Key Takeaways

  • Contract issues often arise from competency, authority, or failure to comply with statutory requirements such as the Statute of Frauds.
  • Common drafting errors include vague terms, one-sided provisions, missing dispute resolution clauses, or “as-is” disclaimers that create future conflict.
  • Pitfalls frequently encountered in practice include ambiguous liability allocation, inadequate performance standards, and unenforceable penalty clauses.
  • Effective contract management requires clear drafting, review for hidden risks, and proactive dispute prevention strategies.
  • Businesses should understand both the legal foundations of contract enforceability and the practical mistakes that commonly lead to disputes.

Contract issue is an important topic for anyone who is planning to make agreements and deals with other businesses or individuals. You simply cannot rely on a verbal agreement and expect a contract to be fully enforced. Understanding the terms of contracts and how they work could save you thousands of dollars and a lot of headaches down the road.

Legal Contract Issues

One of the primary issues in a contract is whether or not one or both parties are willing to keep their word in a legal contract. When making a transaction with one person, the parties that are contracting have to be of legal age according to state law. This is generally age 18 in most states. The parties have to also be of sound mind and be free of a legal disability, such as a conservatorship ordered by the courts.

Any transactions that involve any legal entities, like an LLC or a corporation, the person who is the representative of that entity has to have legal authority to get into contract on its behalf.

If the individual entering the contract does not have adequate authority or competency to enter into a contract, the contract will not be enforced in court.

Contracts are typically made in written form, orally, or in some form of communication between all people involved. State law will require that some contracts must be in writing and signed to be enforced.

The Statute of Frauds requires written contracts in some situations. With regard to small businesses, written contracts are required for:

· Any transactions over $500

· Leases of property of more than one year

· Sales of real estate

· Contracts that are not performed within a year of their establishment, such as employment contracts

While a contract made within a small business does not have to be written to be enforceable, the written form of contract is much more easily enforced if a problem should occur regarding the contract terms.

The issue with oral contracts is being able to prove the terms that were originally agreed to. Should the parties to the contract have different ideas as to what those terms were, the contract could end up in court with you shouldering court costs and attorney’s fees.

Having a written contract allows you to easily refer back to the terms in the event of a dispute so that it can be worked out without going to court.

Litigation Pitfalls in Contract Disputes

From a litigator’s perspective, certain recurring pitfalls often trigger contract issues and lawsuits:

  • Ambiguity in Key Terms: When performance standards, payment schedules, or delivery obligations are unclear, parties may argue over expectations.
  • Failure to Allocate Risk: Contracts that don’t clearly assign responsibility for damages, insurance, or indemnification often lead to finger-pointing after losses.
  • Improperly Drafted Remedies: Clauses that impose excessive penalties instead of valid liquidated damages are frequently struck down by courts.
  • Boilerplate Misuse: Over-reliance on generic templates without tailoring to the specific deal creates inconsistencies and unenforceable terms.
  • Overlooking Governing Law or Venue: A missing or unclear jurisdiction clause can complicate enforcement and increase litigation costs.

Understanding these pitfalls helps businesses draft stronger agreements and anticipate how courts may interpret disputed terms.

Common Drafting Errors to Avoid

Many contract issues stem not from bad faith but from poorly drafted language. Even small mistakes can create major legal disputes:

  • Vague Terms: Phrases like “reasonable efforts” or “timely” are open to interpretation and often disputed in court.
  • One-Sided Clauses: Overly favorable terms for one party, such as unlimited liability waivers, can render agreements unenforceable or invite litigation.
  • Missing Information: Omitting key details—like pricing schedules, timelines, or termination rights—leaves contracts incomplete and open to challenge.
  • Lack of Dispute Mechanisms: Without arbitration or mediation provisions, conflicts often escalate to costly lawsuit.
  • “As Is” Provisions: Broad disclaimers may prevent remedies for legitimate defects, leaving parties without protection.

Reviewing contracts carefully for these warning signs can significantly reduce risk before signing.

How to Issue a Business Contract

A contract is simply defined as a form of agreement made between at least two parties that will bind everyone to the agreement that is made. For a contract to occur between at least two businesses, it will require:

· An offer

· The acceptance

· The exchange of consideration

The offer provides the other party with the opportunity to accept the proposed offer. The terms need to be absolute and finalized. You will need to have a reasonable expectation that you are going to go into the contract based on your offered terms for it to be valid.

For instance, if you want to sell your business to another individual for $5, this would not be considered a reasonable, valid offer. Likewise, if you want to sell 100 pounds of steak to a restaurant for market price, this offer would be considered valid as it is reasonable that you would deliver on this offer.

You need to wait for the party to accept your offer. It will need a reasonable amount of time to accept. The accepting of the offer means there is no doubt that the offer is accepted. It has to be absolute.

If you are selling the steak to the restaurant, the owner has to promise to buy. He cannot just say that he might buy it. It has to be definite.

A contract can only be enforced in court if there is consideration that is supportive of the offer. Consideration refers to something valuable that is exchanged among the parties in the contract.

For instance, if the restaurant has accepted the steak offer, both parties will then have to exchange consideration. Your consideration is 100 pounds of steak. The restaurant’s consideration is the market price for the steak.

Preventing Contract Issues in Practice

Avoiding contract issues requires both sound legal knowledge and practical safeguards:

  • Clarity Above All: Draft contracts with precise definitions and measurable obligations.
  • Balance of Interests: Ensure mutual benefit; courts scrutinize contracts that heavily favor one party.
  • Regular Legal Review: Have contracts reviewed by counsel, especially for high-value or long-term agreements.
  • Use of Templates with Care: Templates can save time but must be customized to fit each deal’s facts.
  • Contract Management Systems: Businesses that track key dates, renewal deadlines, and obligations electronically are less likely to miss critical terms.

By taking these proactive steps, companies can minimize disputes and protect their interests when entering agreements.

Frequently Asked Questions

  1. What are the most common contract issues businesses face?
    The most common issues include vague terms, missing dispute clauses, one-sided provisions, and unclear performance standards.
  2. How can I tell if a contract clause is enforceable?
    Enforceability depends on clarity, fairness, and compliance with law. Clauses imposing penalties, waiving all liability, or lacking consideration may be struck down.
  3. Do all contracts need to be in writing?
    Not always, but under the Statute of Frauds, contracts involving real estate, goods over $500, or agreements not performed within a year must be written.
  4. What happens if a contract is ambiguous?
    Courts typically construe ambiguities against the drafter and may interpret terms in favor of the party who did not draft the contract.
  5. How can businesses prevent contract disputes?
    Businesses can prevent disputes by drafting clear terms, allocating risk, including dispute resolution mechanisms, and having legal counsel review agreements.

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