{"id":4334,"date":"2016-04-04T10:47:27","date_gmt":"2016-04-04T15:47:27","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/smallbusiness\/business-contracts-forms\/commonly-confused-contract-terms.html"},"modified":"2024-06-06T01:03:15","modified_gmt":"2024-06-06T06:03:15","slug":"commonly-confused-contract-terms","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/business-contracts-forms\/commonly-confused-contract-terms.html","title":{"rendered":"Mistakes To Avoid When Writing Your Own Business Contracts"},"content":{"rendered":"\n<div class=\"fl-sectionWithSidebar fl-container fl-flex fl-flex-wrap fl-gap30  wp-container-core-columns-is-layout-9d6595d7 fl-sectionWithSidebar fl-container fl-flex fl-flex-wrap fl-gap30\">\n    \n    <div class=\"fl-section-main fl-page-articles fl-section-main fl-section-main-full-width\">\n        <h1 class=\"fl-no-margin-top\">Mistakes To Avoid When Writing Your Own Business Contracts<\/h1>\n<section class=\"fl-gutenberg-byline\">\n    <div class=\"fl-gutenberg-byline-content\">\n                    By <a href=\"https:\/\/www.findlaw.com\/company\/our-team\/susan-buckner-j-d\/\">Susan Buckner, J.D.<\/a> | Legally reviewed by <a\n                href=\"https:\/\/www.findlaw.com\/company\/our-team\/aviana-cooper-esq\/\">Aviana Cooper, Esq.<\/a>\n                | Last reviewed\n        <time>\n                            June 06, 2024\n                    <\/time>\n    <\/div>\n\n            <div class=\"fl-gutenberg-byline-editorial-note fl-text-sm\">\n            <p>Editorial Note: We earn a commission from affiliate partner links on FindLaw. Commissions do not affect the editorial integrity of our legal content.<\/p>\n\n        <\/div>\n    \n    <details class=\"fl-gutenberg-byline-toggle fl-gutenberg-byline-legally-reviewed\">\n        <summary>\n            <i class=\"fl-gutenberg-byline-icon\" aria-hidden=\"true\"><\/i>\n            Legally Reviewed\n        <\/summary>\n\n        <div class=\"fl-gutenberg-byline-toggle-content\">\n            <p><em>This article has been written and reviewed for legal accuracy, clarity, and style by <a href=\"https:\/\/www.findlaw.com\/company\/our-team.html\">FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with <a href=\"https:\/\/www.findlaw.com\/company\/company-history\/editorial-policy.html\">our editorial standards<\/a>.<\/em><\/p>\n\n        <\/div>\n    <\/details>\n\n    <details class=\"fl-gutenberg-byline-toggle fl-gutenberg-byline-fast-checked\">\n        <summary>\n            <i class=\"fl-gutenberg-byline-icon\" aria-hidden=\"true\"><\/i>\n            Fact-Checked\n        <\/summary>\n\n        <div class=\"fl-gutenberg-byline-toggle-content\">\n            <p><em>The last updated date refers to the last time this article was reviewed by FindLaw or one of our <a href=\"https:\/\/www.findlaw.com\/company\/our-team\/contributing-authors.html\">contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please <a href=\"https:\/\/lawyers.findlaw.com\/?fli=bylinelink\" target=\"_blank\" rel=\"noopener\">contact an attorney in your area<\/a>.<\/em><\/p>\n\n        <\/div>\n    <\/details>\n<\/section>\n<p>Business owners draft contracts every day. A contract may be nothing\u00a0more than an invoice from an auto mechanic explaining the terms and conditions to repair a car and the owner&#8217;s signature. What matters is that both parties agree to the\u00a0<a href=\"https:\/\/www.findlaw.com\/smallbusiness\/business-contracts-forms\/contract-terms-checklist.html\">terms of the contract<\/a>\u00a0and that the contract has all elements of the contract.<\/p>\r\n<p>You don&#8217;t need a law degree to write a contract. But getting legal advice before signing a contract is a good idea. It&#8217;s easy for the layperson to make common mistakes in drafting contracts. These mistakes can render your contract void even if made in good faith.<\/p>\r\n<p>This article reviews some common terms in contract drafting and gives you some tips on what to look for when writing or reading a contract. But you should always consider having a contract reviewed by an attorney if you&#8217;re unsure of its meaning.<\/p>\r\n<h2>Types of Mistakes<\/h2>\r\n<p>When business owners do their own contract drafting, they make errors. These errors sometimes result from using &quot;legalese&quot; or legal jargon rather than plain language. There is no reason a contract must include fancy legal terms when plain language works. Drafters of simple contracts, like car repair invoices, do this daily.<\/p>\r\n<p>Using unfamiliar language leads to mistakes in understanding between the parties.<\/p>\r\n<ul>\r\n<li>Mistake of fact\u00a0means the parties do not agree on a term relating to the items or services in the contract.<\/li>\r\n<li>Mistake of law\u00a0means the contract is unclear about what law or regulation applies to the contract.<\/li>\r\n<li>Unilateral mistake\u00a0occurs when only one party confuses the terms of the contract. This can happen if the drafting party changes the terms erroneously, believing that the other party knows what they did.<\/li>\r\n<li>Mutual mistake\u00a0occurs when both parties are mistaken about the contract terms. This happens when the parties give different meanings to terms or use different words for the same item.<\/li>\r\n<li>Ambiguity\u00a0means the contract itself is unclear. The contract is ambiguous if two clauses conflict or a term has more than one reasonable meaning.<\/li>\r\n<\/ul>\r\n<h2>Legal Issues in Contracts<\/h2>\r\n<p>Contract law is complex. Attorneys spend their first year in law school studying the elements of a contract. Even laypeople can write contracts for daily use with some care if they understand the legal issues involved.<\/p>\r\n<ul>\r\n<li>Offer\u00a0\u2014 All contracts must contain an offer. The offer must state an &quot;intent to be bound&quot; on the part of the offeror. For instance,\u00a0&quot;Joe&#8217;s Auto\u00a0Shop\u00a0will repair your car on Thursday.&quot;<\/li>\r\n<li>Acceptance\u00a0\u2014\u00a0The contract must have a clear acceptance by the recipient. A signature on the contract indicates the contracting party approves the document.<\/li>\r\n<li>Consideration\u00a0\u2014 Both parties must receive something of value from the offer and acceptance. Joe&#8217;s Auto Shop will fix your car, and you will pay. This must be clear in the terms of the contract.<\/li>\r\n<li>Legality\u00a0\u2014 Contracts for illegal acts or services are unenforceable in court.<\/li>\r\n<li>Mutual assent\u00a0\u2014 Both parties must affirm they understand and agree to all the terms in the contract.<\/li>\r\n<li>Misrepresentation\u00a0\u2014A type of fraud where one party misstates a material fact about the contract. If Joe knows your car only needs an oil change but tells you it needs a new timing belt, that is a misrepresentation.<\/li>\r\n<li>Warranties\u00a0\u2014 A warranty guarantees that the item purchased is suitable for the advertised purpose. In a contract, it can also mean that the seller will repair or replace the item if it fails in a certain amount of time. Auto warranties are the best-known types of warranties.<\/li>\r\n<\/ul>\r\n<h2>Going to Court<\/h2>\r\n<p>Business owners sometimes find themselves in litigation over contracts. There may have been a breach of contract. A breach occurs when one party does not adhere to the terms of the contract. The non-breaching party can sue for:<\/p>\r\n<ul>\r\n<li>Compensatory damages\u00a0\u2014 After a breach of contract, the non-breaching party can sue for monetary damages that will restore them to their position before the breach.<\/li>\r\n<li>Specific performance\u00a0\u2014 If monetary damages do not restore the non-breaching party, the court may order the breaching party to perform on the contract. For instance, an auto mechanic might have to repair the car after failing to do so.<\/li>\r\n<li>Cancellation and restitution\u00a0\u2014 Sometimes, the court will cancel the contract and order restitution to the non-breaching party. Cancellation terminates the contract. Restitution compensates the non-breaching party for the benefit they provided to the breaching party.<\/li>\r\n<li>Rescission\u00a0\u2014 Rescission is a court order that terminates the contract. Rescission relieves all parties of any further obligations on the contract.<\/li>\r\n<\/ul>\r\n<p>Common law, state law, and case law govern contract formation. Merchants who deal in goods can look to the\u00a0<a href=\"https:\/\/dictionary.findlaw.com\/definition\/uniform-commercial-code.html\" target=\"_blank\" rel=\"noopener\">Uniform Commercial Code (UCC)<\/a>\u00a0for guidance on writing legal contracts.<\/p>\r\n<p>Litigation is expensive, so smart business owners should consider other dispute resolution methods, such as:<\/p>\r\n<ul>\r\n<li><a href=\"https:\/\/www.findlaw.com\/adr\/mediation.html\">Mediation<\/a>\u00a0\u2014 An informal method of dispute resolution. Parties and their attorneys meet with a neutral third party to discuss their differences. Mediation is not legally binding, but it is helpful when the parties are willing to discuss their options amicably.<\/li>\r\n<li><a href=\"https:\/\/www.findlaw.com\/adr\/arbitration\/what-is-arbitration-.html\">Arbitration<\/a>\u00a0\u2014 Another out-of-court option, arbitration, is legally binding. An administrative law judge hears the parties and rules on the matter.<\/li>\r\n<\/ul>\r\n<h2>Contract Terms to Watch For<\/h2>\r\n<p>Whether writing a new contract or reviewing one with your business partner, these terms can trip up any contract. Look out for anything unclear or confusing and consult a contract law attorney.<\/p>\r\n<ul>\r\n<li>Void ab initio\u00a0\u2014 Void at the outset. A contract that is void ab initio is unenforceable, and failing to abide by the terms creates no legal penalties for the parties.<\/li>\r\n<li>&quot;Shall&quot; vs. &quot;May&quot;\u00a0\u2014 In most contracts, &quot;shall&quot; is imperative, and &quot;may&quot; is permissive. If something &quot;shall&quot; get done, it will happen. If something &quot;may&quot; get done, it might happen.<\/li>\r\n<li>Definitions clauses\u00a0\u2014 Long contracts often have &quot;definitions clauses&quot; at the beginning to define the terms in the contract. Drafters can define their own terms as long as all parties agree on the definitions. One example is declaring the company&#8217;s name will be &quot;Company&quot; throughout the contract.<\/li>\r\n<\/ul>\r\n<h2>Contracts Are Confusing: Get Professional Legal Help Today<\/h2>\r\n<p>Small business owners generally must become &quot;Jacks of all trades&quot; to run their operations. But the finer points of business law are best left to a specialist. If you are drafting or about to sign a contract and need help understanding the terminology, you may want to consult with a\u00a0<a href=\"https:\/\/lawyers.findlaw.com\/business-commercial-law\/?fli=dcta\" target=\"_blank\" rel=\"noopener\">business and commercial law attorney<\/a>\u00a0first.<\/p>\r\n<p>See FindLaw&#8217;s\u00a0<a href=\"https:\/\/www.findlaw.com\/smallbusiness\/business-contracts-forms\/drafting-contracts.html\/\">Drafting Contracts<\/a>\u00a0section to learn more.<\/p>\r\n<div class=\"was-this-helpful\">\n    <div\n            class=\"was-this-helpful__question-container\"\n            aria-labelledby=\"was-this-helpful__question\"\n            role=\"group\"\n    >\n        <span\n                id=\"was-this-helpful__question\"\n                class=\"was-this-helpful__question fl-text-lg-bold\"\n        >Was this helpful?<\/span>\n        <button\n                class=\"was-this-helpful__button fl-text-sm\"\n                aria-label=\"Yes\"\n                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