this information from your client.
Important information like the name, address, contact information must be verified before including it in the contract. Once the initial draft of the contract is drafted, you should get it reviewed by your client and then include all the changes suggested by the client.
Copying and pasting from templates
With the availability of a number of templates of different agreements, it’s becoming common where the readily available material is used and the required information is changed. Though convenient, it’s not the right thing to do. Referring to these templates is okay, but directly copying all the clauses is not. The main reason to avoid this is because copy pasting the whole clause increases the chances of making errors. We might forget some major points and also include some unnecessary information. It is always better to customize our clauses and make it according to the terms agreed between the parties.
This will help in making your contract precise, crisp and decrease the chances of major errors.
Not negotiating the terms
If you are entering into a business with someone or representing your client, it is necessary that we negotiate the terms that are being discussed. It is not necessary to agree to whatever is being offered at first. All contracts are negotiable, you need to propose your terms well and ask for what is doable.
Well negotiated terms makes it easier for both the parties to remain on the same page and have a clear understanding of the entire contract.
Not defining clearly the words used in the contract
The lack of clarity in the definitions of the terms used in the contract leads to misinterpretation of the contract. Whenever you use any term for referring to a person or object, make sure that you clearly define it in the definition clause.
For example, what shall be called as the confidential information, who shall be the licensor, etc. must be clearly defined.
Not mentioning all the conditions that lead to the termination of a contract
There are always some terms which are not acceptable by the parties and which may lead to the termination of the contract between them. These terms should be clearly mentioned in the contract which is being drafted, so that there is no misunderstanding that may lead to dispute between the parties later. There are certain conditions like late or non-payment of fees, late delivery of goods or services, letting out confidential information, destruction of property which may lead to the breach of the contract and thus it’s termination.
Moreover, it is also important to mention the duration of the contract after which the contract is automatically terminated. Clearly mentioning the date and year avoids confusion later.
Not including a dispute resolution clause
The question whether there will be a dispute between the parties to a contract is quite uncertain. Hence, it is essential to clearly include the method of dispute resolution which can be used in such circumstances.
There are many reasons why dispute resolution methods like mediation, arbitration or litigation might be used. It is always better to specify which method of resolution will be used beforehand in the contract. Also, the jurisdiction of the court under which the contract will come must be clearly mentioned. A dispute resolution clause helps in saving time and money and also protects the parties from facing further losses or disputes.
Failing to proofread and format
One of the important steps after drafting a contract is to proofread and format it. It always seems that a contract once drafted is perfect and without any errors at first. But, this isn’t the case. There is always a chance of missing out some important details like names, dates, etc., making spelling or grammatical errors or missing out some clauses. All these mistakes might be missed out by the drafter while drafting. There is a high probability of sending an initial draft directly to the client, especially if it is a lengthy and complex contract.
To make things simpler, always take a break after drafting your initial draft. This will give you some mental space and a clear understanding of the contract when you read it later. Also, remember not to skip any part of the contract while proofreading. Doing so decreases the chances of accuracy and your efforts might go to waste. Proper proofreading and formatting ensures that your contract is crisp, precise and meets the needs of your client.
Ignoring due diligence
Before entering into a contract with any party, always make sure you have done proper research about the party. Information like the background of the party, whether the business property is duly registered, is the business legitimate, is the party involved in any past or present disputes, etc., must be thoroughly researched upon and only then the decision of entering into a contract with the party must be made.
Avoiding due diligence will lead to major losses later. It is not wise to blindly trust a party just because they are a reputed entity or they have negotiated a good deal with you. Proper due diligence will surely save you from getting involved in any major disputes or losses later.
Not taking help from a professional
Sometimes, parties think that just because a contract is simple and does not include a lot of information, they tend to draft a contract on their own. This will not make the work easier but increase the chances of errors and often lead to legal implications. A professional knows the law and what terms to include in the contract which may benefit you and save you from future disputes or losses.
This ensures that all the clauses in the contract are well drafted leaving less to no space of errors and saves you from future misinterpretation and damages.
Conclusion
Contract drafting is the most important and first step of any business transaction. Nowadays, there is an increasing need to connect and trade giving rise to numerous negotiations and contracts between parties. Not all contracts are simple and easy. There are many contracts which are more complex and lengthy, it involves a lot of information and details about the business. Making such errors in the contracts will not only lead to major losses but also lead to unwanted confusion and disputes. Right from getting the right information from your client to including it in the contract involves good understanding of the contract law and skills of drafting a good contract. Avoiding such common mistakes will surely help you in drafting a precise and effective contract. Keeping all points in mind and reviewing your contract before finalising the contract is the essential part of a well-drafted contract.
References
- https://www.bf-law.com/avoid-these-5-mistakes-when-drafting-a-contract/
- https://www.allbusiness.com/six-mistakes-to-avoid-when-drafting-a-contract-627-1.html
- https://www.lawctopus.com/ten-common-errors-to-avoid-while-drafting-contracts/
- https://www.hg.org/legal-articles/3-common-mistakes-in-contract-law-and-how-to-prevent-them-43434
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