Common Mistakes in Contract Drafting and How to Avoid Them
Aug. 15, 2025
A well‑structured document clarifies duties, manages risk, and sustains relationships, while a poorly worded clause can strain cash flow or derail a venture. By studying frequent errors—then adopting practical safeguards—you’ll move toward stronger deals that match commercial goals.
At my firm, James P. Manahan, with locations in Lawrenceville, New Jersey, and Newtown, Pennsylvania, I’ve guided entrepreneurs, executives, and nonprofit boards through countless agreements. That perspective reinforces a simple reality: contracts drive every corner of business law, yet preventable drafting mistakes still spark expensive disputes.
Drafting Principles That Minimize Risk
Sound contracts flow from practical judgment, careful language, and consistent process discipline. Before clauses take shape, a drafter should outline commercial objectives and identify who will perform, pay, or deliver.
Clarity Defeats Ambiguity
Legal verbiage sometimes stretches sentences across multiple lines, yet clear drafting relies on concise phrasing. Shorter sentences with one concept apiece limit misinterpretation.
Use defined terms consistently: Conflicting capitalizations or abbreviations confuse readers and courts.
Place obligations near related remedies: Splitting them across sections sends parties hunting for meaning.
Favor active voice: “The supplier must deliver” assigns responsibility more plainly than passive constructs.
By applying these principles with discipline, drafters can reduce misunderstandings, allocate risk more effectively, and create contracts that stand up to scrutiny.
Consistent Structure Enhances Readability
Readers expect a recognizable order—recitals, definitions, pricing, performance, remedies, boilerplate. When drafters wander from that structure, parties may overlook critical details.
Headings guide interpretation: A court might weigh whether a clause belongs under warranties or indemnities when headings contradict content.
Numbering promotes cross‑reference accuracy: Software that automatically updates section numbers reduces citation errors.
By anchoring each paragraph within a logical outline, your firm reduces confusion and meets business law objectives for transparency.
When Language Clouds Intent
Litigation often begins with dueling interpretations. Ambiguous wording appears deceptively harmless during negotiations but later expands into multi‑year lawsuits.
Common Ambiguity Sources
Undefined pronouns: “It” or “they” can point to a vendor, buyer, or third‑party platform.
Layered modifications: Successive draft rounds add half‑sentences that clash with earlier phrases.
Relative deadlines: Words like “promptly” or “shortly” invite subjective readings.
Recognizing and eliminating these ambiguity triggers early can prevent costly disputes and strengthen the contract’s enforceability.
Risk‑Mitigation Tactics
Ambiguous pronouns: Replace with clear party names or defined roles.
Layered modifications: Restate the full sentence rather than appending fragments.
Relative deadlines: Substitute calendar dates or a specific number of days.
Courts applying business law principles typically construe doubts against the drafter, so precision protects your side.
Missing Essential Terms and Performance Details
Some agreements omit baseline provisions—price, quantity, delivery schedule—assuming oral understanding will suffice. Such gaps can void written promises or leave judges guessing.
Some critical elements include:
Pricing formula: Specify currency, adjustments, and taxes.
Quantity or scope: Define minimum volumes, service hours, or deliverables.
Timeline: Set commencement, milestones, and completion dates.
Payment triggers: Link bills to acceptance, shipment, or time elapsed.
Performance standards: Cite objective metrics such as uptime percentages.
When your firm integrates these fundamental elements, you align contractual duties with broader business law doctrines of offer, acceptance, and consideration.
Overlooking Governing Law and Venue Clauses
A dispute resolved under Pennsylvania statute may reach a different result than one under New Jersey precedent. Yet parties sometimes leave governing law silent, inviting forum shopping and unpredictable results.
Some governing law considerations include:
Connection to transaction: Courts test whether the chosen jurisdiction bears a reasonable relationship.
Public policy limits: Some states refuse to apply foreign rules that conflict with local statutes.
Effective contracts anticipate enforcement by aligning legal terms with practical realities and procedural clarity. Some contract drafting tips worth considering include:
Choose one state’s law and one venue: Split clauses breed contradictory filings.
Reflect operational reality: If all performance occurs in New Jersey, a clause pointing to Alaska may collapse under scrutiny.
Address service of process: Email acceptance or registered agent designation speeds litigation notice.
Selecting a forum early in negotiations aligns with business law best practices by foreseeing dispute pathways.
Undefined Intellectual Property Provisions
Joint ventures, software licenses, and manufacturing agreements often hinge on ownership of new technology. When intellectual property (IP) rights remain undefined, valuable patents or trade secrets can migrate unintentionally.
Potential IP Pitfalls
Intellectual property provisions demand precision, as unclear ownership or usage rights can unravel commercial relationships and trigger infringement claims.
Work‑made‑for‑hire misunderstandings: Independent contractors may retain copyright absent an explicit assignment.
Joint development confusion: Without allocation rules, each contributor may claim equal rights.
License scope vagueness: Permitting “internal use” without clarifying subsidiaries or affiliates leads to overreach allegations.
Careful drafting of IP terms assures that rights are properly allocated, reducing the risk of disputes and protecting the value of the work created.
Safeguards for IP Clauses
To avoid future conflicts, IP clauses should clearly define the boundaries and responsibilities associated with intellectual property rights.
Ownership declarations: State who owns pre‑existing and future creations.
Assignment obligations: Require parties to sign further documents to perfect title.
License boundaries: Define user groups, territories, and duration with precision.
These measures support business law objectives by securing intangible assets that often exceed tangible property value.
Imbalance in Liability and Indemnification
Boilerplate provisions capping liability or expanding indemnity duties sometimes favor one party disproportionately. When the economic risk profile shifts, smaller entities may shoulder exposure they can’t sustain.
Red Flags
Certain contract terms carry disproportionate risk and should be carefully reviewed before signing.
Unlimited consequential damages: A simple breach could trigger cascading claims.
One‑sided indemnities: An innocent party may pay defense costs even when harm stems from the other side’s misconduct.
Spotting and addressing these red flags early can prevent unfair liability and promote balanced, enforceable agreements.
Balanced Solutions
Well-crafted contracts balance protection and accountability by structuring fair risk-sharing provisions.
Mutual caps: Limit damages to a multiple of contract value for both parties.
Carve‑outs: Exclude fraud, willful misconduct, or IP infringement from caps.
Reciprocal indemnities: Each party covers claims tied to its negligence or misrepresentation.
Balanced risk allocation aligns with fair‑dealing standards embedded in business law.
Inadequate Termination and Renewal Mechanisms
Agreements that never end or provide no exit path can trap parties when market conditions shift. Conversely, automatic renewals without notice obligations may surprise signatories.
Termination Clauses to Consider
Termination clauses provide structured exits that protect business interests when relationships change or break down.
For convenience: Either party may exit with advance notice, subject to wind‑down obligations.
For cause: Breach triggers immediate termination or a cure period.
Upon insolvency: Financial distress activates a protective clawback of IP or confidential data.
By anticipating various end scenarios, these clauses help assure continuity, minimize disruption, and safeguard critical assets.
Renewal Dynamics
Renewal provisions shape the long-term trajectory of a contract and should align with business goals and performance expectations.
Automatic renewal: Specify notice deadlines for non‑renewal.
Performance‑based extension: Link renewal to customer satisfaction scores or minimum purchases.
Thoughtful termination and renewal terms bring contracts in line with evolving business law expectations and commercial realities.
Failure to Address Confidentiality and Data Security
Data flows underpin modern commerce, and statutes such as the New Jersey Data Breach Notification Act impose duties that go well beyond basic nondisclosure. A contract that overlooks cybersecurity measures creates liability gaps and exposes both parties to avoidable risk.
Key Confidentiality Provisions
A strong confidentiality clause should begin with a clear definition of what constitutes confidential information, encompassing oral, visual, and written materials. It should also outline permitted disclosures—such as to auditors or regulators—under narrowly defined circumstances.
Additionally, the contract should specify return or destruction obligations, including deadlines and procedures for verifying compliance when confidential information is no longer needed.
Integrating Data Security
To address cybersecurity concerns, contracts should incorporate references to recognized security standards, such as ISO/IEC 27001 or other relevant industry benchmarks. An effective incident response clause will require notification within a specific number of hours following a breach.
The contract should also allocate breach-related costs—such as credit monitoring services or regulatory fines—to clarify financial responsibility in the event of an incident.
These provisions not only help fulfill statutory obligations but also reinforce broader business law objectives, including consumer protection and effective risk management.
Signature Blocks and Authority to Bind
Even the most carefully drafted clauses can fail if the wrong individual signs the contract. Case law is filled with examples of agreements being declared void because the signing employee lacked proper authority.
Authorization Safeguards
To prevent such pitfalls, contracts should include authorization safeguards such as attaching corporate resolutions, board minutes, or officer certificates that confirm signatory authority. For high-value deals, requiring dual signatures—both an officer and legal counsel—adds an extra layer of protection.
Additionally, a notary acknowledgment can provide valuable evidentiary weight if enforcement becomes necessary.
Signature Block Elements
The signature block itself must be precise: the entity’s name should match exactly with state filings to avoid confusion about the contracting party’s identity.
Titles should be clearly stated—“Vice President, Finance” is more effective than a generic salutation—in order to signal binding authority. Finally, date lines are essential to confirm that the contract’s effective date aligns consistently across all counterparts.
Proper execution is fundamental to enforceability, embodying a core principle of sound business law.
Post‑Execution Management and Monitoring
Drafting diligence loses value if parties neglect the contract once the ink dries. Missed renewal windows or unclaimed price adjustments chip away at profitability.
Contract Management Practices
Effective contract management relies on organized systems and proactive monitoring to ensure compliance and maximize value throughout the contract lifecycle.
Central repository: Store fully signed copies in a searchable database.
Calendar alerts: Track renewal notices, price escalations, or delivery milestones.
Periodic audits: Confirm performance metrics and payment accuracy.
Amendment controls: Assign version numbers and archive superseded clauses.
These lifecycle strategies convert written promises into operational reality, a hallmark of sound business law practice.
Contact Me Today
Thoughtful drafting protects capital, relationships, and momentum. If you face upcoming negotiations or wish to review existing contracts, reach out to me for tailored counsel grounded in business law experience. I serve clients in Lawrenceville, New Jersey; Newtown, Pennsylvania; Trenton, Pennington, Ewing Township, East Brunswick, West Freehold, Mercer County, Burlington County, Middlesex County, and Monmouth County. Call me at James P. Manahan today.