8 Common Business Contract Traps to Avoid

October 2, 2019by Brian Walsh

A common and unfortunate truth is that most people don’t care about the contract until there is a problem. As a business owner you will enter into countless contracts in the course of doing business. These will include contracts with employees, vendors, customers, landlords and independent contractors. In order to safeguard your business and your bottom line, you will want to make sure that every contract you enter into protects your interests and minimizes any potential for disputes.

While it is always wise to hire a business or contract attorney to draft or review every contract you sign, this is not always practical. If you are unable to have a legal expert look over a contract, you should keep an eye out for a number of issues that could have unforeseen consequences down the road.

2. Your contract does not contain each and every term of the deal in writing.

You should always insist that any contract you enter into when doing business includes all the terms of your deal. A common issue in business is entering into agreements with salespeople who make oral promises and then don’t include those promises into the written contract. The only safe assumption to make is that if part of your agreement is not included in the signed contract, then that term is not going to be enforceable in the event the other party chooses not to comply. If something about the deal you have made is important to you, make sure you have it in writing.

4. One-sided attorney’s fees.

You may find that the other party has slipped in a clause that in the event of litigation arising out of your business dealings, you are required to pay their attorney’s fees. While you don’t ever want to be responsible for another party’s attorney’s fees, some contracts will attempt to hold you responsible for their attorney’s fees even in the event that they lose the lawsuit. While you can try to negotiate to exclude the provision all-together, you must, at the very least, make sure that they are only awarded to the winning party.

6. A One-sided indemnity provision.

An indemnity clause will allocate risk for unintended harms to the party being indemnified. Because these provisions are often difficult to understand, business owners frequently overlook them when reviewing and signing contracts. However, an indemnity clause that is too one sided can shift too much risk to you and your business. The best way to think about a tolerable indemnity clause is that it must be fair, mutual, limited, and within your control. There is no specific indemnity clause that would be fair in all scenarios, but a good rule of thumb is that you should not indemnify others for things like lost profits, things within their control, harm they could have mitigated, and third-party infringement actions. Finally, the indemnity clause should be mutual in that you are agreeing to indemnify the other for your own acts.

7. Failing to proofread.

While it may seem obvious that you should seek to avoid clerical errors, when drafting a contract, a typo or transposed date, number, or name can have serious consequences. An incorrect date, deadline or timeframe can significantly impact the duties of the parties. The same goes for other numbers such as fees and delivery amounts. Failing to review a contract with a sharp eye can seriously hurt you in the long run.

8. Vague terms and conditions.

If the terms of the contract or vague or ambiguous it can lead to misinterpretation by the other party. While you may have a clear meeting of the minds at the time the contract is signed, if the wording is not specific enough and enough time passes allowing for people to change their minds or mis-remember the original intentions or agreement, it might be difficult to enforce.

Any one of these mistakes can lead to a contract dispute and possibly costly litigation or contract cancellation. Don’t put your business relationships or your company’s assets in peril. Protect yourself and your business by making sure that every contract you sign has been carefully drafted and considered.

If you have never had a contract reviewed you may have more legal exposure than you realize. We strongly suggest having one of our business attorneys conduct a legal audit so you have a complete picture of your legal obligations and can reduce the likelihood of unforeseen legal problems arising in the future.

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