Top 10 Mistakes to Avoid While Drafting A Contract

INTRODUCTION

A contract is a foundation of every legal relationship between two or more parties, and a well drafted contract is very essential to run these relationships and the business occurs from these relationships smoothly. A contract is a legally binding document that contains terms and conditions and other provisions decided by the parties. It ensures that all the terms and conditions are agreed by both the parties and there is no conflict between the parties. Also, it becomes the legal duty of the parties to not breach any of the terms in the contract. Every word you write in a contract has a very serious real-life implications and that’s why it is very important to know how to draft a good contract. A minor mistake can lead to a major loss in business and even that mistake can end your business and relationship as well. Hence’ it is predominant to know those mistakes that can affect your contract and your business and how to avoid those mistakes while drafting a contract. This Article, thus, aims at talking about certain common mistakes made by drafters while drafting contracts. It further deals with ways to avoid making those mistakes.

•  TOO LONG, TOO WORDY, AND TOO TECHNICAL

When you are writing the contract, the idea is to get the intention and the work to be done by both the parties in place. But when you start thinking of different laws that apply to the contract and start putting all the legal provisions in the contract it can get messy. You might end up making it too long, too wordy, too technical and difficult for someone to understand. Drafting a contract by using very complicated and technical language is not a good practice. Contract should always be draft in Simple and plain English which can also be understood by a layman. Always avoid unnecessary clauses which only makes the contract too long, because a very long contract is not always a good contract. The use of short sentences, if possible, in active voice is preferred rather than using long sentences in passive voice. Such long sentences make the reader forget and get confused what the contract drafter is actually trying to say.

• THE LACK OF CLARITY IN THE DEFINITION CLAUSE

In every contract, you can introduce terms by giving specific definition to the terms under definition clause which would have a specific or technical meaning (of course, it must be agreed to by all the parties involved). Any ambiguity in the definition of terms used in the contract leads to misinterpretation of the contract. A clear, precise definition clause is needed for a well drafted contract. One of the responsibilities of a young lawyer is to ensure all capitalized terms used in the contract are defined. Defined words should be distinguished from normal words. The most common way to do this is by capitalizing the first letter of each word. Definition clause makes the contract easy to read and understand even by a layman, so it is important that the definition of every technical term is to be given in the definition clause and the definitions of terms drafted under definition clause must be clear and crisp without any ambiguity in the sentences.

• USING DUBIOUS AND INAPPROPRIATE ONLINE TEMPLATES

Nowadays internet browsing is the solution for almost all life problems and work problems. Everything is available on internet, you just have to search what you need and internet will show you hundreds of options. Almost all type of agreements which we need in our daily lives are available on internet and people are using these readily available material by just changing required information. Though convenient, it is not the right thing to do. Research on internet about any specific clause or any specific agreement is okay, referring to these templates is okay, but directly copying all the clauses is not. The main reason behind it is that these readily available agreements are not drafted according to your client’s situation & needs and directly copying all the clauses can risk your client’s interest. Drafting a contract according to the parties is very essential because the whole idea to draft a contract is to write down the terms and conditions which are agreed by the parties and not by any random online website.

• NOT MAINTAIN A CHECKLIST FOR CLAUSES

To draft a well constructed contract, you need to be maintain a checklist for clauses, by this way you will not miss out any of the requisite clause that are essential to your contract. After understanding the requirement of parties, you should construct a checklist as to what clauses needs to be included in your contract. When one is finalizing a draft, one can always look at the checklist and see if an intellectual property or payment terms, or termination clause has been missed while drafting the agreement. When I drafted my first contract, I forgot to draft the force majeure clause in my contract. Although this was not a very important clause before 2019, this clause becomes very important after Covid-19 situation. Hence, to avoid these types of mistakes which can affect your interest, you should always maintain a clause checklist.

• FORMATE OF RESOLUTION OF DISPUTE

while drafting a contract it is crucial to add dispute resolution clause or arbitration clause in order to save time and money of the parties during disputes. Nobody enters in a contract with the intention of causing problems and raising disputes, but sometime dispute may arise. If the contract is silent about the format of resolution of dispute, then parties have to bear lots of loss of money and time during the disputes. Hence, it is essential to clearly include the method of dispute resolution which can be used in such circumstances.

Things to remember while drafting a dispute resolution clause

• Always mention the jurisdiction of the court
• Method of resolution like mediation, arbitration, litigation
• If the method is arbitration, then name of the arbitrator
• Arbitrator should always be in odd number
• Venue of such arbitration
• Applicable law
• The language in which the arbitration is to take place

It should be further clarified that the decision of the arbitration board is to be undertaken as final. The clause shall include within itself the provision that any party refusing to participate in such proceedings automatically surrenders their rights to be heard.

• TERMINATION CLAUSE

Termination clause is an essential clause of any contract. A contract come to an end by many reasons following are some common situations where the contract will be terminated i.e. the obligations of the parties will come to an end and they will no longer be bound by the contract:

1. Termination on expiry of term
2. Termination at will or for convenience
3. Termination due to change of control
4. Termination due to death or disability
5. Termination due to insolvency
6. Termination of cause (this gets triggered in the event of breach)
7. Force majeure

To draft a transparent contract, one should always mention all the situation in which a contract can terminate. Termination can be done by many reasons, but breach of terms is the only reason that should mention in detail while drafting a contract so that the parties stay aware about their duties and obligation. Some terms need to be mentioned like payment date, wavier in case of late payment, delivery date, late deliveries etc.

• UNNECESSARY RESEARCH

If you are beginner then there is always a huge inertia to just start writing or typing out the terms of the contract. When you start writing your first contract, every word you write has a legal implication and that’s why there’s an anxiety that am I doing the right thing. There is always a fear that what if I made a mistake, and because of all this you might have end up researching a whole deal extra, like you might take 10 times the amount of time required because you keep thinking about issues which may not have a real relevance to the deal or situation. You might also do too much of statutory research and put so much of legal provisions which are not relevant and not necessary for your contract. A well drafted contract needs to be crisp & clear. To save time and effort while drafting a contract, one should focus on the client’s requirements and parties transaction for which they require a contract or agreement and add all the necessary clauses which can help in run the transaction smoothly.

• ONE SIDED CONTRACT

No party wants to sign an agreement which only favours to the other party. A good drafter always come to a common ground where both the parties are agreeable to the terms and create a win-win situation for both the parties. The aim would be to get the contract signed and not win the case for your client. Therefore, a good contract lawyer would ensure that the agreement is signed, and her client is benefitted from the agreement.

• NOT NEGOTIATING THE TERMS

Negotiation is the main ingredient of contract drafting. Negotiation is the key to get a win-win situation for both the parties in a contract. As an advocate, one is always working for the best interest of a client. In order to save interest of the client advocate negotiate on the terms and create a common ground for both the parties. Prior research about the other party, is necessary for an advocate to negotiate smartly. Negotiation is not always an argument sometimes you can give other person one thing and in return you can demand one just like if you want to extend the time of payment in contract then you should provide extra time for deliveries also. Do not say yes to every term of other party always gave them some options for negotiation and then draft some good clause which give importance to both the parties.

• POOR FORMATTING AND NOT DOING PROOFREADING

Many times, the drafter made very silly typing mistakes while drafting and these types of silly mistakes give a very poor impression of the drafter and would not make the client respect the lawyer. Drafting a contract is very lengthy work sometime the contracts are of more than 50-100 pages, in this type of situation drafter completes his/her work and just send it via email without even checking once. However, if one does not proofread his/her agreement, then one would omit rectifying a lot of errors. Proofreading is very important for a well drafted error less contract. To avoid this mistake it is best to proofread the contract before sending it to the concerned person.

Good formatting skills is one of the specialities of a good drafter. Many experienced lawyers do not know how to use formatting tools in MS Word and that leads to a very poor formatting experience. To avoid this mistake always justify your text after completing your contract. One can learn formatting skills from internet and use them while drafting next contract. A well drafted contract includes a proper formatting of the document.

CONCLUSION

Contract is a very crucial step for any legal relationship to establish. Every contract has different length, different clauses, different requirements and different obligations. To draft a good contract a drafter needs to be expert in contract law and drafting skills because drafting a contract for a business deal is very risky, one mistake and your client can lose his business, his IPR, his confidential information’s and many more. Drafting a good contract needs many skills like one needs to be a good negotiator, one needs to be good in formatting, one needs to be good at analytical approach so that he/she can find a middle way for any disputed clause or term. Hence, a good contract requires a good drafter and to become a good drafter you need to avoid mistakes which I discussed in this article.

 REFRENCES[i]

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1. https://blog.ipleaders.in/what-are-the-common-mistakes-that-must-be-avoided-while-drafting-a-contract/ 
2. https://www.mondaq.com/unitedstates/contracts-and-commercial-law/46720/top-ten-mistakes-when-drafting-and-negotiating-contracts
3. https://www.contractscounsel.com/b/contract-drafting

 

YLCC would like to thank Nikita Jain for her valuable inputs in this article.