8 Major Mistakes to Completely Avoid While Drafting a Contract

Contracts are prerequisite for any kind of business to ensure the terms of the business are clear and well understood by the parties concerned. However, in many cases, instead of making the contract precise and explicit, the language of the contract is such that it ends up being obscure and vague. For simple contracts, referring a template might suffice but for complicated transactions it is always advisable to take help from the lawyer or the legal consultant to avoid future conflicts arising out of the unclear terms of the contracts. In order to ensure that the contract is simple and understandable, it is essential to avoid the following mistakes while drafting the contract.

Use of Ambiguous Language in the Contract

The language of the contract shall be clear, precise, and understandable and the intentions of the party should come out in its true sense. A contract is considered ambiguous when it can be interpreted in more than one way. A well drafted contract is the one which can be easily understood by a layman. It is pertinent to note that, the language is the key when a contract is interpreted. Whenever the disputes arising out of a contract is dealt before the Court, the legal doctrine of the Contra Proferentem Rule is applied, which states that any clause considered to be ambiguous shall be interpreted against the interests of the party that created or requested that a clause be included. Therefore, the terms of the contract shall be clear and leave no doubt about the intention of the contracting parties and there should be no scope of uncertainty.

Inserting Vague Definitions in the contract

Definitions are internal part of a contract. Certain words are defined in a contract to simplify the interpretation of the contract. However, many a times we have come across such contracts wherein the definitions are very complicated and lacks in providing clear meaning of the term, which in turn makes the contract ambiguous and uncertain. The best way to deal with this situation is to ensure that the terms are defined in a very simple language which is understandable on plain reading of the definition.

Absence of proper Legal Structure

In the contract the rights and obligations of the parties shall always be specified very clearly leaving no space for ambiguity. The structure of the contract shall be such that it provides complete details of the transaction and defines the rights of the ownership in case an asset is involved in the transaction. If in case the contract appoints a trustee with respect to ab asset, the contract shall unambiguously lay down that at the end of the term the asset will belong to the actual owner and not the trustee.

Failure to insert Dispute Resolution Clause

One of the other mistakes commonly found in the contract is absence of dispute resolution clause. It is very important to always include the process which will be undertaken in case a dispute arises between the parties with respect to any term of the contract. The contract should always specify the dispute resolution forum i.e., either the arbitration or any other appropriate forum. For example, it is always wise to consider the cost involved in the contract viz-a-viz the cost that will be spent while resolving any dispute arising out of the contract. For a contract involving small amount, arbitration will not be a great choice for dispute resolution as arbitration is always expensive as compared to the local courts.

Use of Legal Jargon Instead of Plain English

It is always recommended and preferable to use plain and simple language while drafting the contract. Always avoid using complex words having multiple interpretations. A good contract is the one which can be interpreted easily without leaving any window open for ambiguity.

Opportunity to Fulfill the Obligation in Case of Breach

There are times when we come across such contracts which does not provide for any remedy in case of breach. In a contract drafted by a lawyer or Legal Consultant you will always find the option of cure period in case of breach by either party. In the event of breach by a party, the non-breaching party shall issue a notice to cure to the other party, directing them to cure the breach within the stipulated timeframe. By incorporating this clause in the contract, the parties can save time, efforts, and huge cost on litigation.

Not including Termination Clause

All the contracts must have a termination clause including the consequences of the termination. In the absence of this clause the contracting parties will be stuck with the contract or else will be constrained to knock the door of the courts for ending the contract. This will result in incurring additional cost to the parties, which can be totally avoided by incorporating smooth exit via termination clause to the parties to the contract. The termination clause shall clearly specify about issuing termination notice which will contain the reasons for the termination. Further, one should always be mindful of drafting the termination clause in such a way so as to ensure that both the parties are well aware of the terms of the termination.

Not seeking professional expertise

Some transactions are very simple and may not require and legal expertise and can be executed by using a standard draft. However, in majority of the cases, the transaction is unique with specific requirements which can be tactfully handled by an experienced lawyer who will have eye for small details and will draft the contract keeping the nitty gritty of the transaction in mind.