Protect your company: Avoid these mistakes in business contracts
Mistakes in business contracts can be made even when both parties have the best of intentions. Under Maryland law, such mistakes can change the entire meaning of a contract or render it void, resulting in a loss of money, time, and goodwill.
It’s important to safeguard your business, so for your important contracts, you should have an experienced business lawyer draft or review any contract before you sign it. To schedule your consultation, call us at (410) 553-5042.
Continue reading to learn more about some of the more common mistakes we’ve seen in business contracts.
Three types of mistakes in business contracts
Although there are several different kinds of mistakes that can occur in contracts, most can be boiled down into three main categories:
- Unilateral mistakes
- Mutual mistakes
- Common mistakes
A unilateral mistake occurs most frequently. It’s where only one party to the contract has an incorrect understanding — it could be either a mistake of law or fact.
A unilateral mistake might occur for various reasons, such as misunderstanding the meaning of a word or phrase, price, quality, or quantity. Under these circumstances, a court may order that a contract is void or that it should be renegotiated so that both parties understand and agree to the true terms.
For example, say the buyer believes she is buying a specified number of widgets at $2 each, the current price at the time of the contract discussions. But the other party’s prices go up to $2.50 after the first of the year, which is when the widgets will be delivered and paid for. If the contract doesn’t specify the price in detail, this can cause confusion. All details that might be left to interpretation should be clearly stated in the contract.
A mutual mistake is one made by both parties, however, even though they both make a mistake on the same issue, they don’t reach the same conclusion. In other words, the same word or phrase may be at issue, but each party interpreted it differently.
A common mistake is similar to a mutual mistake, but instead of reaching different conclusions, they both reach the same wrong conclusion about something.
For example, if a manufacturing company contracts with a transportation company to deliver its goods across the country, part of reaching the negotiated price is the cost of gasoline. If sudden political and economic changes cause gas prices to skyrocket, they’ll probably need to renegotiate the contract using current prices. After all, the transportation company can’t deliver for the manufacturer if the transportation company goes out of business due to losing a fortune on the deal.
While the parties are in the process of making changes to the contract, they should also include provisions for what happens should gas prices dip or increase even more.
How can you avoid business contract mistakes?
The best way to avoid business contract mistakes is to hire a reputable business lawyer. Mr. Coover, the founder and principal attorney at Coover Law Firm, LLC, is highly experienced in the area, has handled countless types of business contracts, and knows what phrases might cause issues down the road.
In addition to hiring an attorney, other tips for avoiding mistakes include:
- Be as specific as possible and define everything.
- Use precise, unambiguous language.
- Carefully review the contract, line by line and word by word. If there’s anything you don’t understand, make sure it is clarified before you sign.
- Talk to the other party about key elements. How are they interpreting and defining them?
- If the contract refers to products, use SKU numbers or other numbered identification rather than general descriptions.
- Think about every contingency you can. If things go wrong, have you included how to resolve disputes? Does the contract indicate when it begins and ends? What happens if the market or the situation changes? Are you stuck in a contract that is no longer beneficial?
Don’t take unnecessary business risks — Contact Coover Law Firm, LLC today
There are enough risks in doing business without risking unnecessary mistakes in contracts that could’ve been easily avoided with the assistance of an experienced and knowledgeable attorney.