Top 5 common mistakes in drafting a commercial contract and how to avoid them
Updated: Oct 21
Creating a commercial contract can be a complicated and consuming task. Even the smallest errors and oversights can have significant consequences for your business. Prevention is preferable, and with the right information, you can avoid the most common mistakes in drafting a commercial contract template.
In this article, we will explore the top 5 common mistakes in creating a commercial contract and how to stay away from them. Such mistakes in drafting a commercial contract are:
Lack of clarity, coupled with the use of complicated language.
Non-participation of the involved parties in the drafting process.
Insufficient description of the object.
Omission of essential clauses, such as remedies applicable in case of contract breaches.
Neglecting the review and updating of the contract.
Drafting a commercial contract is an essential process to protect your rights and interests, as well as those of the other involved parties. Every detail matters, and any mistake can have negative consequences for your business. Therefore, it is crucial to avoid these common mistakes and create solid and effective contracts.
Mistake 1: Lack of clarity, coupled with the use of complex and legal language.
A commercial contract must be as clear and concise as possible to avoid misinterpretations. Commercial contracts provided by Docs & Deeds place particular importance on this aspect to serve all entrepreneurs and clients, regardless of legal background. Both parties and any third party reading the commercial contract for the first time should understand it, even without prior knowledge of the parties' understanding. Contracts are not just for those who wrote them or have legal training but for anyone involved in the business circuit. Therefore, avoid:
Complicated sentence syntax.
Nobody likes convoluted clauses or endless sentences in a commercial contract, especially not a judge if it leads to litigation. If your template commercial contract has phrases longer than 2-3 lines, break them into multiple sentences. If you need to reread a sentence from the commercial contract to understand its meaning, rephrase it. If the commercial contract comes from a lawyer or other legal professional and contains complicated and hard-to-understand legal language, send it back with a request to remove complicated sentences.
The use of outdated or, practically, useless terms.
The situation where the commercial contract contains an excess of words and terms not used in current language, whether neologisms, archaisms, or regionalisms, is unhelpful. The same goes for expressions in Latin and other "dead" languages, still popular among many lawyers – it is totally unhelpful to consult three dictionaries before understanding what a contractual clause meant to say.
Use punctuation marks and connecting words correctly. A comma or a conjunction can change the entire meaning of a sentence. Let’s take an example:
"The parties agree to provide construction and/or maintenance services."
The wording suggests that the services provided can be either construction or maintenance, depending on the need. However, the provider is obligated to both types of services. Depending on the beneficiary's needs, the services can be mixed in one month, construction and maintenance, in another, only construction, and in the last, only maintenance. All variations are possible.
"The parties wish to provide construction or maintenance services."
The wording suggests that only one type of service will be provided. it results that he beneficiary will not receive combined services.
"The parties agree to provide construction and maintenance services."
The wording suggests that the services provided are from both categories, and both will be provided.
Do they have the same meaning? Of course not. A commercial contract that contains omissions of punctuation marks or incorrectly used connecting words is a time bomb. It will be extremely difficult to prove that the real purpose of the contract clauses is different from what emerges from the sentence itself, and you risk being part of processes where you will have to discuss grammatical interpretations and not legal issues.
Mistake 2: Non-participation of the involved parties in the drafting process.
Hiring an intermediary or a conventional representative (lawyer) for drafting and negotiating a commercial contract is a solution that can help you save time and bring professionalism to the transaction. However, relevant business details should be discussed and agreed upon in advance by the parties involved in the commercial deal, not through lawyers or advisers. The latter facilitate the translation of the business understanding into legal terms, but do not place the entire responsibility of the contract on their shoulders because you might have different visions.
Direct negotiation of a commercial contract by parties facilitates communication between them on both primary and secondary aspects that may influence future relationships. Also, by discussing directly the business understanding, parties may realize they have different perspectives on certain elements or initially did not consider significant risks that could affect their performances under the contract. Later, after they figure everything out, they can provide precise and comprehensive instructions to lawyers who deal with the actual drafting of the commercial contract.
Moreover, the parties should be involved in the negotiation and drafting process of the commercial contract to avoid surprises later on. After signing a commercial contract, it is common to file it away and only revisit it if issues arise. However, by then, it may be too late to make changes, and you may find yourself in a situation where you don't know what you agreed to.
The involved parties can personalize the contract based on the specific needs of their business. Through direct negotiation, they can adapt clauses and conditions according to the unique context and circumstances of the transaction.
Mistake 3: Insufficient Description of the Object.
The object of the contract refers to the parties' performances – what each party is supposed to do. If the object of the contract is not clearly defined, the parties may have different understandings of what is included or excluded from the contractual agreement, and this confusion may extend to third parties involved in the commercial contract.
Often, after the execution of a commercial contract begins, the parties may discover that they had different expectations regarding what should be delivered or performed. For instance, if you agree with an IT professional to deliver a “turnkey” website, you might understand this to include graphic design or content description, while the provider may only refer to the back-end structure. To prevent such situations, the clauses of the commercial contract should contain comprehensive details about the parties’ performances.
Nevertheless, a clear description of the object of the commercial contract is essential for evaluating performance and compliance with contractual terms. Without a clear definition, it becomes challenging to establish whether each party is fulfilling its responsibilities as agreed or if there has been a breach of contract. A commercial contract that is not executed accordingly can be terminated, granting the interested party the right to seek damages. However, to determine if such liability exists, the performances of the parties must be clearly evident.
The clear description of the object of the commercial contract serves as a means of protection for both parties against potential disputes. Either party can refer to the contractual terms and conditions when questions or disputes arise, providing a clear basis for resolving issues amicably. For service contracts, you may want to find out more information here.
Mistake 4: Lack of Essential Clauses.
Another common mistake in drafting a commercial contract is the omission of essential clauses for legal understanding, either because the parties consider them inapplicable, secondary, or simply because they are inadequately informed.
Often, parties omit from commercial contracts: the payment term, billing methods, confidentiality clauses, termination/cessation clauses, bearing commissions and other costs, applicable law (especially when the parties are from different countries).
Other times, they simply neglect their drafting, leading to inclusion of deficient clauses that cannot be practically used. An example of such a clause is: “The price will be paid within 15 days”. Strating from…? The signing date of the commercial contract? The delivery of the products or goods agreed upon in the commercial contract? Another relevant date?
Also, there are cases where parties do not possess complete information about the elements they need to agree upon or mistakenly believe that certain clauses do not apply to them. A classic example is that of clauses related to intellectual property rights that can be created as a result of the commercial contract. Many parties omit to include them in the commercial contract, thinking that they need a separate, subsequent contract or that it is not allowed.
To ensure you do not fall for such errors, the recommended solution is to consult with a lawyer. They can tell you which clauses you have omitted and help you complete the contract. If you do not wish or do not have the necessary resources, make sure you use professionally drafted commercial contracts. From the contract section of Docs & Deeds, you can download many such contracts or order a personalized contract.
Lastly, do not underestimate the risks that can occur during the execution of the commercial contract or the associated liability. It is important to imagine the practical situations that may arise during the contract execution and how they can affect your business, and address them appropriately in the contract.
For example, if an unexpected event occurs that affects one party's ability to fulfill contractual obligations, specify how the situation will be managed. You can include, for example, force majeure clauses (when the event is a consequence of a natural fact beyond the parties’ control) or termination clauses (for example, when the other party can no longer perform because it has entered insolvency or lost its license in the field). We can find out more about termination of contract from the ABCs of contract termination article.
Mistake 5: Neglecting to Review and Update the Commercial Contract.
The last common mistake in drafting commercial contracts that we consider in this article is neglecting the regular review and update of contractual clauses. Businesses use framework contracts or templates of commercial contracts, which they only adapt to various partners. If you neglect the update of contractual clauses for a long period, that framework contract or commercial contract may no longer be valid or may not adequately protect your interests.
Make sure you have a system for reviewing and updating contracts and that they are checked and modified regularly to comply with new requirements and legislation.
P.S.: We referred to the term “commercial contract” to facilitate communication of the information in this article. The Civil Code has eliminated the distinction between commercial contracts and civil contracts or between commercial law and civil law for several years now, since its entry into force. At least in terms of terminology. Therefore, from a legal perspective, we are talking about “contracts” whether they are concluded between professionals, companies, or private interests of individuals.
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