When was the last time you dusted off your business contracts? These documents govern various corporate relationships and are not something to treat lightly. Avoid these three contract mistakes to reduce risk and ensure smooth business operations.
Contract mistake #1: Using AI or online templates
“Generate a [contract type, e.g., Influencer Marketing Agreement] for the [industry, e.g., fashion] industry focusing on [specific areas, e.g., content ownership, usage rights, exclusivity].” AI can be a really useful starting point for contracts, but it shouldn’t be your endpoint. Why? While this might seem like a savvy use of technology, AI continues to generate inaccurate content, which is particularly concerning for a legally binding document.
Misusing language in a contract can add liability and risk to your business, especially when it comes to heavily regulated industries like healthcare or real estate. For example, there are language requirements of residential leases under Pennsylvania’s Landlord-Tenant Statute. AI-generated documents are likely to fall short of these. Relying solely on AI output is a dangerous tactic.
Similarly, picking up a DIY online contract template and customizing it for your business (another potential AI task) can leave you vulnerable. Imagine implementing a generic contract only to find it’s not even valid in your business state!
While technology can save you time, its mistakes can also cost you huge amounts of money. Should you completely abandon using AI and contract templates? Not necessarily. However, having an attorney review what you have in place can help ensure your contract accomplishes its intended purposes and doesn’t cause needless harm to your business in the form of a dispute, financial loss, or costly litigation.
Contract mistake #2: Entering a “battle of the forms”
Let’s say you and another established business want to enter into an agreement. You both have your attorney-approved documents sent to each other. You then begin conducting business assuming that YOUR document, terms, and conditions are the ones controlling the agreement, such as a purchase order. What happens when there’s an issue with the relationship or one party breaches the contract. Whose terms and conditions apply?
During litigation, courts will look at:
- Overlapping Provisions – any provisions that are the same or similar will remain part of the contract.
- Conflicting Provisions – any provisions which are opposing or conflict with each other will be canceled out and thus not be binding on either party
- Default Provisions – the court will then insert Uniform Commercial Code (UCC) provisions in as default placeholders for any terms which are missing or have been canceled out by conflicting provisions
A smart approach is to have an attorney review both documents and help you negotiate upfront before a problem arises. Hashing out contract terms can feel like war, but in reality, it’s a very diplomatic way to ensure a solid foundation for what could be a longstanding relationship or multi-figure transaction, either of which should be governed adequately by a well-constructed agreement.
Contract mistake #3: Not reading a contract
We all know business deals are done in various places, such as the golf course or over dinner and drinks, culminating with a handshake. It’s tempting to want to seal the deal quickly by just glancing at a contract, signing, sending, and looking forward to the work coming your way.
Understanding what you are signing is one of the most important things for a business owner. Those Ts and Cs likely contain critical information on issues like indemnification (when you have to pay someone else’s losses), something you don’t want to overlook when working with a contractor, vendor, or supplier. Should the relationship go awry and go to court, your signature denotes your alignment with the words found there. Be sure to review diligently and consider having your legal counsel do the same BEFORE you sign on the line.
—
Using legal counsel to draft every word of a contract every time you use it may prove costly. Sometimes, just using a legal mind to review an existing document may be a more prudent investment. The bottom line is words matter, so put your money where your mouth—and contract—is and protect the business you’ve worked so hard to build.
