Contracts are critical business documents, because without them, strangers could not afford to trust each other enough to do business with each other. It is not the least bit of an exaggeration to say that, without enforceable contracts, the economy would collapse. On a smaller scale, a poorly drafted contract could cause your business to collapse. The following are some of the most common contract drafting errors:
Creating a contract through an exchange of emails. Although such a contract is potentially enforceable, imagine the results if the terms of the memos conflict, a dispute erupts, and a judge ends up determining the terms of your contract. You need a unifield, logically-consistent document that has been signed and sealed by both sides.
Failing to specify what constitutes a “material breach.” A material breach is different from an ordinary breach. In an ordinary breach, for example, a debtor might make a payment two days late. The victim of the breach has no right to terminate the contract on this basis but may demand compensation for the breach.
If the breach is “material” (serious), the aggrieved party is entitled to terminate the contract and sue for damages. It is critical that you identify what conduct constitutes a material breach. Does 60 days in arrears constitute a material breach? Also, beware of legal terms of art: “time is of the essence” in a real estate contract, for example, could mean that delaying closing by only one day could give the other party the right to cancel the entire transaction.
Failing to provide an exit clause. Circumstances change, and there may come a time when one of the parties may need out of the contract. Most business deals would benefit from an escape clause – maybe even your side. Consider a clause that allows either party to unilaterally terminate the contract with proper written notice: 30 days, for example, or 90 days.
A “no assignment” clause. You wouldn’t want a party performing personal services for you to subcontract the performance of those services to another party without your permission. Likewise, you wouldn’t want a party paying you to perform services to assign the obligation to pay you to someone whose credit rating is untrustworthy.
A carefully written confidentiality clause. Most business deals involve the exchange of trade secrets that cannot be protected by patent or copyright law. Although trade secret law can protect you to some extent, a carefully drafted confidentiality clause can fill in loopholes in the law that the other party might otherwise be able to exploit.
There’s a Lot More to Drafting a Business Contract Than Meets the Eye
The foregoing represents only a few of many considerations that you might want to codify in your business contract – in fact, a full list could fill up an entire volume. A skilled business contract lawyer can help guide you through this complex maze. At CKB Vienna LLP, we can help you identify the issues and address your particular circumstances and concerns,.